An Intro to Cryptocurrency and How to Identify its Related Scams
What is Cryptocurrency?
Cryptocurrency (or crypto) is a form of digital currency that typically exists only electronically. Crypto is usually bought through your phone, computer, or a cryptocurrency ATM. Two of the most well-known cryptocurrencies are Bitcoin and Ether, yet new ones are created every day. Cryptocurrency is used for many reasons, including quick payments, avoiding transaction fees, or for anonymity. Some individuals hold onto crypto as an investment, as well.
How is Cryptocurrency Different from U.S. Dollars?
Since cryptocurrency only exists online, it’s important to highlight the differences between it and traditional currencies, like USD.
- Cryptocurrency is NOT backed by a government. Crypto held in accounts is not insured by any government like U.S. dollars deposited in a FDIC insured bank account. If anything happens to your cryptocurrency, the government has zero obligation to help you get your money back. This poses a big risk to hackers.
- The value of cryptocurrencies changes constantly. Cryptocurrency values can fluctuate rapidly and significantly, sometimes even by the hour. This is due to many factors, including supply and demand. These tend to be more volatile than most traditional investments, like stocks and bonds. This is another risky factor to having cryptocurrency.
Avoiding Cryptocurrency Scams
Due to the lack of security behind cryptocurrencies, there are many threats of scams. Scammers are always finding new ways to steal your money using cryptocurrency. Here are some things to know to stay away from crypto cons:
- Scammers will demand payment in cryptocurrency. Only scammers approach you with this tone. No legitimate business would ever demand you to send cryptocurrency before you even buy anything.
- Scammers will guarantee profits and big returns. Never trust people who promise a quick and easy turn around in the crypto markets.
- Never mix online dating and investment advice. If you happen to meet someone on a dating site or app, and they want to show you how to invest in crypto or ask for cryptocurrency from you, that’s a big red flag. That individual is most likely trying to scam you.
Spotting Cryptocurrency Scams
Scammers continue to adapt their tactics with the times, which is why they are now demanding cryptocurrency payments. The most common way they try to trick you is through investment scams. Some other tactics include impersonating businesses, government agencies, and love interests. Below are some ways to spot these red flags.
Investment Scams
Investment scams usually come in the form of a promise. Scammers used phrases like “make lots of money” or “zero risk,” which often starts as a conversation on social media or online dating apps. They can also start in the form of unexpected texts, emails, or calls. Within investment scams, crypto is used in two central ways: it can be both the investment and the payment.
Below are some common investment scams to look out for:
- A so-called “Investment Manager” reaches out to you out of the blue. These individuals promise to grow your money, and they lead you to a fake investment website.
- A scammer pretending to be a celebrity tells you they can multiply any cryptocurrency you give them. Celebrities will almost never contact you on social media. Never click on unexpected links or scan QR codes to send cryptocurrency.
- A “love interest” online asks you to send them money or crypto to help you invest. Genuine people you match with on dating sites will never ask for money or crypto. This is a scammer trying to manipulate your trust.
- Scammers promise that you’ll make money or big payouts with guaranteed returns. No one can make truthful guarantees like this, especially in the short term. Cryptocurrency investments are not “low risk,” and if a company or person is promising you that, it’s a scam.
- A scammer promises free money or cryptocurrency.
- Scammers make big claims without any detail or explanation.
Before investing in crypto, do a thorough online search for the names of the company or person and the currency name. Look for trustworthy reviews, reports on scams, or complaints in any fashion.
Business, Government, & Job Impersonation Scams
As another form of a crypto scam, fraudsters pretend to be someone who you trust. They manipulate this trust by convincing you to send them money by buying and sending them cryptocurrency.
Below are common “red flag” scenarios:
- Scammers impersonate well-known companies. They text, call, email, or send social media messages saying there’s fraud in your account or that your money is at risk. They’ll ask that you send crypto to fix it.
- Scammers pretend to be new or established businesses to offer fraudulent crypto coins/tokens.
- Scammers impersonate government agencies, law enforcement, or utility companies.
- Scammers list fake jobs on job websites.
Some tips on avoiding these types of scams include:
- Legitimate businesses or governments will never email, text, or message you on social media to ask for money. They will never demand you to buy or pay cryptocurrency as well.
- Never click on a link from an unexpected text, email, or social media message, even if it appears to be from a familiar company.
- Don’t send money to anyone who contacts you out of the blue.
- Never pay a fee to get a job. Being asked to pay or buy cryptocurrency upfront for a job is a huge red flag for a scam.
Blackmail Scams
Another way scammers try to attack you is through sending emails or physical mail to your home. These messages usually contain blackmail saying they have compromising or embarrassing photos, videos, or personal information about you. They threaten to release it publicly unless you pay them in cryptocurrency. This is a criminal extortion attempt, and you should never reply. Instead, you should instantly report it to the FBI.
How to Report Cryptocurrency Scams
If you become a victim of these scams or suspect someone is attempting to scam you, do not panic. Below are a handful of resources you can use to report suspicious activity:
- Report cryptocurrency scams to the Federal Trade Commission (FTC) at reportfraud.ftc.gov
- Report to the Internet Crime Complaint Center (IC3) at ic3.gov
- Report to the U.S. Securities and Exchange Commission (SEC) at sec.gov
