Cryptocurrency: How Can You Spot a Scam?

With names like Bitcoin and Dogecoin consistently in the news cycle, cryptocurrency is no longer an underground tech phenomenon, known only to computer whizzes and billionaire investors. Today, it is growing rapidly in popularity, with more than 10,000 different publicly traded types and a total value of more than $1.7 trillion as of May 2021, according to CoinMarketCap.com, a market research website.

But as is often the case, where there’s money, there is the possibility of scams. Here’s our fundamental guide to cryptocurrency, how to use it, and how to spot a fraud.

What is cryptocurrency?

Cryptocurrency (or “crypto”) is an unregulated type of digital payment that can be exchanged online for goods and services. It generally does not involve any sort of physical coin or note, unless cashed in via a service that offers a physical token in exchange.

Investing in cryptocurrency allows users to make online payments quickly and sometimes anonymously, which avoids the transaction fees charged by traditional banks. It may also be considered an investment, as rampant speculation can drive prices through the roof.

How does cryptocurrency work?

Cryptocurrency relies on a technology called blockchain, which decentralizes management, storage, and transaction records across many computers, using an online ledger with strong cryptography. The security of the technology makes cryptocurrency an attractive alternative to traditional banking for some.

Companies like Bitcoin and Ethereum issue their own currencies, often called tokens, which you purchase online—as you might at an arcade or casino—using a digital wallet, and use through an online app that stores your currency.

How is cryptocurrency different from standard currency?

Unlike money deposited in traditional bank accounts, cryptocurrencies are not insured by the government. If you store cryptocurrency with a third-party company, and the company goes out of business or is hacked, the government has no obligation to step in and make sure your funds are restored.

Now that I know the basics about cryptocurrency, how can I spot a scam?

Firstly, if someone insists that you pay via cryptocurrency, beware. That can be a scam. Some other common scams to watch out for include:

• Investment & business opportunity scams

  As with any business opportunity scam, cryptocurrency scammers will try to take advantage of the desire to get rich quick and achieve financial freedom. Watch out for unsolicited offers from alleged investment managers or job offers to help recruit cryptocurrency investors, sell/mine cryptocurrency, or convert cash to crypto. Beware of any big claims that don’t include sufficient detail or explanation.

• Blackmail emails

  Scammers will often attempt to send emails claiming they have embarrassing or compromising personal info, photos, or videos of you which they will make public unless you send them cryptocurrency. This is a criminal extortion attempt. Do not pay them; instead, contact the FBI immediately.

• Social media scams

  If you receive a tweet, text, email, or other message asking you to send cryptocurrency, that’s likely a scam—even if it comes from someone you know personally or from a celebrity or famous account you follow. Always be wary of the possibility that their accounts may have been hacked.