Cryptocurrency has become an increasingly attractive investment within the past decade. Many consumers are attracted to this type of investment because of the cutting-edge innovation, anonymity, security, and decentralization. Coin Market Cap estimates there are just under 8,000 different cryptocurrencies in circulation.
Unfortunately, scammers haven’t skipped a beat with this latest trend, as it poses new opportunities for scheming and thievery. The Federal Trade Commission estimates that more than 46,000 people have lost over $1 billion in cryptocurrency to scammers since the start of 2021.
If you currently invest in cryptocurrency, or are considering it, let us guide you on how to protect your portfolio against harm from these types of scams.
Cryptocurrency is a decentralized medium of exchange created using blockchain technology. Simply put, cryptocurrency allows anyone anywhere in the world to send and receive secure payments digitally, working independent of centralized banks.
Cryptography is the heart of cryptocurrency—it’s the technology that ensures anonymity and security within cryptocurrency exchanges. Similar to passwords, private keys are used to prove ownership of blockchain addresses.
Investors can choose to invest in cryptocurrency-focused funds and/or cryptocurrency companies. They can also purchase cryptocurrency directly through exchanges or brokers.
Using a crypto exchange is one of the most popular methods of investing. Once an investor chooses an exchange, they create and fund an account using another currency. Once the account is funded, investors can buy their chosen cryptocurrency (similar to a stock purchase).
Cryptocurrency is stored in a digital wallet — either through an independent wallet provider or the crypto exchange.
Get Familiar with These Six Cryptocurrency Investment Scams
Scammers who target crypto assets employ many different methods. Below are six common scams currently circulating, as well as tips to help you avoid becoming a victim.
1. Imposter/Fake Endorsement Scams
These types of cons involve scammers promoting phony endorsements from celebrities or well-known business people. Scammers will often boast about the large gains they’ve received on their crypto investments, and promise the same in return for you.
Sometimes, they will simply collect a fee from you to “get started”– only to steal your funds. Or they may ask investors for their crypto information so they can “manage” their accounts.
Protect Yourself: Stay away from outlandish claims that seem too good to be true—even if they seemingly come from a “familiar” face.
2. Fake Exchanges & Phony Apps
Scammers will create fake cryptocurrency exchanges in order to steal investors’ initial deposits. There are also numerous counterfeit crypto trading apps in the App Store and Google Play. Before they are reported and removed, unfortunate investors download them and start engaging in crypto purchasing and investing.
Protect Yourself: Stick to well-known and established companies with solid reputations. Before engaging with an exchange, ensure the legitimacy of the site, especially before you give out any personal information.
3. SIM-Swap Scams
Subscriber Identity Module (SIM) swapping has been around for some time, but recently there’s been an increase in cases. Your SIM card is housed inside your phone and contains a small chip that allows you to call and text. It also stores your personal information.
In SIM-swap scams, thieves contact your cell phone provider and con them into connecting your phone number to a different SIM card—one the scammer has in their possession. This effectively gives them control over your phone number, allowing them to intercept two-factor identification codes for your accounts.
Valuable online accounts—such as ones tied to cryptocurrency —can be targeted because these types of accounts often rely on the two-factor authentication method.
Protect Yourself: Use strong passwords for all your accounts and change them frequently. Consider using a password management app to help you manage all of your passwords. And instead of a two-factor authentication, enable multi-factor authentication which relies on more authorization than a text message.
4. Romance Scams
Scammers, who use emotional manipulation to perform fraud, often spending weeks or months establishing a relationship. They don’t always scheme through the typical dating sites either; apps such as Instagram or WhatsApp can sometimes be the platform of choice.
Scammers may ask for crypto directly, or they may use a more indirect approach; for example, having you invest in crypto through a fraudulent site. The site might even look legitimate, making it challenging to see the scheme for what it is.
Protect Yourself: Emotions can sometimes lead us to make quick, irrational decisions. Before engaging with a stranger online, pay attention to any red flags. Move slowly, establish identity through video chat, and don’t act on any requests to share personal information or money of any kind.
5. Pump-and-Dump Scams
These scams are much like stock pump-and-dump scams. With this scam, groups or individuals will hype up a particular cryptocurrency through online chatter, email blasts, and/or cold calling to boost the currency’s price. Once a lot of investors have bought the currency and the price has skyrocketed, scammers will sell their shares—causing the crypto price to plummet.
Unfortunately, the lack of regulation in the crypto-investing world makes it particularly susceptible to pump-and-dump scams.
Protect Yourself: Be wary of new coins that are being heavily advertised and advertisements that pressure you to buy right now. If something sounds too good to be true, it probably is.
6. Phishing Scams
These cyberattacks involve scammers persuading individuals to give them their personal information—often by disguising themselves as officials from trusted organizations. Phishing can take place via email, text message, telephone, social media, and more.
Scammers interested in stealing your personal information, crypto wallet, or crypto keys will often do so through malicious links. They may try to convince you that your account has been hacked and that you need to log in again to recover your account.
Protect Yourself: Being cautious is your best defense against any phishing schemes. Be wary of any links sent to you—always go directly to the crypto exchange’s website when making a purchase or change. Some reputable crypto platforms will use anti-phishing codes to help protect your account.
How to Report a Scammer
Unfortunately, recovering stolen crypto is a difficult task due to the nature of blockchain technology. However, it’s still important to report any scams or suspicious behavior to the proper authorities.
The Federal Trade Commission allows you to report the company, scam, or unwanted call. They’ll give you information on how to protect yourself and partner with local law enforcement and investigators on your behalf. You can also report fraud to the Commodity Future Trading Commission, the U.S. Securities and Exchange Commission, or the Internet Crime Complaint Center.
Partner With a Trusted Financial Advocate Like Lafayette Federal
At Lafayette Federal Credit Union, we know that the rise of online scams puts more and more people at risk of financial fraud every day. We care about our members’ online and financial safety, and our team members are trained to help you spot potential scams or abuse that could harm your financial wellbeing.
If you have concerns about a potential scam or believe you may be a victim to one, don’t be afraid to ask questions. Come into a branch or learn more about protecting your identity online at Lafayette Federal.