Spotting Cryptocurrency Mining Scams

As cryptocurrency continues to witness a boom, so also has cryptocurrency scams. Chainalysis, a blockchain analytics firm, reported that scammers made away with a whopping $14 billion in cryptocurrency in 2021. One of the ways scammers were able to dupe crypto investors and enthusiasts was through the pretext of cryptocurrency mining.

Cryptocurrency mining occurs when a node (a computing device on the cryptocurrency network) solves a cryptographic puzzle to add transactions to the blockchain and receives a coin as a reward. The process is called mining because, like other forms of mining (e.g., gold) work is done and a new commodity is brought into circulation that previously was not there. Note that not all cryptocurrencies can be mined, an example of a non-minable cryptocurrency is Ripple (XRP). Also, for minable cryptocurrencies such as bitcoin, Ethereum etc., different mining methods are employed, the most popular being proof-of-work and proof-of-stake.

Types of Cryptocurrency Mining

The three ways that people can take part in mining activities that have the potential for financial payoffs are via pool mining, cloud mining and hash rate marketplaces.

Pool Mining

Pool mining in cryptocurrency is a collective method of mining, in which miners join their computational resources or computer devices over a network to strengthen the probability or chances of finding a block or successfully mining a particular cryptocurrency. Miners taking part in the mining pool donate their computer processing power or computational resources to the effort of discovering a block or mining a cryptocurrency. If the pool is successful in its efforts, it is rewarded, usually in the form of the cryptocurrency involved. The reward of each participant is calculated based on the processing ability of their computational resources or labor compared to the total group. Sometimes individual miners may have to supply proof of labor to get their rewards in some instances.

Pool Mining Methods

Proportional mining pool: In this type of pool, miners contributing to the pool’s processing power receive shares up until the point at which the pool succeeds in finding a block. After that, miners receive rewards proportional to the number of shares they hold.Pay-per-share mining pool: This type of mining pool is similar in operation to proportional mining pool, in that each miner receives shares for their contribution. However, these pools provide instant payouts regardless of when the block is found. A miner contributing to this type of pool can exchange shares for a proportional payout at any time.Peer-to-peer mining pools: This type of mining pool aims to prevent the pool structure from becoming centralized. As such, they integrate a separate blockchain related to the pool itself and designed to prevent the operators of the pool from cheating as well as the pool itself from failing due to a single central issue.Solo Mining Pool: Solo pools work the same way as usual pools, with the only difference being that block reward is not distributed among all miners. The entire reward in a solo pool goes to the miner who finds the block.Bitcoin Pooled mining: This mining pool is also known as “slush’s system”, due to its first use on a pool called ‘slush’s pool’, it uses a system where older shares from the beginning of a block round are given less weight than more recent shares. A new round starts the moment the pool solves a block and miners are rewarded Proportional to the shares submitted. This reduces the ability to cheat the mining pool system by switching pools during a round, to maximize profit.

Cloud Mining

Cloud mining is a hands-off way of earning cryptocurrency by renting computing power from third-party sources. In Cloud mining, computational work is outsourced. Instead of buying expensive computers to mine these coins yourself, you can rent the computing power of a specialized miner from a cloud mining company based anywhere in the world.

Hash Rate Marketplaces

This is an online marketplace in which people with hashing power (the power used by a proof-of-work cryptocurrency to process transactions in a blockchain) sell that power to people who want to mine without the hassle of setting up mining equipment. An example of a hash rate marketplace is Nice Hash (nicehash.com).

Pointers to spotting a cryptocurrency mining scam

Guaranteed profits: If you are promised a high return rate at minimal risk, then it is most likely that the mining platform is a scam.

Anonymous owners: Legit mining schemes have individuals and entities that are publicly verifiable and known. It is important to note that if the owner or founders of the mining platform is hidden behind private registration, the platform is a red flag.

Has an MLM or pyramid part: Some mining pools offer large rewards for those who recruit others into the scheme. Do your research carefully to figure out if the mining has a pyramid (MLM) component. It is important to note that if the crypto mining platform advertises a referral payout scheme. This is an obvious sign that you might be dealing with a Ponzi scheme.

No publicly auditable infrastructure: Most mining services that are not transparent and have no public videos or pictures of their mining facilities and do not publicize their hash rate data might be scams.

No hash rate proof: Legit mining schemes publish and provide their hash rate proof which can be independently verified by any prospective miner. Any mining scheme with has rate that can’t be verified or does not have any evidence to back it up could be a scam. https://help.slushpool.com/en/support/solutions/articles/77000433900

Unlimited hash power purchases: If the mining platform has no limits to the amount of hashing power you can lease or promise instant and limitless scalability, which is not possible, it is a scam.

Other Pointers

Demand for unessential mining fees: A scam mining website may demand for blockchain activation / wallet activation fees/ mining activation fees or any other activation fees for mining.Similar properties with other scam mining websites: If a mining platform shares similar properties with a previous scam you have heard of or experienced, it is advisable to take a step back, pay more attention, and tread cautiously.No clear-cut path for divesting: If the platform provides no clear-cut path for divesting, the platform is a scam. Crypto mining platforms should provide easy-to-understand methods for withdrawing funds or closing contracts.

Also, what is common to experiences shared by those who have been victims of Cryptocurrency mining scams, is that the offer was unsolicited. People who they did not know contacted then via email or social media. Hence, be wary of unsolicited messages about people making money from cryptocurrency mining.

In conclusion, as with most other scams, watch out for spelling mistakes and poor grammar, bad or no reviews, and the use of stock images, these signs should set off alarm bells. Stick to well know mining platforms, ask questions, and do your due diligence by doing tons of research. Acting in such a manner will keep your funds from the clutches of crypto scammers.

Contributors:

Wale OsobaAjayi OmosholaAwoyomi Muyiwa

The post Spotting Cryptocurrency Mining Scams appeared first on #NoGoFallMaga.

Tags: No tags

Add a Comment

Your email address will not be published. Required fields are marked *