Scammers are constantly seeking new methods to steal money, and the recent explosive rise of cryptocurrencies has made fraud more common. According to research by blockchain intelligence company Chainalysis, thieves stole $14 billion worth of cryptocurrency in 2021, setting a new record for cryptocurrency crime. It’s crucial to be aware of the hazards if you’re interested in cryptocurrencies. Continue reading to learn more about typical cryptocurrency scams, how to recognize them, and how to prevent them. Confused about cryptocurrencies like Ether (linked to Ethereum) and Bitcoin? It’s not just you. Learn how cryptocurrencies vary from cash and other forms of payment before using or investing in them, as well as how to recognize cryptocurrency fraud or suspicious cryptocurrency accounts.
Cryptocurrency: What is it?
A sort of digital currency known as cryptocurrency often only exists online. To purchase Bitcoin, you often use your phone, computer, or a cryptocurrency ATM. Although there are many various types of cryptocurrencies and new ones are constantly being developed, Bitcoin and Ether are two of the most well-known.
How are Cryptocurrencies used by People?
People utilize cryptocurrencies for a variety of purposes, including rapid payments, avoiding transaction costs charged by conventional banks, or because it provides some privacy. Some people invest in cryptocurrencies in the hopes that their value will increase.
Where can I Buy Cryptocurrency?
A cryptocurrency ATM, a website, an app, or an exchange are all places where you may purchase cryptocurrencies. Some people make money with cryptocurrencies through a difficult process called “mining,” which necessitates sophisticated computer hardware.
How Do You Keep Cryptocurrency, Where, and How?
A digital wallet, which can be online, on your computer, or on an external hard drive, is where cryptocurrency is kept. A wallet address, which is typically a lengthy string of numbers and letters, is a feature of a digital wallet. You’re likely to discover that no one can help you recover your funds if something bad happens to your wallet or your cryptocurrency funds, such as your online exchange platform closing down, sending cryptocurrency to the wrong person, forgetting your password to your digital wallet, or having your digital wallet stolen or compromised.
What Distinguishes Cryptocurrencies From American Dollars?
Because cryptocurrencies are exclusively available online, they differ significantly from traditional currencies like the U.S.
Governments do not provide backing for cryptocurrency accounts. In contrast to U.S. dollars placed into an FDIC-insured bank account, cryptocurrency maintained in accounts is not covered by government insurance. The government is under no responsibility to intervene and assist you in recovering your cash if something bad occurs to your account or Bitcoin funds, such as the firm that stores your wallet going out of business or being hacked.
The values of cryptocurrencies fluctuate regularly. A cryptocurrency’s value can fluctuate drastically, even hourly. Additionally, the change’s magnitude might be substantial. Numerous variables, such as supply and demand, are involved. The volatility of cryptocurrencies is typically higher than that of more conventional assets like equities and bonds.
Using Cryptocurrency As Payment?
Paying with cryptocurrencies differs from paying with a credit card or other conventional payment methods in a variety of ways.
Legal protections are not offered with cryptocurrency payments. In the event of a problem, credit cards and debit cards are legally protected. For instance, your credit card issuer offers a procedure to help you get your money back if you need to dispute a purchase. Such safeguards are generally absent from cryptocurrencies.
Payments made with cryptocurrencies are often irreversible. Normally, you can only get your money back after making a cryptocurrency payment if the person you paid sends it back. Investigate the reputation of the seller before making a cryptocurrency purchase to learn more.
It’s conceivable that certain details of your transactions may be made public. People mention the anonymity of cryptocurrency transactions. The reality, however, is more complicated. Transactions involving cryptocurrencies are often kept on a “blockchain,” which is a public ledger. That is a list of all cryptocurrency transactions that have ever taken place, both on the payment and reception sides.
Depending on the blockchain, details like the transaction value and the sender and recipient’s wallet addresses may be uploaded to the blockchain. It’s occasionally feasible to determine the individuals engaged in a particular transaction using transaction and wallet data. Additionally, when you purchase something from a vendor who also keeps track of other details about you, such as your mailing address, that data may potentially be utilized in the future to locate you.
How to Recognize Bitcoin Frauds:
So, how can one recognize a cryptocurrency scam? Among the red flags to watch out for are:
Guaranteed returns: Because investments can go up as well as down, no financial investment can guarantee future returns. Any cryptocurrency offering that makes a guarantee that you will profit is a warning sign.
