As cryptocurrency battles its way into the mainstream, the volume of fraud and scams associated with the unregulated payment system has forged ahead. According to the latest available data from the FTC, more than 46,000 people in the U.S. reported losing an accumulative $1 billion to crypto scams between January 2021 and June 2022. In 2021, losses to crypto scams were 60 times higher than they had been in 2018.
“Cryptocurrency can be a fast, convenient, and inexpensive way to pay for products or services, transfer assets, or conduct other types of transactions online. It also has the potential to be used as a meaningful short-term or long-term investment,” according to a Morgan Stanley blog post, offering an explanation for why so many people are drawn to the promise of crypto.
“But it’s important to realize that virtual currencies don’t have an established track record of credibility or trust and they’re not regulated or backed by any central bank worldwide. So, emphasize safety when using cryptocurrency and be vigilant about protecting yourself against cryptocurrency scams,” the blog post goes on to say.
So what are these crypto scams? Well, the most common ones are the same as age-old investment scams, where a con artist promises a low-risk, high-reward return on a fictitious investment opportunity. The difference is that rather than collecting hard currency like dollars, scammers are targeting cryptocurrencies, like Bitcoin.
Scammers reach out to targets posing as successful investors, potential romances, or even known friends, to gain their victim’s trust before leading their mark into turning over control of crypto assets. Melanie McGovern, director of public relations for the International Association of Better Business Bureaus, tells the Associated Press that consumers need to “watch out for those endorsements.”
“Know your friends,” McGovern says. “If you get a message that seems sketchy from someone’s account, especially someone you haven’t heard from in a while, reach out to them on a different platform. Because someone may be spoofing them.”
Scammers might also pretend to be a legitimate business, offering users a product or service, often in exchange for payment in crypto. Unfortunately, in the Wild West of cryptocurrency, consumers and legislators struggle to discern a deliberate scam from a well-intentioned business that goes bust.
The FTC data on crypto fraud above, for example, doesn’t include the nearly $9 billion in customer funds that investigators say went missing from FTX’s books before the vaunted crypto exchange’s seismic collapse.
Sam Bankman-Fried, the founder of the bankrupt crypto exchange, is currently undergoing trial for fraud, and the outcome could determine whether what once seemed like the world’s largest legitimate crypto business was itself just a con. The trial might even determine whether certain practices common among crypto industries are implicitly fraudulent, too.
Some regulators have introduced safeguards to minimize the crossover between legitimate business and intentional fraud. This month the U.K.’s Financial Conduct Authority banned crypto companies from offering users “refer a friend” bonuses and leveraging other financial incentives, like “early bird” giveaways, that encourage users to sign up quickly, before taking time to consider the risks.
“It is up to people to decide whether they buy crypto. But research shows many regret making a hasty decision,” says Sheldon Mills, executive director of the Financial Conduct Authority’s Consumers and Competition division. “Our rules give people the time and the right risk warnings to make an informed choice.”
But, even given all the time and resources necessary to assess whether a crypto opportunity is fraudulent or not, consumers can still make mistakes and be conned. Ultimately, the best advice on guarding yourself against crypto fraud remains, as with all investments, to never give more than you’re willing to lose.
Eamon Barrett
[email protected]
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