Are you confused about cryptocurrencies like $BTC bitcoin or $ETH Ether (related to the Ethereum platform)? You are not alone. Before using or investing in cryptocurrencies, you need to know how they differ from cash and other payment methods and how to detect scams involving cryptocurrencies or cryptocurrency accounts that may be compromised.
What you need to know about cryptocurrencies
Paying with cryptocurrencies?
How to avoid cryptocurrency scams
Common cryptocurrency scams
How to report cryptocurrency scams
What you need to know about cryptocurrencies
What is a cryptocurrency?
Cryptocurrency, also called virtual currency, is a type of digital currency that exists only electronically. Generally, to buy a cryptocurrency you use your phone, computer, or a cryptocurrency ATM. The most well-known cryptocurrencies are Bitcoin and Ether, but there are several different brands, and new cryptocurrencies are continually being created.
How do people use cryptocurrencies?
People use cryptocurrencies for many reasons, to make quick payments, to avoid the transaction fees that traditional banks charge, or because they offer some anonymity. Others may acquire and hold cryptocurrencies as an investment, hoping that their value will increase.
How can cryptocurrencies be obtained?
You can buy cryptocurrencies through an exchange, a website, or a cryptocurrency ATM. Some people can acquire cryptocurrencies through a complex process called “mining” that requires advanced computing equipment to solve very complicated mathematical problems.
Where and how are cryptocurrencies stored?
Cryptocurrencies are stored in a digital wallet, either online, on your computer, or on another external physical medium. A digital wallet has an address, which is usually a long string of numbers and letters. If something happens to your wallet or your cryptocurrency funds, for example, if the online exchange platform you use stops operating, if you send cryptocurrencies to the wrong person, lose your digital wallet password, get robbed, or have any issue with your digital wallet, you will likely find that there is no one available to help you recover your funds.
What are the differences between cryptocurrency and U.S. dollars?
Since cryptocurrencies only exist online, there are important differences between cryptocurrencies and traditional currencies like the U.S. dollar.
Cryptocurrency accounts are not backed by a government. Cryptocurrencies held in accounts are not insured by a government like U.S. dollars deposited in a bank account insured by the FDIC. If something happens to your account or your cryptocurrency funds, for example, the company providing the service for your virtual wallet stops operating or suffers a cyber-attack, the government has no obligation to intervene to help you recover your money.
The value of a cryptocurrency changes constantly. The value of a cryptocurrency can change quickly, even every hour. And the amount of that fluctuation can be considerable. Its value depends on many factors, including supply and demand. Cryptocurrencies tend to be more volatile than traditional investments, such as bonds and stocks. An investment that is worth thousands of dollars today could be worth only hundreds of dollars tomorrow. And if the value drops, there is no guarantee it will rise again.
Paying with cryptocurrencies?
There are many differences between paying with a cryptocurrency and paying with a credit card or other traditional payment methods.
Cryptocurrency payments have no legal protections. Credit and debit cards have legal protections if issues arise. For example, if you need to dispute a purchase, your credit card company has a process that helps you get your money back. Generally, cryptocurrencies do not have those same protections.
Generally, cryptocurrency payments are irreversible. Once you pay someone with a cryptocurrency, you typically can only recover your money if the person you paid gives it back. Before buying something with cryptocurrencies, check the seller’s reputation by doing a little research before paying.
Part of the information about your transactions is likely to be public. People often say that cryptocurrency transactions are anonymous. But the truth is not that simple. Typically, cryptocurrency transactions are recorded on a public ledger called “blockchain.” This is a public list of every cryptocurrency transaction that contains data from the payer and the receiver of the payment. Depending on the blockchain, the information recorded in that ledger may include details such as the transaction amount, as well as the digital wallet addresses of the sender and receiver of the payment. Sometimes it is possible to identify the individuals involved in a specific transaction using the transaction and wallet information. And when you buy something from a seller who asks for additional information, for example, a delivery address, that information can later be used to identify you.
How to avoid cryptocurrency scams
Scammers are always looking for ways to steal your money using cryptocurrencies. Here are some things to know to avoid a cryptocurrency scam.
Only scammers demand payments in cryptocurrencies. No legitimate business will require you to send cryptocurrencies upfront, either to buy something or to protect your money. That is always a scam.
Only scammers will guarantee profits or high returns. Do not trust people who promise you can make money quickly and easily in the cryptocurrency market.
Never mix online dating with investment advice. If you meet someone on a dating site or app, and they then want to teach you how to invest in cryptocurrencies, or ask you to send them cryptocurrencies, it’s a scam.
Detect cryptocurrency scams
Scammers are using the same proven tactics, only now they are demanding payments in cryptocurrencies. Investment scams are one of the main ways that scammers deceive you and convince you to buy cryptocurrencies and send them to the scammers. But scammers are also impersonating business representatives, government agencies, romantic relationships, among other tactics.
Investment scams
In investment scams, they often promise that you can "make a lot of money" with "zero risk," and these scams often start on social media or on dating apps or sites. Of course, these scams also start with a text message, email, or call. And in investment scams, cryptocurrency plays a central role in two ways: it can be both for an investment and for payment.
Below are some common investment scams and how to detect them.