A weak or nonexistent whitepaper: A whitepaper is one of the most important components of an initial coin offering, so every cryptocurrency should have one. The cryptocurrency’s design and operation should be covered in the whitepaper. Be cautious if the whitepaper doesn’t make sense or, worse yet, doesn’t exist.
Excessive marketing: Every company advertises itself. But one method by which cryptocurrency fraudsters draw in clients is by making large investments marketing.
This is intended to reach as many people as possible in the quickest amount of time and to quickly raise money. Consider stopping and doing more study if you think a crypto offering’s marketing is pushy or makes grandiose claims without any evidence.
Unidentified team members: It should be possible to identify the primary individuals behind the majority of investment businesses. This typically entails accessible bios of the investment’s managers as well as a vibrant social media presence. Be wary if you can’t identify the owner of a coin.
Free money: Any investment opportunity that claims to offer free money, whether in fiat currency or cryptocurrency, is probably a scam.
Typical Bitcoin Scams:
Cryptocurrency scams come in a variety of forms. The most typical include:
1. Investment Schemes using Bitcoin:
Investors in Bitcoin investment schemes are contacted by fraudsters. The so-called investment managers promise their victims that they will also make money as part of the scam by making claims that they have made millions of dollars investing in Bitcoin.
The con artists want the payment to begin. Then, instead of making money, the thieves just steal the advance payments. Under the pretense of transferring or depositing payments and getting access to a person’s cryptocurrency, scammers may also request personal identity information.
Making advantage of fictitious celebrity endorsements is another type of cryptocurrency scam. Scammers put authentic photos of celebrities in fake accounts, advertisements, or articles to give the impression that they are endorsing products with high returns on investment. The sources cited to back up these claims seem legitimate since they make use of reputable brand names like ABC or CBS as well as official-looking websites and logos. However, the endorsement is fake.
2. Rug Pull:
Investment con artists will hype up a new project, non-fungible token (NFT), or currency to defraud investors out of their money. Money is stolen by scammers, who then take off with it. Customers can’t sell their Bitcoin once they buy it because the code for these investments forbids it, therefore they are undone with investment.
The Squid coin fraud was a well-known variation of this hoax. Investors had to play to make cryptocurrency; they had to buy in-game tokens and then trade them for other cryptocurrencies. The Squid token’s price has increased from one cent to more than $90 per token. Trading eventually came to an end, and the money was gone. As people tried to sell their tokens but were unable, the value of the token dropped to zero. These investors contributed almost $3 million to the con artists. Rug pull frauds are also common with NFTs, or non-traditional assets.
3. Fraudulent Activities:
Scams involving cryptocurrency have been around for a while and are still common. Scammers send emails with hazardous links to fake websites to gather personal information. Do not enter secure information over an email link to avoid these scams. No matter how genuine the website or link seems to be, always go to the actual website.
4. Investment Fraud:
Investment crypto scams usually start on social media or online dating apps or sites and offer large sums of money with “zero risk.” These frauds can, of course, start with an unexpected text, email, or phone call
5. Phony Apps:
Scammers also utilize downloaded bogus apps to deceive cryptocurrency investors. These fraudulent apps are swiftly identified and taken down, but that doesn’t mean they aren’t affecting a lot of businesses.
6. Prize Fraud:
Giveaway cryptocurrency scams promise to multiply or equal the cryptocurrency donated to them. A sense of legitimacy and urgency can be generated by wise messages. People may pay money right away in the expectation of getting their money back because this opportunity seems to come around once in a lifetime.
7. Attack by a Man-in-the-Middle (MITM):
A scammer may intercept any information transferred over a public network. A thief can gain access to this private data when a person is logged in by using a man-in-the-middle attack strategy. By intercepting Wi-Fi signals from adjacent reliable networks, this is accomplished. The only way to stop these attacks is to use a virtual private network (VPN) to cut out the middleman. All data transmitted through the VPN is encrypted, preventing hackers from accessing personal information or stealing cryptocurrency.
8. Fake Cryptocurrency Exchanges:
Scammers may entice investors by offering amazing cryptocurrency and perhaps even more Bitcoin. The investor is not aware that they have been taken advantage of until they lose their deposit because there is no exchange, though. To avoid an unfamiliar exchange, stick to well-known crypto exchange markets. Before entering any personal information, do some research and visit industry websites to learn more about the reputation and legitimacy of the exchange.
