What To Know About Cryptocurrency and Scams

 Confused about cryptocurrencies, like bitcoin or Ether (associated with Ethereum)? You’re not alone. Before you use or invest in cryptocurrency, know what makes it different from cash and other payment methods, and how to spot cryptocurrency scams or see cryptocurrency accounts that may be compromised.

What To Know About Cryptocurrency

What is cryptocurrency?

Cryptocurrency is a kind of digital currency that generally exists only electronically. You usually use your phone, computer, or a cryptocurrency ATM to buy cryptocurrency. Bitcoin and Ether are well-known cryptocurrencies, but there exist many further cryptocurrencies, and revived ones keep being created.

How do people use cryptocurrency?

People use cryptocurrency for many explanations — quick payments, to avoid marketing fees that traditional banks charge, or because it offers some anonymity. Others maintain cryptocurrency as an investment, wishing the value moves up.

How do you get cryptocurrency?

You can buy cryptocurrency via an exchange, an app, a website, or a cryptocurrency ATM. Some people earn cryptocurrency through a complicated process called “mining,” which requires advanced computer tools to solve highly complicated math puzzles.

Where and how do you store cryptocurrency?

Cryptocurrency is stored in a digital wallet, which can be online, on your computer, or an external hard drive. A digital wallet has a wallet address, which is usually a lengthy string of numbers and letters. If something occurs to your wallet or your cryptocurrency funds — as your online exchange platform runs out of business, you send cryptocurrency to the wrong person, you lose the password to your digital wallet, or your digital wallet is pinched or compromised — you’re likely to see that no one can step in to help you retrieve your funds.

How is cryptocurrency different from U.S. Dollars?

Because cryptocurrency lives only online, there are important differences between cryptocurrency and standard currency, like U.S. dollars.

• Cryptocurrency accounts are not backed by a government. 

Cryptocurrency held in accounts is not insured by a country like U.S. dollars deposited into an FDIC-insured bank account. If something occurs to your account or cryptocurrency funds — for example, the company that supplies storage for your wallet goes out of business or is felled — the government has no responsibility to step in and help get your money back.

• Cryptocurrency values change constantly. The value of a cryptocurrency can change rapidly,  

• even changing by the hour. And the amount of the difference can be significant. It relies on many factors, including supply and demand. Cryptocurrencies tend to be more volatile than more traditional investments, such as supplies and bonds. An investment that’s worth thousands of dollars today might be worth only hundreds future. And, if the value goes down, there’s no proof it will go up again.

Paying With Cryptocurrency?

There are numerous ways that paying with cryptocurrency is different from paying with a credit card or other standard payment methods.

Cryptocurrency payments do not come with legal protections. Credit cards and debit cards have legal protections if something goes wrong. For instance, if you need to dispute a purchase, your credit card company has a process to help you get your money back. Cryptocurrencies generally do not come with any such protections.

Cryptocurrency payments typically are not reversible. Once you pay with cryptocurrency, you can usually only get your money back if the person you paid sends it back. Before you buy something with cryptocurrency, know the seller’s standing, by doing some research before you pay.

Some information about your transactions will likely be public. People talk about cryptocurrency transactions as anonymous. But the truth is not that simple. Cryptocurrency trades will typically be recorded on a public ledger, called a “blockchain.” That’s a general list of every cryptocurrency transaction — both on the payment and pass sides. Depending on the blockchain, the information added to the blockchain can contain details like the transaction amount, as well as the sender’s and recipient’s wallet addresses. It’s sometimes possible to use transaction and wallet information to identify the people involved in a specific transaction. And when you buy something from a seller who collects other information about you, like a shipping address, that information can also be used to identify you later on.

How To Avoid Cryptocurrency Scams

Crooks are always finding new ways to steal your money using cryptocurrency. To steer clear of a crypto con, here are some things to know.

 

• Only scammers demand payment in cryptocurrency. No legitimate business is going to require you send cryptocurrency in advance – not to buy something, and not to protect your money. That’s always a scam.
•  
• Only scammers will guarantee profits or big returns. Don’t trust people who promise you can quickly and easily make cash in the crypto markets.

 

• Never mix online dating and investment advice. If you meet someone on a courting site or app, and they want to show you how to invest in crypto or asks you to send them crypto, that’s a scam.

Spot crypto-related scams

Crooks are using some tried and true scam tactics — only now they’re demanding payment in cryptocurrency. Buy scams are one of the top ways scammers trick you into buying cryptocurrency and sending it on to charlatans. But scammers are also impersonating businesses, state agencies, and a love interest, among other tactics.

Investment scams

Acquisition scams often promise you can "make lots of money" with "zero risk," and often start on social media or online dating apps or sites. These scams can, of course, start with an unexpected text, email, or call, too. And, with investment scams, crypto is central in two ways: it can be both the asset and the payment.

Here are some typical investment scams, and how to spot them.

