Cryptocurrency Fraud Schemes

Cryptocurrency Trending Fraud Schemes

With all the fraud out there these days, you can add Cryptocurrency scams to the list. Confused about Cryptocurrency? You’re not alone.

What is Cryptocurrency?

Cryptocurrency is a type of digital currency that generally exists only electronically, like Bitcoin, Ethereum, Solana and Litecoin to name a few. But, there are many different cryptocurrencies and new ones popping up all the time.

Bitcoin and most other cryptocurrencies are supported by a technology called blockchain, which acts as a digital ledger that records the transaction. Individual units of cryptocurrencies can be referred to as coins or tokens, depending on how they are used. Some are intended to be units of exchange for goods and services, others are stores of value, and some can be used to participate in specific software programs such as games and financial products.

How is cryptocurrency different from U.S. Dollars? First and foremost, cryptocurrency accounts are NOT government backed and are NOT insured by a government like U.S. dollars deposited into an FDIC insured bank account. The FDIC does not insure assets issued by non-bank entities, such as crypto companies. If your cryptocurrency company goes out of business, or your account is hacked, the federal government has no obligation to help get your money back.

Why cryptocurrency is ripe for scammers. Cryptocurrency has a number of characteristics that are appealing to fraudsters. The lack of a middleman is a key trait. Instead of funds being transferred from one person’s account to another person’s account—with a banking institution acting as a shepherd for the transactions— Cryptocurrency is sent person to person. The digital ledger is then verified by a network of computers rather than by a regulated entity like a bank.

Watch out for These Red Flags

What to watch out for. With a decentralized platform, there are few safeguards in place to say who is a good actor and who is a bad actor. However, there are numerous red flags common in U.S. cryptocurrency scams :

Anonymous or fake identities present a lack of protocols ripe for money laundering schemes.
Romance scams, typically involving long-distance or digital relationships in which one party pressures and convinces the other to buy or give money for new crypto.
Digital collectibles and games enticing newbies to buy newly minted coin or token for a game. If enough people run up the price, scammers have the opportunity to sell all their holdings and disappear in what’s called a “rug-pull.”
Demanding crypto-only payments is most likely a scam. Credible institutions aren’t going to accept crypto. So if a seemingly credible person or retail establishment claims they cannot accept any form of currency other than crypto, be wary.

Projects that aren’t audited by a reputable firm. New forms of crypto are constantly being minted, and when new coins hit the blockchain, it’s known as an initial coin offering (ICO). But ICOs are also opportunities for scams. A company or individual may say they have a once-in-a-lifetime opportunity to invest in a new form of crypto with extraordinary, guaranteed returns. They may then pressure you into depositing a bunch of new coins into a digital wallet that’s been compromised or “pump and dump” by buying up the coin and selling when the price explodes.

Phishing scams, in which rogue emails purporting to be from reputable companies seek to induce individuals to reveal personal information, have been around for a while, but the introduction of crypto present new implications. Scammers send emails attempting to lure recipients into clicking links and inputting personal details — including crypto wallet key info. But unlike most passwords and usernames, you only get one private key to your blockchain wallets. This is part of blockchain’s decentralized design, ensuring that one entity cannot control your information, but it poses an issue if you ever need to change your key.

Remember the basic rule, “if the numbers are too good to be true, probably, in some way, it is.”

To learn more about avoiding cryptocurrency scams or to report one, visit https://consumer.ftc.gov/articles/what-know-about-cryptocurrency-and-scams/