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by Emma Newbery | Published on Aug. 7, 2021
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Scammers are getting away with millions. Don't make it easy for them.
It isn't only cryptocurrency prices that have skyrocketed recently -- cryptocurrency scams are on the rise as well. Americans lost over $80 million in cryptocurrency scams between October 2020 and April 2021.
According to figures from the Federal Trade Commission (FTC), more than 7,000 people reported losses -- about 12 times more than the same period a year before. The median loss was $1,900, with people in their 20s and 30s the worst hit. These age groups lost more on investment scams than any other type of fraud.
In some ways, the current environment is a perfect storm for fraudsters. Here are a few of the reasons.
This learning curve makes it easier for smooth-talking scammers to bamboozle would-be investors with crypto babble. Whenever there's a big gap in understanding, it's easier for criminals to take advantage of unsuspecting people. And blockchain technology is evolving all the time, so there's a lot for investors to keep current on.
The huge surge in cryptocurrency prices we saw at the start of this year, combined with numerous headlines about crypto millionaires, have fueled two things: a fear of missing out and an expectation of big profits. Where massive returns on normal investments would raise eyebrows, in crypto it's believable because so many digital currencies have realized big gains in just a year.
If you invest in the stock market, you have a certain level of safety because companies and stock brokers have to abide by strict regulations. In crypto, however, it can be hard to tell the difference between real companies and fake ones.
The primary way to avoid crypto scams is to treat cryptocurrency like any other investment or purchase. Just because something uses the word cryptocurrency or Bitcoin, it doesn't make it a magical money earner.
There are a number of ways cryptocurrency scammers can steal your money. People set up fake cryptocurrency exchanges, and once investors sign up and transfer their money, they discover they can't withdraw it. Similarly, people promote fake coins to push the price up and then cash out before the value drops to nothing. This is often called a pump and dump.
Here are some ways to protect yourself against scams.
Take time to fully understand any cryptocurrency you might buy. Look at the management team, what problem that crypto promises to solve, whether it has offices (and where they're based), and what the competitive environment is like. Similarly, do your due diligence on any cryptocurrency exchange or broker you plan to use.
There are hundreds of cryptocurrency exchanges out there, but only a limited number are licensed to operate in the U.S. If an exchange promises that you can earn interest on your coins, make sure you understand how that interest is funded. For example, find out if the exchange is loaning out your coins or if it's staking them and paying you the rewards.
Another common scam is to imitate popular cryptocurrency websites or apps. You then get tricked into transferring your coins or cash to a fake site. Bookmark sites you use regularly and pay particular attention to the URLs. For example, watch out for letters that have been switched to numbers -- such as an "l" for a "1" or an "O" for a "0."
Celebrity endorsements can be suspicious because we don't know if the person was paid to promote that coin. Plus, impersonators have also made off with a fortune. For example, the FTC reports that people have paid over $2 million to Elon Musk impersonators in the last six months or so.
Just as you wouldn't give your bank PIN or email password to a stranger, so should you also be suspicious of anyone asking for your crypto passwords or keys. The key to your cryptocurrency is like a bank PIN -- a code only you have access to.
Realizing you've been scammed is a horrible feeling. If it happens, the stats above show you are not alone. These criminals have developed sophisticated ways to steal your money. It can be difficult to recover lost cryptocurrency cash, but here are some steps you can take:
As cryptocurrencies become more mainstream, we can expect to see an increase in consumer protections -- and hopefully a reduction in scams. In the meantime, remember that there are people out there trying to trick you out of your hard-earned cash, so do your best to stay current on how to protect yourself and your investments.
There are hundreds of platforms around the world that are waiting to give you access to thousands of cryptocurrencies. And to find the one that's right for you, you'll need to decide what features that matter most to you.
To help you get started, our independent experts have sifted through the options to bring you some of our best cryptocurrency exchanges for 2021. Check out the list here and get started on your crypto journey, today.
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Emma Newbery owns Bitcoin and Ethereum.
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