• A so-called “investment manager” contacts you out of the blue. They promise to grow your money — but only if you buy cryptocurrency and transfer it into their online account. The investment website they steer you to looks real, but it’s actually fake, and so are their promises. If you log in to your “investment account,” you won’t be able to remove your money at all, or only if you pay high fees.

 

• A scammer pretends to be a celebrity who can multiply any cryptocurrency you send them. But celebrities aren’t contacting you via social media. It’s a scammer. And if you click on an unexpected link they send or mail cryptocurrency to a so-called celebrity’s QR code, that money will go straight to a scammer and it’ll be gone.

 

• An online “love interest” wants you to send money or cryptocurrency to help you invest. That’s a scam. As soon as someone you meet on a courting site or app asks you for money, or offers you buy advice, know this: that’s a scammer. The advice and offers to help you invest in cryptocurrency are zero but scams. If you send them crypto, or money of any kind, it’ll be gone, and you typically won’t get it before. 
•  
• Scammers guarantee that you’ll make money or promise big payouts with guaranteed returns. Nobody can make those warrants. Much less in a short time. And there’s nothing “low risk” about cryptocurrency investments. So: if a company or person promises you’ll make a profit, that’s a scam. Even if there’s a celebrity endorsement or testimonials from happy investors. Those are easily faked.
• Scammers promise free money. They’ll promise free cash or cryptocurrency, but free money promises are always fake.

 

• Scammers make big claims without details or explanations. No matter what the buy, find out how it works and ask questions about where your money is going. Honest investment managers or advisors want to share that information and will support it up with details.

Before you invest in crypto, search online for the name of the company or person and the cryptocurrency name, plus words like “review,” “scam,” or “complaint.” See what others are saying. And read more about other common investment scams.

Business, government, and job impersonators 

In a business, government, or job impersonator scam, the scammer pretends to be someone you trust to convince you to send them money by buying and sending cryptocurrency.

• Scammers impersonate well-known companies. These come in waves, and crooks might say they’re from Amazon, Microsoft, FedEx, your bank, or many others. They’ll text, call, email, or send news on social media — or maybe put a pop-up alert on your computer. They might say there’s fraud on your account, or your money is at risk — and to fix it, you need to buy crypto and send it to them. But that’s a scam. If you click the link in any message, answer the call, or call back the digit on the pop-up, you’ll be connected to a scammer. 

 

• Scammers impersonate new or established businesses offering fraudulent crypto coins or tokens. They’ll say the company is entering the crypto world by issuing their own coin or token. They might create social media ads, news articles or a slick website to back it all up and trick people into buying. While these crypto coins and tokens are a scam that ends up stealing money from the people who buy them. Research online to find out whether a company has issued a coin or token. It will be widely documented in established media if it is true.  

 

• Scammers impersonate government agencies, law enforcement, or utility companies. They might say there’s a legal problem, that you owe money, or your accounts or gifts are frozen as part of an investigation. They tell you to solve the problem or protect your money by buying cryptocurrency. They might say to send it to a wallet address they give you — for “safekeeping.” Some scammers even stay on the phone with you as they direct you to a cryptocurrency ATM and give step-by-step instructions on how to insert money and convert it to cryptocurrency. They’ll direct you to send the crypto by scanning a QR code they give you, which directs the payment directly into their digital wallet — and then it’s gone.

 

• Scammers list fake jobs on job sites. They might even send unsolicited job offers related to crypto like jobs helping recruit investors, selling or prospecting cryptocurrency, or helping convert cash to crypto. But these so-called “jobs” only start if you pay a fee in cryptocurrency. Which is always a scam, every time. As your first task in your “job,” these scammers send you a check to deposit into your bank account. (That check will turn out to be fake.) They’ll tell you to withdraw some of that money, buy cryptocurrency for a made-up “client,” and send it to a crypto account they give you. But if you do, the money will be gone, and you’ll be on the turn to repay that money to your bank.

To avoid business, government, and job impersonators, know that

• No legitimate company or government will ever email, text, or message you on social media to ask for money. And they will never demand that you buy or pay with cryptocurrency.
• Never click on a link from an unexpected text, email, or social media message, even if it appears to come from a company you know.
• Don’t pay anyone who contacts you short, demanding payment with cryptocurrency.
• Never pay a fee to get a job. If someone asks you to pay upfront for a job or says to buy cryptocurrency as part of your job, it’s a fraud.

Blackmail scams

Scammers might send emails or U.S. mail to your home saying they have embarrassing or compromising photos, videos, or personal information concerning you. Then, they threaten to make it public unless you pay them in cryptocurrency. Don’t do it. This is blackmail and a criminal extortion attempt. Report it to the FBI immediately.

How To Report Cryptocurrency Scams

Report fraud and other suspicious activity involving cryptocurrency to

• the FTC at ReportFraud.ftc.gov
• the Commodity Futures Trading Commission (CFTC) at CFTC.gov/complaint
• the U.S. Securities and Exchange Commission (SEC) at sec.gov/tcr
• the Internet Crime Complaint Center (IC3) at ic3.gov/Home/FileComplaint
• the cryptocurrency exchange company you used to send the money