Cryptocurrency is becoming an increasingly popular form of payment, known for being completely digital and secure. It is estimated that there are more than 5,000 cryptocurrencies in existence, with Bitcoin being the most widely recognized and used. Like other cryptocurrencies, Bitcoin uses a peer-to-peer network to generate a system for secure electronic transactions known as blockchain. Cryptocurrencies can be purchased or mined and are stored in a digital wallet.
In addition to becoming popular with everyday people looking to make digital and anonymous payments, cryptocurrencies are trending among scammers too. Scammers take advantage of the average person’s lack of knowledge about cryptocurrencies, as well as the difficulty of tracing a crypto transaction after it’s complete. Here’s more information about how cryptocurrency scams work, how to avoid them and what to do if you’ve already fallen victim.
Cryptocurrency scams in action
Cryptocurrency scams can take on different forms. Here are some of the common ways I have seen them in action:
- A victim finds a product or service to purchase on social media, pays for it in cryptocurrency as required by the seller, and then realizes the product or service is fake and never delivered.
- A victim is approached by a scammer posing as an investment broker who convinces the victim to make a cryptocurrency investment and promises them significant returns. After the victim makes the payment, they have no trace of an investment and the scammer disappears.
- A victim is involved in a romance scam, and the scammer requests funds for a plane ticket, an emergency or variety of other reasons to be made via a cryptocurrency transaction.
While all of these scams look a little different, the purpose behind scammers requesting cryptocurrency is the same: the funds are transferred virtually and instantly, the transactions are difficult to trace and financial institutions have difficulty ever recovering the funds. It’s also important to know that cryptocurrency is not FDIC insured, which means they are not federally protected against theft.
How to avoid falling victim to cryptocurrency scams
Unlike credit cards and other financial institution-backed payment systems, cryptocurrencies do not come with strong fraud protection benefits. Additionally, because of the challenges of tracing cryptocurrency transactions due to their anonymity, many financial institutions have difficulty recovering the funds for customers who have fallen victim. This all means that prevention is key.
Here are a few tips for preventing cryptocurrency scams:
- Before you buy an item on social media, search for the company and product name plus the words “scam” or “complaint” online to see if the Federal Trade Commission (FTC) or news companies have reported them as scams.
- Don’t send money to people you do not know. Even when you believe you’re talking to someone you know, if they ask for funds out of the blue, confirm it really is your friend or relative contacting you. It may be a scammer posing as someone you know.
- If it seems too good to be true, it probably is. If someone promises significant returns if you quickly make an investment, proceed with caution.
What to do if you’re a victim of a cryptocurrency scam
If you think you’ve been the victim of a cryptocurrency scam, contact the FTC at 866-366-2382 or submit a complaint online at Reportfraud.ftc.gov.