9. Employment Offers And Scam Workers:
Scammers pretend to be recruiters or job searchers to access Bitcoin accounts. They want cryptocurrency in exchange for work training with these crypto frauds, despite their promises of an exciting profession.
There are additional frauds to watch out for when hiring remote workers. While hiring remote workers, there are more scams to watch out for. North Korean IT freelancers are attempting to take advantage of remote job opportunities by posing as Americans and offering attractive credentials. The North Korean con is aimed towards Bitcoin enterprises, and the US Treasury Department has issued a warning. These independent IT contractors take advantage of their access to currency exchangers and actively seek out projects involving virtual money.
10. Blackmailing Fraud:
Crypto blackmail schemes are yet another trick scammers utilize. They threaten to expose the user in emails unless they divulge their private keys or send cryptocurrency to the scammer. The emails claim to have records of the user’s visits to sexual websites.
How to Prevent Bitcoin Scams:
You can take several measures to prevent getting conned. You shouldn’t click on any links, call any numbers, get in touch with them in any way, or pay them money if you see any of the warning flags. Additionally:
- Never divulge your private Bitcoin keys in response to inquiries. No one requires those keys to do a lawful cryptocurrency transaction; they only control your access to your cryptocurrency and wallet. Investment managers who contact you and promise to increase your money quickly should be ignored.
- Celebrities should be disregarded because they won’t approach people about purchasing cryptocurrencies.
- If you’re utilizing an online dating service or app, meet your love interests in person before you give them money.
- Never respond to texts or emails from well-known or obscure businesses claiming that your account has been frozen or that they are concerned.
- If a government, law enforcement agency, or utility business sends you an email, text message, or social media message informing you that your accounts or assets have been frozen and that you must give money or cryptocurrency, contact the organization and disregard the communication.
- Pay little attention to job postings for crypto miners or cash-to-crypto converters.
- Be skeptical of claims that they have explicit material of you that they want to publish until you provide cryptocurrency and report it.
- Refuse “free” money or cryptocurrency.
- Don’t believe claims that you’ll earn a lot of money.
How to Report Bitcoin Scams:
If you’ve been a victim of a Bitcoin scam or believe you have, there are several organizations that can assist you. To get assistance, use their online complaint forms:
- Report on FTC fraud
- Tips and complaints to the Commodity Futures Trading Commission
- Fraud reporting by the U.S. Securities and Exchange Commission
- complaint from the FBI Internet Crime Complaint Center
- Inquire about the cryptocurrency exchange you use as well. To safeguard your cryptocurrency assets and money, they might have fraud prevention or other safeguards in place.
The crazed rush into cryptocurrency has made many people think of the Wild West. The cryptocurrency ecosystem will continue to be a target for con artists as it expands and becomes more sophisticated.
Social engineering schemes to get account or security details and convincing a target to transmit cryptocurrency to a hacked digital wallet are the two main types of cryptocurrency scams. You should be able to recognize a crypto-related scam early on and avoid falling victim to it if you are aware of the typical ways that scammers attempt to steal your information (and ultimately, your money).
This article is not a recommendation by Investopedia or the author to invest in cryptocurrencies or other initial coin offerings (ICOs), as doing so is extremely dangerous and speculative. A skilled professional ought to always be consulted before making any financial decisions because every person’s situation is different. No guarantees or claims are made by Investopedia on the timeliness or accuracy of the information provided here.
How Do Cryptocurrency Scams Begin?
The con artists demand payment up front to begin. The crooks then simply steal the upfront payments rather than make money. To access someone’s cryptocurrency, the con artists may also ask for personal identity information under the pretense that they need it to transfer or deposit money.
Can you Track Down a Crypto Scammer?
When opening accounts, many VASPs, bitcoin trading platforms, and decentralized financial companies need information on identity verification. A civil subpoena or a criminal warrant can be used to get this personal information if a scammer exploited these services for cryptocurrency transactions.
Do Banks Reimburse Victims of Fraud?
Banks have a moral and legal obligation to reimburse customers for money they were duped out of. You may not always be able to get your money back from fraud. Thieves occasionally escape detection, whether it’s due to a dearth of evidence or a mistake on your part.