The Better Business Bureau Serving Northern Indiana released a new scam study recently: Cryptocurrency scams: BBB study finds lack of regulation and consumer education results in dramatic increase in fraud and financial losses.
The study examines the many facets of cryptocurrency and the variety of ways criminals are exploiting the cryptocurrency market to steal from investors and victims of common scams. The full study follows here.
Cryptocurrency is a form of digital money whereby encryption technology can enable anyone anywhere to send and receive payments. It does not exist in a physical form such as paper money, but as lines of computer code, supported by a decentralized computer system known as blockchain and stored in a “crypto wallet.” Bitcoin, developed in 2009, is the most popular form of cryptocurrency, available for purchase at tens of thousands of Bitcoin ATMs and increasingly accepted as payment in certain retail transactions. Ethereum is the second most common cryptocurrency and is centrally involved in the increasingly popular non-fungible tokens (NFTs), digital assets such as pictures or music that are purchased with cryptocurrency as an investment. Critically, cryptocurrency operates outside the traditional banking system and is not subject to the same protections as bank deposits or credit card transactions.
A Warsaw man reported receiving a WhatsApp message purporting to earn him 30% profit by trading crypto futures. The message directed him to a phony website requesting that he transfer money from his bank to the crypto exchange, then send the crypto funds to the phony website link.
“Once they get it, it’s gone,” the victim said. “Many people have lost thousands of dollars. Beware and never respond to WhatsApp chats from a stranger.”
Reports from victims of large financial losses to cryptocurrency related scams are skyrocketing. In 2021, BBB received more than 2,400 complaints with monetary losses of nearly $8 million involving cryptocurrency companies. BBB Scam Tracker reports about crypto scams numbered more than 1,200 in 2021 and likewise totaled nearly $8 million in losses. Scam Tracker reports to BBB tripled between 2019 and 2021, and reported losses tripled over the last two years.
Cryptocurrency has some key traits that make it attractive to scammers: It is relatively unregulated and difficult to recoup once lost; it is wildly popular, fueled in part by celebrity endorsements; and it is not well understood by the general public. The study states that the cryptocurrency market offers new opportunities for tried-and-true investment frauds such as Ponzi schemes and fraudulent ICOs (initial coin offerings), particularly given the development of new currencies and the lack of protections that government regulation has made available to more traditional investors.
BBB Scam Tracker data shows that cryptocurrency scams most commonly originate on social media, with the FTC noting that 25% of crypto fraud reported in 2021 began on social media. Scammers may impersonate a victim’s friends to tell them about their success in crypto investing, or they may make Facebook posts promising big gains.
Tips to avoid cryptocurrency scams:
- Guard your wallet. If you buy cryptocurrency, the security of the wallet is of prime importance. If you lose the key, then your funds are gone permanently.
- Look carefully at email addresses and website addresses. Phishing scams often try to trick people into logging in and then capture the log in credentials. Those then can be used to steal money. Looking for an exchange with an internet search engine may lead to fake sites which advertise and impersonate real companies. Be especially careful when viewing these on a phone.
- Do not pay for products with cryptocurrency. Be careful if someone asks you to pay with Bitcoin or another cryptocurrency. No one with the government will ever ask for this form of payment.
- Beware of fake recovery companies. Scam companies sometimes claim that they can recover stolen money – for a fee. These are usually scammers.
- Watch out for fake reviews. Scammers often create fake reviews for their own companies.
- Be wary of celebrity endorsements. It can be tempting to rely on a prominent figure who has invested in cryptocurrency. But those endorsements are often not authorized and even if they are, the celebrity may be paid for the effort and may not know more about it than you do.
- Be careful about claims made on social media. This is the most commonplace for people to encounter investment scams.
vBe wary of “friends” who reach out to you on social media and tell you how they made money with cryptocurrency. Accounts are frequently compromised. Call your friend by phone to see if it is really them.
- Only download apps from Google Play or the App Store. Trusted app stores do not eliminate the threat of app scams, but they do offer a basic level of protection. Be careful with apps. Some contain malicious software.
- Do not believe promises of guaranteed returns. No one can guarantee how an investment will perform.
- Seek help and support. Cybercrime Support Network offers a free, confidential support program for romance scam survivors.