You’ve probably heard of cryptocurrencies and how people are making money by investing in different cryptocurrencies, such as Bitcoin. Maybe you’re even intrigued by what you’ve heard and you want to start investing in cryptocurrencies. Before you start investing however, make sure that you learn how to spot cryptocurrency scams. Scammers are crafty and have begun using cryptocurrency as the latest frontier in their never ending quest to part unwitting individuals from their money.
What is Cryptocurrency?
First, let’s start by discussing what cryptocurrency actually are. Cryptocurrency is a form of digital currency that exists in a virtual form. There is no physical bill or coin unless you cash your cryptocurrency in for a physical token. These types of currencies have become popular with investors, with some investors making huge profits by purchasing and buying and selling cryptocurrency.
Cryptocurrency is typically exchanged on the internet, via online exchange platforms, without using an intermediary such as a traditional bank. Unlike traditional money, cryptocurrencies are not backed by any government, do not have legal protections, payments are often non-reversible, and the values are constancy changing. There are different types of cryptocurrencies and these currencies are stored in a digital wallet. Unfortunately, if you lose access to your digital wallet, such as perhaps you lose your password, you may not be able to recover your money.
Cryptocurrency Scams
There are different types of scams involving cryptocurrencies that you should watch out for. Examples of scams include:
- Someone you met on a dating app or website (but who you’ve never met in person) tells you they can help you invest in cryptocurrency and asks you buy and send cryptocurrency to an online cryptocurrency exchange that turns out to be fake.
- You receive an unsolicited offer from someone claiming to be an investment manager who says they can help you grow your money if you given them any cryptocurrency that you purchased.
- Someone calls you and tells you that you won a lottery or prize and you must send a payment in the form of cryptocurrency. They may send you to a cryptocurrency ATM and ask you to insert cash, buy cryptocurrency, and send the money to the scammer.
- Someone tells you they are from the government, a utility, or law enforcement, and says you owe money and you must pay using cryptocurrency.
Notes that scammers are crafty and this list of cryptocurrency scams is by no means exhaustive.
Signs of Cryptocurrency Scams
Pay attention to the following signs of cryptocurrency scams so you can recognize them and stop them before they happen:
- Someone from the government, law enforcement, or a utility tells you that you must pay them with cryptocurrency (Real government, law enforcement, and utilities representatives will never tell you to pay them using cryptocurrency).
- You receive an unsolicited text, call, email, social media message, or tweet asking you to pay for something, often in advance, using cryptocurrency.
- Someone gives you an unsolicited offer to help you invest in cryptocurrency.
- Someone guarantees that you will make money (it’s likely a scam anytime someone promises that you will make a profit).
- Someone promises free money or big payouts with guaranteed returns (promises of free money are always fake and no one can guarantee a return and a big payout).
- Someone makes big claims but is vague on the details or in their explanations (legitimate investment advisors should be able to explain how a particular investment works and where the money is going).
- Someone creates a sense of urgency and tells you that you must buy cryptocurrency right then and there (rarely is there a good reason why you must act so quickly).
- Someone tells you that you have to pay money before you can collect a payout.
How Can You Protect Yourself?
Before you invest in a cryptocurrency exchange, digital wallet provider, or other virtual currency platform, do your research. Look online for the name of a particular company or exchange to see if it is legitimate. If you cannot do research yourself, ask a friend or family member to help you. If someone from the government, law enforcement, or a utility contacts you and says you owe money, hang up the phone, look up the number for that particular entity, and call them yourself to verify whether do in fact owe money.
If you want to try investing in cryptocurrency, do not work with people who make unsolicited outreach offers to you. Instead, talk to a trusted financial advisor for advice and do your homework. Understand that investing in cryptocurrency has risks and do not invest money that you cannot afford to lose. Resist pressure to invest or buy right then and there. In addition, you should never pay cryptocurrency, or any kind of money, to collect a prize or payout. Lastly, if you do invest in cryptocurrency, don’t share your private key (this is the code that acts as a password to access your virtual currency) with anyone and keep your information in a safe and secure location.
If you are scammed, report the scam to the police by calling 911. You can also report the scam to the Federal Trade Commission.
Learn more:
FTC What To Know About Cryptocurrency and Scams