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.
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Why are people losing so much money?
In some ways, the current environment is a perfect storm for fraudsters. Here are a few of the reasons.
Many people don’t fully understand cryptocurrency
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.
Massive price jumps
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.
There’s less consumer protection in cryptocurrencies
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.
How to avoid cryptocurrency scams
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.
Research, research, research
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.
Use reputable platforms and exchanges
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.
Review the URLs carefully
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.”
Beware celebrity endorsements
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.
Don’t give your passwords or cryptocurrency keys to anyone
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.
What to do if you’ve been scammed
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:
- Call your bank or cryptocurrency exchange. If you explain that the transaction was fraudulent, you might be able to reverse it, especially if you paid with a debit or credit card.
- Protect your identity. If you shared any personal information, you may need to take steps to prevent further fraudulent activity. Go to identitytheft.gov to report what happened and find out, for example, how to freeze your credit and stop the scammers from opening accounts in your name.
- Contact a cyber investigator. Companies like CipherTrace can help you to track down the stolen funds, and in some cases, they’ll give you free assistance. You’ll need to provide transaction IDs and other information about the scam.
- Report it to the FTC. Make sure the scammers don’t get any more money from anyone else by reporting the fraud to the FTC. You can also get advice about what other options you have.
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.
View more information: https://www.fool.com/the-ascent/cryptocurrency/articles/americans-lost-80-million-to-crypto-scams-in-6-months-heres-how-to-avoid-fraud/