What To Know About Cryptocurrency and Scams (2023)

Confused about cryptocurrencies, like bitcoin or Ether (associated with Ethereum)? You’re not alone. Before you use or invest in cryptocurrency, know what makes it different from cash and other payment methods, and how to spot cryptocurrency scams or detect cryptocurrency accounts that may be compromised.

  • What To Know About Cryptocurrency
  • Paying With Cryptocurrency?
  • How To Avoid Cryptocurrency Scams
  • How To Report Cryptocurrency Scams

What To Know About Cryptocurrency

What is cryptocurrency?

Cryptocurrency is a type of digital currency that generally exists only electronically. You usually use your phone, computer, or a cryptocurrency ATM to buy cryptocurrency. Bitcoin and Ether are well-known cryptocurrencies, but there are many different cryptocurrencies, and new ones keep being created.

(Video) What To Know About Cryptocurrency and Scams ?

How do people use cryptocurrency?

People use cryptocurrency for many reasons — quick payments, to avoid transaction fees that traditional banks charge, or because it offers some anonymity. Others hold cryptocurrency as an investment, hoping the value goes up.

How do you get cryptocurrency?

You can buy cryptocurrency through an exchange, an app, a website, or a cryptocurrency ATM. Some people earn cryptocurrency through a complex process called “mining,” which requires advanced computer equipment to solve highly complicated math puzzles.

Where and how do you store cryptocurrency?

Cryptocurrency is stored in a digital wallet, which can be online, on your computer, or on an external hard drive. A digital wallet has a wallet address, which is usually a long string of numbers and letters. If something happens to your wallet or your cryptocurrency funds — like your online exchange platform goes out of business, you send cryptocurrency to the wrong person, you lose the password to your digital wallet, or your digital wallet is stolen or compromised — you’re likely to find that no one can step in to help you recover your funds.

How is cryptocurrency different from U.S. Dollars?

Because cryptocurrency exists only online, there are important differences between cryptocurrency and traditional currency, like U.S. dollars.

  • Cryptocurrency accounts are not backed by a government. Cryptocurrency held in accounts is not insured by a government like U.S. dollars deposited into an FDIC insured bank account. If something happens to your account or cryptocurrency funds — for example, the company that provides storage for your wallet goes out of business or is hacked — the government has no obligation to step in and help get your money back.
  • Cryptocurrency values change constantly. The value of a cryptocurrency can change rapidly, even changing by the hour. And the amount of the change can be significant. It depends on many factors, including supply and demand. Cryptocurrencies tend to be more volatile than more traditional investments, such as stocks and bonds. An investment that’s worth thousands of dollars today might be worth only hundreds tomorrow. And, if the value goes down, there’s no guarantee it will go up again.

Paying With Cryptocurrency?

There are many ways that paying with cryptocurrency is different from paying with a credit card or other traditional payment methods.

(Video) Top 5 Crypto Scams In 2021

  • Cryptocurrency payments do not come with legal protections. Credit cards and debit cards have legal protections if something goes wrong. For example, if you need to dispute a purchase, your credit card company has a process to help you get your money back. Cryptocurrencies typically do not come with any such protections.
  • Cryptocurrency payments typically are not reversible. Once you pay with cryptocurrency, you can usually only get your money back if the person you paid sends it back. Before you buy something with cryptocurrency, know the seller’s reputation, by doing some research before you pay.
  • Some information about your transactions will likely be public. People talk about cryptocurrency transactions as anonymous. But the truth is not that simple. Cryptocurrency transactions will typically be recorded on a public ledger, called a “blockchain.” That’s a public list of every cryptocurrency transaction — both on the payment and receipt sides. Depending on the blockchain, the information added to the blockchain can include details like the transaction amount, as well as the sender’s and recipient’s wallet addresses. It’s sometimes possible to use transaction and wallet information to identify the people involved in a specific transaction. And when you buy something from a seller who collects other information about you, like a shipping address, that information can also be used to identify you later on.