A supposed “investment manager” unexpectedly contacts you. They promise to multiply your money, but only if you buy cryptocurrencies and transfer them to their online account. The investment website they direct you to seems real, but it is actually fake, just like their promises. If you log into your “investment account,” you will not be able to withdraw your money at all, or you will only be able to do so if you pay high fees.
A scammer impersonates a celebrity who can multiply the cryptocurrencies you send them. But there is no famous person communicating with you through social media. It’s a scammer. And if you click on an unexpected link they send you or if you send cryptocurrencies to a supposed celebrity’s QR code, that money goes directly into the pocket of a scammer and disappears.
A virtual “lover” wants you to send them money or cryptocurrencies to help them invest. That’s a scam. As soon as someone you meet on a dating site or app asks you for money, or offers investment advice, know that they are a scammer. The advice and the offer to help you invest in cryptocurrencies are nothing but scams. If you send them a cryptocurrency, or any other form of money, it will disappear, and you will usually not recover it.
Scammers guarantee that you will make money or promise you high guaranteed returns. No one can give you those guarantees. And certainly not in a short period of time. And when it comes to investing in cryptocurrencies, there is nothing that is “low risk.” So, if a company or person promises you profits, it’s a scam. Even if they have endorsements from famous people or testimonials from happy investors. That’s something that can be easily faked.
Scammers promise free money. They will promise cash or free cryptocurrencies, but promises of free money are always false.
Scammers make big statements without details or explanations. Whatever the investment, find out how it works and ask where your money will go. Honest investment managers or advisors will be willing to share that information and back it up with details.
Before investing in cryptocurrencies, do an online search by entering the name of the company or person and the name of the cryptocurrency and add words like “review,” “scam,” or “complaint”; if you do the search in Spanish, replace those words with “comentario,” “estafa,” or “queja.” Read reviews from other people. And read more about other common investment scams.
Imitators of businesses, government agencies, and job offers
In a scam perpetrated by people impersonating business representatives, government agencies, or job offers, the scammer pretends to be someone you trust to convince you to send them money by purchasing and sending cryptocurrencies.
Scammers impersonate recognized companies. This comes in waves, depending on the time, and scammers might say they work for Amazon, Microsoft, FedEx, your bank, or others. This type of scammer will send you a text message, an email, or contact you by phone or through messages on social media, or they might even place a pop-up alert on your computer. They may tell you that fraud has occurred in your account, or that your money is at risk, and that to resolve the issue, you need to buy cryptocurrencies and send them. But that’s a scam. If you click on the link in a message, respond to the call, or call the number that appears in the pop-up window, you will be contacting a scammer.
Scammers impersonate representatives of new or established businesses offering fraudulent coins and tokens. They will say that the company is entering the cryptocurrency world and that they are issuing their own virtual coin or token. To back up this claim and deceive people into convincing them to buy that coin, they might publish ads on social media, news articles, or set up a fancy website. But those coins and those cryptocurrency tokens are a scam that ends up stealing money from the people who buy them. Research online to find out if a company has issued a coin or token. If it is true, it will be widely reported by established media.
Scammers impersonate representatives of government agencies, law enforcement, or utility companies. These scammers might tell you that there is a legal problem, that you owe money, or that as a result of an investigation, your accounts or benefits have been frozen. They tell you to resolve the problem or to protect your money by buying cryptocurrencies. They may tell you to send them to a specific wallet address for your “protection and custody.” There have even been cases where scammers stay on the phone while instructing a person to go to a cryptocurrency ATM and give step-by-step instructions to insert money and convert it into cryptocurrencies. They then instruct you to send the cryptocurrencies by scanning a specific QR code, through which the payment goes directly to the scammer's virtual wallet, and then, it disappears.
Scammers post fake job listings on employment websites. They may even send unsolicited job offers related to cryptocurrencies to help recruit investors, sell or mine cryptocurrencies, or help convert cash into cryptocurrency. But those supposed “jobs” only become real if you pay a fee in cryptocurrencies. Which is always, always a scam. As your first task in your “job,” these scammers send you a check for you to deposit in your bank account. (Soon, it will be discovered that the check was fake). They will tell you to withdraw a portion of that money, use it to buy cryptocurrencies for a fabricated “client” and send the cryptocurrencies to an account they tell you to. But if you do so, the money will disappear, and you will have to pay that money back to the bank.
To avoid impersonators of businesses, government agencies, and job offers, you need to know the following:
No legitimate business or government agency will ever send you an email, text message, or message on social media asking you for money. And they will never require you to buy cryptocurrencies or pay with virtual currency.
Never click on a link from an unexpected text or email message or one you received through messages on social media, even if it seems to be from a company you know.
Do not pay anyone who unexpectedly contacts you and demands payment in cryptocurrencies.
Never pay a fee to get a job. If someone asks you to pay upfront to get a job or tells you to buy a cryptocurrency as part of a job, it’s a scam.
Extortion scams
Scammers might send emails or correspondence through the U.S. Postal Service telling you that they have embarrassing or compromising photos, videos, or personal information about you. They then threaten to make them public unless you pay them with a cryptocurrency. Don't do it. This is blackmail and an attempt at criminal extortion. Report the incident immediately to the FBI.