Cryptocurrency Fraud: What it is and How to Avoid It

The cryptocurrency market is booming. Bitcoin has reached a new high of over $5,000 per coin, and the total value for all cryptocurrencies is now worth more than $140 billion. But with this growth comes risk – namely, fraud.

There are many ways that people can get scammed in the crypto world – including through phishing schemes, fake ICOs and Ponzi schemes. In this article we’ll discuss what these types of scams are and how you can avoid them to make sure your money stays safe.

Is cryptocurrency a rip-off?

Cryptocurrencies are a medium of exchange which unlike traditional fiat currencies, are not backed by a government or central bank. Instead, it is underpinned by the computer code called blockchain technology and its exchange rate to other fiats may be volatile depending on supply/demand and speculations of investors.

Cryptocurrency can also act as an investment vehicle with gains built from the appreciation in value of the coins themselves.

Cryptocurrency is not a rip-off. The market is still new and volatile, but there are plenty of legitimate ways to invest in cryptocurrency, including through Bitcoin futures trading that’s been offered by Cboe Global Markets since December 2017.

There have also recently been a number of high profile cases where investors doubled their money instantly after investing in crypto lotteries, or ICOs (initial coin offerings) that have been verified as legitimate.

Cryptocurrency fraud can happen at any point in this process and is of particular concern for investors who typically have to trust their money with an uninformed seller or provider, which makes it a perfect opportunity for scammers.

What are the types of cryptocurrency fraud?

The three most common types of cryptocurrency investment fraud are: investments that offer no real value (Ponzi schemes), fake ICOs, and the use of hacks to steal investors’ funds.

  • Investments that offer no real value (Ponzi Schemes)

The SEC has identified Ponzi-type investment fraud as one of its top concerns going into 2021 because these investments promise high returns with little risk.

  • Fake ICOs

These types of investments, also known as “initial coin offerings,” are new forms of crowdfunding that can offer investors access to high-return investments.

  • The use of hacks to steal investor funds

Hackers often target cryptocurrency exchanges because these platforms store wallets with tokens or digital assets like bitcoin, Ethereum and Litecoin for trading purposes.

Federal Trade Commission statistics on crypto fraud

FTC statistics show that cryptocurrency fraud has been skyrocketing.

The number of reported scams increased from 74 in 2016 to 207 in 2018 — a 230% increase.

Since October 2020, the number of reported cryptocurrency fraud cases has increased by 300%. There were 500,000 cryptocurrency complaints filed last year about scams like fake ICOs or Ponzi schemes. Victims of crypto fraud lost $300 million in 2018.

The FTC does not have the authority to investigate these offenses, but it can help people recover their losses and reduce vulnerability in other ways.

The FTC can help by alerting the public about crypto fraud, making scam alerts available to consumers and businesses on their website. The agency also provides educational materials and information for investors. They have a blog that is updated frequently with articles written by outside experts in money management or law enforcement who specialize in cryptocurrency crime prevention.

What if you are a victim of fraud?

If you are a victim of fraud, the FTC has a list of tips for what to do in case you are a victim:

  • If it is not too late, report the incident to law enforcement and ask them to investigate. If they cannot help, contact your local consumer protection agency or state attorney general’s office. You may also have luck reporting the fraud to a company’s customer service department.
  • Contact your financial institution immediately and ask them to block any transactions from the account that was involved in the scam so you don’t lose any more money.
  • Consider filing an identity theft report with law enforcement, especially if someone has used personal information about you or opened new credit accounts.
  • File a complaint with the FTC. You can tell them what happened, who you think is responsible for it, and any other information that might help law enforcement find out more about this scam or stop others from being victimized by it.
  • Keep copies of all correspondence with your financial institution and credit card company in case there are problems with your account or items get charged to it that you didn’t authorize.
  • Be careful about clicking on links in emails and texts from people you don’t know, especially if they have an attachment or will take you to a web page where you need to enter personal information.”

What should cryptocurrency investors be wary of?

Be wary of:

  • Cryptocurrency investment options that guarantee high returns.
  • Sales pitches about being the first to invest in a new, ground breaking cryptocurrency or ICO.
  • Promises and guarantees from promoters who are not licensed financial professionals.
  • Pressure tactics such as targeting your emotions with stories about people getting rich quick.
  • Promises of no refunds

You should ignore:

  • An advertisement or email links to a website promoting cryptocurrencies. If it sounds too good to be true, it probably is.
  • Emails that say you can send money easily and anonymously with just a few clicks by using digital currency like bitcoin

Don’t do business with any company that:

  • Doesn’t provide contact information, address and phone number.
  • Promises high returns without telling you the risks of the investment or how much they plan to charge for it.
  • Refuses to let you read a prospectus before signing an agreement with them.
  • Offers investment advice without being registered as an investment advisor

Tips for cryptocurrency safety

Follow these safety tips:

  • Read the small print before you invest.
  • Invest only what you can afford to lose.
  • Don’t give out your personal information or financial details without verifying who is on the other end of communication and why they need this specific information from you.
  • Monitor for signs that a website has been compromised, like changes in how the site looks or behaves.
  • Get free advice from a securities professional before making any investment decision.
  • Know that there is no such thing as guaranteed protection against fraud, scams and theft when it comes to cryptocurrencies investments. This type of investing does not come with safety nets like FDIC insurance for bank deposits.
  • Don’t click on links in emails, texts or social media messages that say there’s an issue with your transactions, even if they come from a financial institution.
  • Avoid transferring money to someone you don’t know, regardless of how convincing their story is or what promises they make.
  • Don’t share your cryptocurrency wallet address with anyone and only use the official websites for wallets you own yourself when necessary.
  • Investigate the company before transferring any money.
  • Look for information about how long the company has been in business, where their headquarters are located and what agencies regulate them. If you can’t find this information or don’t understand it, contact your state securities regulator to ask questions.
  • Don’t invest in something you don’t understand. If it’s too good to be true, it probably is.
  • Invest only what you can afford to lose.

The most common form of cryptocurrency fraud is a scam that requires the victim to give out their personal information or financial details without verifying who is on the other end of communication and why they need this specific information from you. Scammers can also be found in social media with promises like “Free Bitcoin” and “Earn Money for Free”. -never give your credit card or bank account numbers to a website you aren’t sure is legitimate.

Are cryptocurrencies regulated?

The U.S. Commodity Futures Trading Commission (CFTC) requires that cryptocurrency exchanges register as a “board of trade” or act to limit their transactions to those who are eligible contract participants, and the Securities Investor Protection Corporation (SPIC) limits customers’ exposure risk by guaranteeing funds against theft or loss in certain circumstances so long as the funds are invested in certain types of securities.

Are cryptocurrencies regulated?

The U.S. Commodity Futures Trading Commission (CFTC) requires that cryptocurrency exchanges register as a “board of trade” or act to limit their transactions to those who are eligible contract participants, and the Securities Investor Protection Corporation (SPIC) limits customers’ exposure risk by guaranteeing funds against theft or loss in certain circumstances so long as the funds are invested in certain types of securities.

Is there any future in cryptocurrency?

The future of cryptocurrency is uncertain. If you’re still interested in investing, do your research. One of the world’s leading cryptocurrency consultants is Teeka Tiwari. Check out what we have to say about Teeka Tiwari and his net worth as a crypto advisor here.