What is a Cryptocurrency Scam and How Can You Avoid Being a Victim

By Banesco Team
Published on June 15, 2023

BanesBlog

What is a Cryptocurrency Scam and How Can You Avoid Being a Victim

In their June 2022 Data Spotlight, the Federal Trade Commission (FTC) revealed that over 46,000 people have
reported losing more than a billion dollars in crypto to scams since the start of 2021. The reported losses in 2021
were nearly sixty times what they were in 2018, suggesting scammers are taking advantage of the lack of
regulation and the rise in use. With the increasing frequency of crypto scams, consumers jumping into the
crypto craze would be wise to take note of the common schemes.

What is cryptocurrency?

Cryptocurrency is a digital currency purchased through an exchange, an app, a website, or a crypto ATM.
Typically stored in a digital wallet, consumers can use it as an investment or quick payment method. The most
common cryptocurrencies are Bitcoin and Ether, although new ones are frequently popping up on the market.

What is a cryptocurrency scam?

A cryptocurrency scam occurs when scammers trick you into buying crypto and sending it to them. Crypto is
confusing to the average consumer, and scammers are taking advantage of what users don’t know about how it
works to offer fake investment opportunities and steal money.

Top 3 Crypto Scams

According to the FTC, the top three crypto scams ranked by reported losses are 1. Investment-related fraud, 2.
Romance Scams, and 3. Business impersonation scams.

1. Investment Scams – This scam often starts with an unsolicited text, email, or social media message from
   an “investment manager” offering big payouts if you purchase crypto and transfer it into their online
   investment tool. These scammers promise huge returns and even direct you to legitimate-looking
   websites, complete with celebrity endorsements and testimonials, where you can create an investment
   account to transfer your crypto. The trouble is, when you go to withdraw your money from your
   account, it will already be gone.
2. Romance Scams – Crypto cons often use dating apps to target their victims. The added emotional
   element makes it easier for unsuspecting singles to get taken in by a new love interest offering
   investment advice. Scammers tout their business acumen and financial success and claim they’ll help
   you get started in cryptocurrency. Unfortunately, if you send them crypto or invest in their site, you’ll
   lose your money and the fake connection.
3. Business Impersonation Scams – These scams often start as a personal message from Amazon,
   Microsoft, your financial institution, or any other large company saying there is fraud on your account
   and that to protect your money; you must purchase crypto and send it to them. By adding a sense of
   urgency to the situation, these scammers hope you’ll choose impulsive reaction over rational thinking,
   and by the time your head clears, your money will be gone.

Why are crypto scams on the rise?

The cryptocurrency world is still largely unregulated, making it a veritable playground for scammers. By its
nature, cryptocurrency is global and decentralized, so it doesn’t have the benefit of bank oversight or
centralized authorities as watchdogs.

The lack of legal protections makes it an attractive pursuit, increasing the boldness and frequency of scams.
Credit and debit cards are backed by financial institutions and the companies offer a process to help you get
your money back in a dispute. With cryptocurrency, payments typically are not reversible unless the person you
paid agrees to send it back. In the case of a scam, there is no recourse for payment disputes.

How to avoid cryptocurrency scams

It’s wise to stay informed of the latest crypto crimes while utilizing this digital currency to avoid being a victim.
Here are three signs to spot a crypto con and keep your money safe:

1. Consider the promise. The guarantee of big returns and easy money is a red flag – no cryptocurrency
   investment ever promises a payout.
2. Consider the source. No legitimate business entity will ever require you to buy cryptocurrency to
   protect your money.
3. Consider the platform. If a new love interest on an online dating site offers to show you how to invest in
   crypto or asks for crypto payments, exit the relationship and keep your money.

The best advice to avoid being scammed is to make sure you know exactly who you’re dealing with and to
transact through a reputable exchange. By playing it safe when paying with crypto, you can avoid common
schemes to trick you out of your money and stop scammers in their tracks.

For more help spotting crypto scams, visit ftc.gov/cryptocurrency. And report scams at ReportFraud.ftc.gov.