Cyber experts unearth massive bitcoin scam

Chennai: Cyber security experts have unearthed an online ‘pump and dump’ scam, in which bitcoin miners swindle people’s money by manipulating the online bitcoin exchange.

Ramesh (name changed), invested over Rs 2.35 lakhs in bitcoin a year ago through an unknown bitcoin exchange to conduct online trade for his company. But to his surprise, a year later, the exchange in which he had bought the e-currency cheated him by refusing to take the bitcoin back when the price went up as it would create losses for their trader.

He had to go from pillar to post online in search of an exchange that would help him sell the bitcoin at a higher price and his search led him to uncover several fake and unscrupulous bitcoin exchanges.

A network of computers, specially designed to create and store bitcoins, handles the transactions. These e-currencies need to be stored in wallets online and could be transferred from one wallet to another virtually.

Bitcoin rates are highly volatile, as the price goes up to $1100 and comes down to as low as $700 on the same night and again jumps back to $1100.

Explaining the modus operandi of the scam, J. Prasanna, founder-trustee, Cyber Security and Privacy Foundation (CSPF), said that every 15 days, the level of difficulty in creating (mining) bitcoin increases by 15 per cent and to earn the same money a person who invested two weeks ago needs to increase the number of servers.

“A private company will maintain the bitcoin server and keep on increasing their maintenance cost; ultimately one ends up paying half one’s money to the company. We lose the money we earn using bitcoin; and some have even become bankrupt in some cases,” he said.

Pointing out that some bitcoin exchanges, which buy and sell bitcoins, cheat their users, Prasanna said that these exchanges made huge money from people by using it for laundering, selling it on websites, like eBay or paypal or buying from one exchange and selling on other, which gives them more return on trade.

Cyber experts say that pumping of money from one place and dumping in another earned the scam its name, ‘pump and dump’. They say that the use of bitcoin is not illegal, but the way some use it for fraud is illegal.