Cryptocurrency (also known as crypto) is a type of digital currency that exists electronically or virtually. This virtual money is not backed by any government or bank. Unlike government backed money, the value of virtual currency is driven by supply and demand.
Bitcoin is a type of cryptocurrency and can be traded for goods or services with vendors that accept Bitcoin as payment. Bitcoin ATMs allow you to buy and sell bitcoin and other cryptocurrencies. Much like the ATMs you see at a bank, bitcoin ATMs receive and dispense cash. However, unlike traditional ATMs, you do not need a bank account to use one, but you do need a wallet. A digital wallet stores the encryption material and enables transactions, giving access to a Bitcoin public address.
Cryptocurrency fraud has significantly increased in the past few years. The FTC reports that from 2021-2022, more than 46,000 people reported losing a total of more than $1 billion in crypto scams. Fraudsters hang out on social media and get unsuspecting victims to join in on their schemes that result in large losses.
Here are some common crypto scams:
Investment Scams: Scammers may pose as a company promising consumers they can earn a lot of money in a short time, asking consumers to pay in crypto. Once the victim logs in to this supposed personal “investment account,” they realize there is no money available.
Phishing Scams: These scams target information pertaining to online wallets. The scammers are interested in the crypto wallet private keys that are required to access crypto. They will send emails with links that lead holders to a specially created website and ask them to enter private keys. When the scammers have this information, they can steal all the funds in the victim’s wallet.
Fake Crypto Exchanges and Wallets: Scammers advertise on social media across multiple sites for cheap Bitcoin. These fake crypto products often quote outrageous returns on investment, and users are required to pay high fees. Victims are then asked to invest increasingly more funds of their own and may even be asked to recruit others. When victims try to withdraw funds, they find none exist.
Romance Scams: Scammers often use dating sites to make unsuspecting victims believe they are in a real relationship. When they get their victim to send money for whatever reason, they will ask for transfers of crypto. This will lead to a large amount of unrecoverable funds.
All the above scams typically have the fraudster asking for money in a hurry via a bitcoin ATM.
How to avoid crypto scams:
- Ignore requests to give out your private crypto keys. Those keys control your crypto and wallet access, and no one needs them in a legitimate crypto transaction.
- Check before you click. DO NOT open hyperlinks or attachments from unfamiliar senders.
- Ignore promises that you will make lots of money and do not accept free crypto. Nothing is free.
- Use reputable companies.
- Meet your romantic interests in person before giving them money if you are using an online dating website or app.
- If you receive an email, text, or social media message from a government agency, law enforcement agency, or utility company stating your accounts or assets are frozen and you will need to send crypto or money, contact the agency directly and ignore the message.
Cryptocurrency is an unregulated marketplace and is not backed by the government. Once the transaction is completed, it is unlikely to be reversed. Be very careful when sending cryptocurrency, especially to unfamiliar individuals or businesses. By understanding the common ways that scammers try to steal your information and your money, you should be able to spot crypto fraud early and prevent it from happening to you.
If you suspect fraud or other suspicious activity involving cryptocurrency to, you can report to:
- Federal Trade Commission
- U.S. Securities and Exchange Commission
- Commodity Futures Trading Commission
- Internet Crime Complaint Center (IC3)
Sources: Forbes, AARP, FTC, SEC
https://consumer.ftc.gov/articles/what-know-about-cryptocurrency-and-scams
