Fraud & Scams

What to Know About Cryptocurrency Scams

Cameron Huddleston
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Cameron Huddleston
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September 12, 2022
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What to Know About Cryptocurrency Scams

Psst. Want to get rich quick? There’s a new cryptocurrency you should invest in with guaranteed 1,000% returns. If you wait, you’ll miss this once-in-a-lifetime opportunity.

A guaranteed return like that might seem tempting. However, if you see or hear a pitch like that, the only real guarantee is that you’ll lose your money because it’s a scam.

Scammers are increasingly preying on people’s desire to make money fast to lure them into bogus cryptocurrency investment opportunities. “Investment scammers claim they can quickly and easily get huge returns for investors,” according to the Federal Trade Commission. “But those crypto ‘investments’ go straight to a scammer’s wallet.” 

Not only are scammers tricking people into buying fake crypto investments, but also they are talking victims into sending cryptocurrency as a form of payment in a variety of cons, including romance scams. Reported losses to crypto scams in 2021 were nearly 60 times reported losses in 2018, according to the FTC. Victims have lost more than $1 billion in cryptocurrency since January 2021—with a median loss of $2,600 per individual.

If you’ve been tempted to invest in cryptocurrency, make sure you don’t get duped. Here’s how to spot and avoid cryptocurrency scams.

What is cryptocurrency?

Cryptocurrency is any form of digital currency. It’s not physical coins or bills that are created or issued through central authority such as a government or bank. Think of cryptocurrency, instead, as virtual money that is created online. It can be used for electronic payments, but it typically is traded as an investment like stocks and bonds. 

There are currently more than 20,000 publicly traded cryptocurrencies, according to CoinMarketCap. Some of the better-known ones are Bitcoin, Ethereum and Dogecoin. You can buy cryptocurrencies through online exchanges such as Coinbase, Binance and Kraken, some brokerage platforms such as Robinhood and even through digital payment systems PayPal and Venmo.

If you buy cryptocurrencies, they are stored in what is called a digital wallet. Unlike bank accounts that are insured by the FDIC, digital wallets are not insured or protected by any government agencies. In fact, there is little regulation around cryptocurrencies—which can make investing in them particularly risky. And, unlike traditional currencies, cryptocurrency values fluctuate constantly and can be extremely volatile.

If you use cryptocurrencies to make payments, be aware that they don’t have the same protections as debit and credit cards. For example, you typically don’t have the option to dispute transactions—even fraudulent transactions—made with cryptocurrency, according to the Federal Trade Commission. And transactions usually aren’t reversible.

How cryptocurrency scams work

Cryptocurrency scams typically unfold in one of two ways. Investment scams are the most common. Scammers often tout opportunities on social media to make money fast by investing in cryptocurrency. They also reach out to potential victims by email, text messages and phone calls with promises of big payouts and no risks. 

Scammers then steer victims to legitimate-looking websites where they can invest in cryptocurrency. The sites show investors how the value of their investments appear to be growing, but it’s fake, according to the FTC. When people try to cash out, they are asked to pay fees but never get any of their money back. Victims have lost $575 million to these bogus investments since the start of 2021, according to the FTC.

The other way people lose money through cryptocurrency scams is when scammers demand cryptocurrency as a payment. This often happens with romance scams, where scammers strike up relationships online with victims then ask for cryptocurrency to help them out with financial troubles or offer to help victims invest in cryptocurrency. Scammers also impersonate government agencies, law enforcement, utility companies or other businesses to claim that victims owe money and can pay with cryptocurrency.

[ Read: Don’t Fall for Zelle Scams

How to avoid cryptocurrency scams

Because scammers are always coming up with new stories and methods to get you to part with your money, it’s hard to stay on top of the most current cryptocurrency scams. However, all of these scams have common red flags. If you spot any of these warning signs, you’ll know to steer clear. 

Legitimate businesses and organizations don’t demand payments in cryptocurrency. Only scammers will claim that you need to use this method of payment to resolve a legal problem, have your accounts unfrozen or fix any other problems.

Don’t believe claims of risk-free investments with guaranteed high returns. All investments have a certain degree of risk, and cryptocurrencies are particularly risky. Plus, no cryptocurrency investments are guaranteed to make money. Before investing in cryptocurrency, the FTC recommends searching online for the name of the person or company offering the investment and the words “scam,” “review” or “complaint.”

Don’t click on links in unsolicited emails, text messages or social media messages. Even if the message appears to be from a company you know or a celebrity and is offering you an opportunity to make money with crypto, don’t click on the link or respond because it’s likely a scam.

Be wary of love interests offering to help you invest in crypto, especially if it’s a love interest you’ve never met in person. That “love interest” likely befriended you online to take advantage of you.

Don’t fall for offers of free cryptocurrency. These are just scams meant to get you to part with your money.

Never pay a fee in cryptocurrency to get a job. Some scammers list fake jobs on job sites or send unsolicited job offers then ask to pay a fee in cryptocurrency to get a job related to cryptocurrency trading. They also might offer to send a check to deposit in your bank account then withdraw some of the money to buy cryptocurrency and send to another account—all of which is a scam.

How to report cryptocurrency scams

If someone tries to lure you into a cryptocurrency scam or if you become a victim, report it to the FTC at ReportFraud.ftc.gov. The FTC will provide you with next steps and will share the information you provided with law enforcement to help with scam investigations. You also can file a complaint with the FBI Internet Crime Complaint Center.

If you paid a scammer with cryptocurrency or inadvertently gave a scammer access to your cryptocurrency digital wallet, contact the crypto exchange you use to alert it to the scam and to find out if it offers any protections for fraud.

[ Keep Reading: How to Protect Your Retirement Account From Hackers

Cameron Huddleston

Cameron Huddleston

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