Cryptocurrency scams


DAYTON — Cryptocurrency is a hot new trend in investing. However, much is still not understood about this buzzy, volatile digital payment system that does not rely on banks to verify transactions.

This has created a fertile environment for scams, according to a new in-depth investigative study by the Better Business Bureau (BBB), which states: “A virtual tug of war exists between the legitimate and fraudulent use of cryptocurrency.”

The BBB study found that a lack of regulation and consumer education has resulted in a dramatic increase in fraud and financial losses. It examined a variety of ways that criminals exploit the cryptocurrency market to steal from investors.

What exactly is cryptocurrency?

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.

Frauds and scams reported to BBB, FTC, and FBI

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 reported more than 1,200 scams in 2021 totaling 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 accounted for the second highest scam losses reported to the Federal Trade Commission (FTC) in 2021, with losses of $750 million.

The FBI’s Internet Crime Complaint Center (IC3) and the Canadian Anti-Fraud Centre (CAFC) also had major increases in reports received and major increases in losses.

BBB’s study notes that research shows that most people do not make a report when they are scammed, so actual losses suggested to be substantially greater.

Crypto’s appeal to scammers

Cryptocurrency has some key traits that make it attractive to scammers because it is:

• relatively unregulated and difficult to recoup once lost.

• wildly popular, fueled in part by celebrity endorsements.

• not well understood by the general public.

• not protected by government regulations.

Social media facilitates scams

The FTC noted that 25% of crypto fraud reported in 2021 began on social media, a fact that is supported by BBB’s Scam Tracker data.

Scammers may impersonate a victim’s friends on social media, using these platforms to falsely tell victims about their supposed success in crypto investing. Alternately, scammers may hack into people’s Facebook accounts to create non-legitimate posts promising big gains.

Comments below a YouTube video about Bitcoin lured one consumer to begin learning about Bitcoin investing in the summer of 2021. The victim reached out via WhatsApp to an investing service, where she was instructed to buy $1,500 in Bitcoin via CashApp. Ten days later, she received a screenshot displaying an account balance of more than $7,300. However, when she decided to withdraw her earnings, she was told to pay a 10% commission and a broker’s fee of more than $800. After she paid both, she received an email instructing her to pay an additional sum of nearly $1,200 to withdraw her money. She concluded it was a scam and reported it to BBB.

Types of scams: Romance, ransomware, Ponzi schemes, money laundering, and more

Cryptocurrency figures prominently in a variety of types of scams.

Law enforcement and BBB report that romance scammers have begun convincing their victims to invest in cryptocurrency. Using sophisticated fake apps, the scammers disappear with the money when the victim attempts to withdraw proceeds.

Ransomware scams also demand cryptocurrency as payment.

Illicit transactions on the so-called “dark web” are often conducted using cryptocurrency.

Cryptocurrency is also a new vehicle for older forms of investment fraud, like Ponzi schemes. For example, many victims reported after purchasing cryptocurrency, they were directed to websites where they had to create an account to monitor their investments, but when they wanted to withdraw their “earnings,” they were told they must contribute more money to cover taxes, commissions, and other fees. Ultimately, they were never able to withdraw their money.

Additionally, BBB’s Scam Tracker revealed that cryptocurrency is a payment method commonly used in fraudulent online sales, advance fee loan scams, employment scams, extortion scams, and government impostor fees.

Law enforcement

Law enforcement agencies have pursued cases involving large cryptocurrency losses and the use of cryptocurrency in criminal activity.

The U.S. Department of Justice has made arrests this year in cases involving billions of dollars in cryptocurrency money laundering.

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 common place for people to encounter investment scams.

• Be 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. Cyber-crime Support Network offers a free, confidential support program for romance scam survivors.

BBB’s recommendations

• Social media should do more to prevent hijacking of profiles, stop scam advertisements for cryptocurrency investment schemes, and prevent the illegal use of celebrity names to promote cryptocurrency scams.

• Regulators should carefully monitor Bitcoin ATMs to prevent use by scammers.

• BBB, media, trade groups, and government agencies should continue to educate the public about risks.

• U.S. Department of Treasury and security regulators should provide stringent oversight and regulation of cryptocurrencies.

How to report a complaint

• Better Business Bureau. File a complaint with your local BBB at BBB.org if you lost money or report a scam online at BBB.org/scamtracker.

• Federal Trade Commission (FTC). File a complaint online at reportfraud.ftc.gov or call 877-FTC-Help.

• Internet Crime Complaint Center (IC3). File a complaint online at ic3.gov/complaint. Include all transaction IDs, where you sent your crypto from (private wallet, account at exchange X, etc.), where you believed you were sending your funds (perpetrator’s private wallet, arbitrage account, etc.), and any details regarding the scam and scammers.

• Canadian Anti-Fraud Centre. File a report online at antifraudcentre-centreantifraude.ca or call 1-888-495-8501.

• U.S. Securities and Exchange Commission. Visit SEC.gov/tcr.

About the BBB

For more than 100 years, the BBB has been helping people find businesses, brands and charities they can trust. In 2020, people turned to the BBB more than 220 million times for business profiles on 6.2 million businesses and 11,000 charities, all available for free at BBB.org. There are local, independent BBBs across the United States, Canada, and Mexico. The BBB has served the Dayton and the Miami Valley regions since 1925. It serves Clark, Darke, Greene, Miami, Montgomery, Preble, Shelby, and northern Warren counties in Ohio.