While cryptocurrency has been around for quite some time, what it is and how it is used as a currency remains a mystery in the minds of so many. However, as more governments around the world eye its potential or seek to regulate its usage, cryptocurrency continues to rise in popularity.
Unfortunately, anytime there is something new, especially in the financial world, it will attract bad actors. There are many features of crypto that make it the ideal currency for fraudsters. But as more people flock to the currency as an investment, it’s becoming the foundation for new scams.
In this article, we’ll shed light on what cryptocurrency is, how scammers are using it to dupe investors out of their hard-earned money, and steps to protect yourself from falling victim.
Understanding Cryptocurrency
Cryptocurrency is a digital or virtual form of money that uses cryptography (special coding) to keep transactions private. You’ve likely heard of some of the major currencies, including Bitcoin, Ethereum, Dogecoin, and Solana. There are many others available on the market, with new versions being created all the time.
Crypto differs from other types of currency, such as the U.S. dollar, mainly in that it has no physical form; it exists solely in the digital world. A major draw of cryptocurrency is that its value is determined by worldwide markets – with no single government controlling its value. Instead, it’s purely market-driven by sellers and buyers.
While the U.S. government doesn’t acknowledge cryptocurrency as legal tender right now, it is valued as property by the IRS for tax purposes. Regulation is constantly evolving with individual states also attempting to regulate usage – leading to further confusion about this currency within the general population.
Paying with Cryptocurrencies
If crypto coins don’t have a set value, how do consumers use them in transactions? You can purchase cryptocurrencies online using your device or by visiting a specialized crypto ATM, like a Bitcoin ATM. Once purchased, these funds are stored in digital wallets on your devices or within private exchange networks.
Crypto values fluctuate constantly and even rapidly. Prices can shoot up and fall back down in a matter of hours. This characteristic is what makes them such an intriguing investment avenue for some. A small investment today could be worth a tremendous amount later, but the reverse is also true.
Many businesses do not accept cryptocurrency as a form of payment due to these wild market swings, but the avenues to pay via crypto are rising in popularity.
Common Cryptocurrency Scams
Unlike purchases with traditional debit and credit cards, cryptocurrency doesn’t offer any built-in fraud protection. Typically, there is no recourse to dispute fraudulent transactions. The only way to recover funds is if the recipient is willing to return them, which, in the case of fraud, is highly unlikely.
Protecting yourself from crypto scams begins with understanding how they work.
-
Relationship Scams: These scams stem from dating apps or social media. The fraudster connects with a victim and builds a relationship over time. Once they form a trusted connection with the victim, they urge them to invest in a fraudulent cryptocurrency investment. Relationship scams are among the most popular ploys globally.
-
Phishing Scams: Scammers create fake websites, emails, or text messages that mimic those of popular crypto exchanges or digital wallets. These messages include urgent requests, often tied to security alerts or attractive investment offers. When a victim clicks the provided link, they will either be redirected to a website designed to steal their information, or malware will be installed on their device for the same purpose.
-
Bogus ICOs (Initial Coin Offerings): ICO scams involve a fraudster introducing the next greatest crypto coin. They will often use social media to hype the new offering. Once they receive a significant amount of investment funds, all the money is quickly depleted and disappears – leaving investors at a loss with little recourse.
-
AI Celebrity Impersonation Scams: Through AI and the ability to create deep-fake videos, scammers are profiting by impersonating celebrities, high-level executives, or even people you know and trust. They often post these imposter videos on social media to try and entice victims into investing in the latest crypto offering. Because of the credibility and quality of the videos, many people fall victim to these ploys.
-
Government Impersonation Scams: Some of the more common impersonation schemes mimic government agencies, such as law enforcement, the IRS, the Social Security Administration, and even financial institutions. A person representing these agencies will call, text, or email you stating you owe an outstanding balance or that there is a problem with your benefits. They will request that you settle the debt immediately by paying via cryptocurrency.
Red Flags of Cryptocurrency Scams
Although the world of fraud and scams is constantly evolving, there are many common red flags that should immediately raise your suspicions.
-
Heightened Urgency: Fraudsters often request that potential victims act immediately. They are typically very pushy, make exorbitant threats, and spam messages until the victim responds. They are professionals at creating a sense of panic to pressure you into acting without thinking things through.
-
Demands for Crypto-Only Payment: Cryptocurrency is the preferred payment by scammers because transactions cannot be easily reversed or tracked. If someone is urging you to pay with crypto and they will not accept other payment options, it’s a scam.
-
Too Good to Be True Deals: Promises of easy money or guaranteed returns on market-based investments should always be red flags for scams. This is especially true in the volatile crypto markets – always be wary of “get rich quick schemes.”
-
Unsolicited Communications: Ignore unexpected calls, texts, emails, or social media messages – especially those with suspicious links. If you don’t know who is contacting you, you have no obligation to respond. Never click a link, download an attachment, or scan a QR code if you don’t know the source.
-
Do Your Homework: Do your due diligence and investigate all investment opportunities thoroughly before making any commitments. Verify the legitimacy of all technical documents and financial reports and consult your financial advisor before investing in new or unknown crypto opportunities.
-
Enable Extra Protection: Install antivirus and malware protection on all your devices to help keep scammers and malicious files out of harm’s reach. When available, utilize multi-factor authentication (MFA or 2FA) on all devices and accounts.
What To Do If You Fall Victim to Crypto Scams
Unfortunately, scammers today are very creative, and AI is putting more tools within reach of fraudsters. If you suspect that you or someone you know has been exposed to a cryptocurrency scam, follow these steps immediately:
-
Alert your financial institution(s) to begin implementing steps to protect your account and assets further.
-
Notify the exchange or service you used to transfer the cryptocurrency. They may be able to temporarily or permanently freeze your transactions to prevent further fraud.
-
File a police report with local law enforcement. An official report helps when claiming losses and correcting any negative marks that might show up on your credit report.
-
File a complaint with the Federal Trade Commission (FTC) at www.ftc.gov/complaint.
-
File a complaint with the Internet Crime Complaint Center (IC3) at www.ic3.gov.
We’re Here to Help!
As the cryptocurrency space continues to evolve and rise in popularity, it’s critical that you understand and can identify the popular scams circulating. Recognizing the common warning signs of crypto-related fraud is your best defense and significantly reduces your risk of falling victim.
If you believe you were a victim of fraud, please contact us immediately. You can stop by the Credit Union or call 410-687-5240, and a team member will gladly assist you.