How To Avoid Cryptocurrency Scams

Scammers are always finding new ways to steal your money using cryptocurrency. To steer clear of a crypto con, here are some things to know.

  • Only scammers demand payment in cryptocurrency. No legitimate business is going to demand you send cryptocurrency in advance – not to buy something, and not to protect your money. That’s always a scam.
  • Only scammers will guarantee profits or big returns. Don’t trust people who promise you can quickly and easily make money in the crypto markets.
  • Never mix online dating and investment advice. If you meet someone on a dating site or app, and they want to show you how to invest in crypto, or asks you to send them crypto, that’s a scam.

Spot crypto-related scams

Scammers are using some tried and true scam tactics — only now they’re demanding payment in cryptocurrency. Investment scams are one of the top ways scammers trick you into buying cryptocurrency and sending it on to scammers. But scammers are also impersonating businesses, government agencies, and a love interest, among other tactics.

Investment scams

Investment scams often promise you can "make lots of money" with "zero risk," and often start on social media or online dating apps or sites. These scams can, of course, start with an unexpected text, email, or call, too. And, with investment scams, crypto is central in two ways: it can be both the investment and the payment.

Here are some common investment scams, and how to spot them.

  • A so-called “investment manager” contacts you out of the blue. They promise to grow your money — but only if you buy cryptocurrency and transfer it into their online account. The investment website they steer you to looks real, but it’s really fake, and so are their promises. If you log in to your “investment account,” you won’t be able to withdraw your money at all, or only if you pay high fees.
  • A scammer pretends to be a celebrity who can multiply any cryptocurrency you send them. But celebrities aren’t contacting you through social media. It’s a scammer. And if you click on an unexpected link they send or send cryptocurrency to a so-called celebrity’s QR code, that money will go straight to a scammer and it’ll be gone.
  • An online “love interest” wants you to send money or cryptocurrency to help you invest. That’s a scam. As soon as someone you meet on a dating site or app asks you for money, or offers you investment advice, know this: that’s a scammer. The advice and offers to help you invest in cryptocurrency are nothing but scams. If you send them crypto, or money of any kind, it’ll be gone, and you typically won’t get it back.
  • Scammers guarantee that you’ll make money or promise big payouts with guaranteed returns. Nobody can make those guarantees. Much less in a short time. And there’s nothing “low risk” about cryptocurrency investments. So: if a company or person promises you’ll make a profit, that’s a scam. Even if there’s a celebrity endorsement or testimonials from happy investors. Those are easily faked.
  • Scammers promise free money. They’ll promise free cash or cryptocurrency, but free money promises are always fake.
  • Scammers make big claims without details or explanations. No matter what the investment, find out how it works and ask questions about where your money is going. Honest investment managers or advisors want to share that information and will back it up with details.

Before you invest in crypto, search online for the name of the company or person and the cryptocurrency name, plus words like “review,” “scam,” or “complaint.” See what others are saying. And read more about other common investment scams.

(Video) Cryptocurrency Scams You MUST Know About!

Business, government, and job impersonators

In a business, government, or job impersonator scam, the scammer pretends to be someone you trust to convince you to send them money by buying and sending cryptocurrency.

