Cryptocurrency and Fraud: How to Protect Yourself

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Digital currencies like Bitcoin, Ethereum, Dogecoin, and more have taken over the internet. As a shiny new investment opportunity, cryptocurrency promises massive wins for its investors, but it is also the Wild West of finances: a lawless, unregulated world where investors have little to no protection in the market. Unlike government-backed money, cryptocurrency is subject to wild swings that produce big gains for investors – or big losses.

According to the Federal Trade Commission (FTC), almost 7,000 people lost upwards of $80 million in crypto scams between October 2020 and March 2021. That’s a significant jump from the 570 cryptocurrency investment scams and $7.5 million in losses reported during the same time period the year before. With cryptocurrency scams on the rise, we have compiled a list of some of the most common ones to look out for so you can protect yourself from falling victim.

Phishing scams

Crypto phishing scams will often target you for information relating to your online wallets. Scammers are interested in gaining access to crypto wallet private keys, which are required to access funds within the wallet. Scammers will send an email leading wallet-holders to a specially created website that asks them to enter their private key information. When the hackers have acquired this information, they can steal the cryptocurrency contained in those wallets.

These fake sites often operate in two ways:

  • Phishing pages: All the details you enter, such as your crypto wallet's password, recovery phrase, and other financial information, end up in the scammers' hands.
  • Straightforward theft: Initially, the site may allow you to withdraw a small amount of money. As your investments seem to perform well, you may begin to invest more money in the site. However, when you eventually want to withdraw your money, the site will either shut down or outright deny your request.

Pump and dump schemes

This scheme involves a particular currency being promoted by fraudsters through an email blast or social media. Not wanting to miss out, traders rush to buy the coins, subsequently driving up the price. Once they have succeeded in inflating the price, the scammers then sell their holdings – which causes a crash as the asset's value plummets. Sometimes celebrities, businesspeople, and influencers are unwittingly utilized in a pump and dump scheme, with scammers relying on their status to help push the coin. It is important to thoroughly research any investment opportunity and not jump on a bandwagon.

Fake apps

Another common way scammers trick cryptocurrency investors is through fake apps available for download through Google Play and the Apple App Store. Usually, these fake apps are quickly found and removed, but it is important to be on the lookout. Make sure you never use an unofficial app store for downloads.

Giveaway scams

This is where scammers promise to match or multiply the cryptocurrency sent to them. Clever messaging, often from what looks like a valid social media account, can create a sense of legitimacy and spark a sense of urgency. This supposed ‘once-in-a-lifetime’ opportunity can lead people to transfer funds quickly in the hope of an instant return.

Blackmail and extortion scams

Another method scammers use is blackmail. They send emails that claim to have a record of adult websites visited by the user and threaten to expose them unless they share private keys or send cryptocurrency to the scammer. These scam attempts are an example of criminal extortion and should be reported to a law enforcement agency, such as the FBI.

Investment scams

The phrase "if something sounds too good to be true, it probably is" is important to keep top of mind for anyone venturing into the world of investing and cryptocurrencies. Scammers have developed misleading websites offering guaranteed returns or other setups encouraging consumers to invest large sums of money for even larger guaranteed returns. These bogus guarantees often lead to financial disaster when individuals try to get their money out and find that they can't.

4 Red Flags That Signal Crypto Scams

Promises of guaranteed returns: No financial investment can guarantee future returns. Any crypto offering that promises you will make money is a red flag.

A poor or non-existent whitepaper: A whitepaper is a document released by the coin developers that explains how the cryptocurrency has been designed and how it will work. If the whitepaper doesn’t make sense – or worse, doesn’t exist – don’t invest.

Excessive marketing: One method scammers use to attract people is by investing in heavy marketing, designed to reach as many people as possible in the shortest time possible. If you feel that the marketing for a crypto offering seems over-the-top or makes extravagant claims without backing them up, investigate further.

Free money: Whether in cash or cryptocurrency, any investment opportunity promising free money is likely to be fake.

How To Protect Yourself

Protect your wallet: To invest in cryptocurrency, you need a wallet with private keys. If a firm asks you to share your keys to participate in an investment opportunity, it’s highly likely to be a scam. Keep your wallet keys private. The first time you transfer money, send only a small amount to confirm the legitimacy of a crypto wallet app. If you’re updating your wallet app and you notice suspicious behavior, terminate the update and uninstall the app.

Take your time: Scammers often use high-pressure tactics to get you to invest your money quickly. Take your time and carry out your own research before investing any money. If it’s not clear to you how a particular cryptocurrency works, then it’s best to do further research before deciding whether to invest.

Ignore cold calls: If someone contacts you out of the blue to sell you a crypto investment opportunity, it’s probably a scam. Never disclose personal information or transfer money to someone who contacts you in this way.

Do your research: The most popular cryptocurrencies are not scams. But if you haven’t heard of a particular cryptocurrency, it is important to research it. Try to find the coin’s whitepaper, identify who runs the investment opportunity, and look for genuine reviews and testimonials. 

What To Do if You Fall Victim to a Crypto Scam

Falling victim to a cryptocurrency scam can be devastating, and it's essential to act quickly if you have made a payment or disclosed personal information.

Contact Michigan First Credit Union immediately if you have:

  • Made a cryptocurrency payment using a debit or credit card.
  • Made a cryptocurrency payment via bank transfer.
  • Shared personal details about yourself

As cryptocurrency continues to grow in popularity, it will undoubtedly remain a top focus of scammers. By understanding the common ways that scammers try to steal your information (and ultimately your money), you will hopefully be able to spot a crypto-related scam early and prevent it from happening to you.

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