  • Scammers impersonate well-known companies. These come in waves, and scammers might say they’re from Amazon, Microsoft, FedEx, your bank, or many others. They’ll text, call, email, or send messages on social media — or maybe put a pop-up alert on your computer. They might say there’s fraud on your account, or your money is at risk — and to fix it, you need to buy crypto and send it to them. But that’s a scam. If you click the link in any message, answer the call, or call back the number on the pop-up, you’ll be connected to a scammer.
  • Scammers impersonate new or established businesses offering fraudulent crypto coins or tokens. They’ll say the company is entering the crypto world by issuing their own coin or token. They might create social media ads, news articles or a slick website to back it all up and trick people into buying. But these crypto coins and tokens are a scam that ends up stealing money from the people who buy them. Research online to find out whether a company has issued a coin or token. It will be widely reported in established media if it is true.
  • Scammers impersonate government agencies, law enforcement, or utility companies. They might say there’s a legal problem, that you owe money, or your accounts or benefits are frozen as part of an investigation. They tell you to solve the problem or protect your money by buying cryptocurrency. They might say to send it to a wallet address they give you — for “safe keeping.” Some scammers even stay on the phone with you as they direct you to a cryptocurrency ATM and give step-by-step instruction on how to insert money and convert it to cryptocurrency. They’ll direct you to send the crypto by scanning a QR code they give you, which directs the payment right into their digital wallet — and then it’s gone.
  • Scammers list fake jobs on job sites. They might even send unsolicited job offers related to crypto like jobs helping recruit investors, selling or mining cryptocurrency, or helping convert cash to crypto. But these so-called “jobs” only start if you pay a fee in cryptocurrency. Which is always a scam, every time. As your first task in your “job,” these scammers send you a check to deposit into your bank account. (That check will turn out to be fake.) They’ll tell you to withdraw some of that money, buy cryptocurrency for a made-up “client,” and send it to a crypto account they give you. But if you do, the money will be gone, and you’ll be on the hook to repay that money to your bank.

To avoid business, government, and job impersonators, know that

  • No legitimate business or government will ever email, text, or message you on social media to ask for money. And they will never demand that you buy or pay with cryptocurrency.
  • Never click on a link from an unexpected text, email, or social media message, even if it seems to come from a company you know.
  • Don’t pay anyone who contacts you unexpectedly, demanding payment with cryptocurrency.
  • Never pay a fee to get a job. If someone asks you to pay upfront for a job or says to buy cryptocurrency as part of your job, it’s a scam.

Blackmail scams

Scammers might send emails or U.S. mail to your home saying they have embarrassing or compromising photos, videos, or personal information about you. Then, they threaten to make it public unless you pay them in cryptocurrency. Don’t do it. This is blackmail and a criminal extortion attempt. Report it to the FBI immediately.

How To Report Cryptocurrency Scams

Report fraud and other suspicious activity involving cryptocurrency to

(Video) How Cryptocurrency Scams Work

FAQs

How are people scamming with crypto? ›

Some of the latest scams involve rug pulls, Ponzi schemes and phishing. Where money is concerned, scams always follow. And the same is true with cryptocurrency. In February 2022, cryptocurrency exchange platform Wormhole lost $320 million after a cyber attack.

What you need to know about cryptocurrency? ›

Cryptocurrency (or “crypto”) is a class of digital assets created using cryptographic techniques that enable people to buy, sell or trade them securely. Unlike traditional fiat currencies controlled by national governments, cryptocurrencies can circulate without a monetary authority such as a central bank.

What to do when you get scammed on crypto? ›

But if you've fallen victim to a crypto scam, here are four key steps you should take:
  1. Find your transaction IDs. ...
  2. Write your narrative. ...
  3. Prepare to prove ownership. ...
  4. Contact law enforcement and report.
18 Oct 2022

How do you prevent cryptocurrency scams? ›

How to Avoid Cryptocurrency Scams
  1. Ignore requests to give out your private cryptocurrency keys. ...
  2. Ignore promises that you'll make lots of money.
  3. Ignore investment managers who contact you and say they can grow your money quickly.
  4. Ignore celebrities—a celebrity will not contact people about buying cryptocurrency.

Can I recover my scammed crypto? ›

Report The Scam To The Law Enforcement Authorities

Although it doesn't assure fund recovery, it's also best to report the cryptocurrency scam to your area's designated law enforcement authorities. Typically, when you report a scam, the government will track down the criminals and get your funds back for you.

Is crypto easy to steal? ›

The concepts behind blockchain technology make it nearly impossible to hack into a blockchain. However, there are weaknesses outside of the blockchain that create opportunities for thieves. Hackers can gain access to cryptocurrency owners' cryptocurrency wallets and exchange accounts to steal crypto.

What are the 4 types of cryptocurrency? ›

Q #1) What are the four types of cryptocurrency? Answer: The four major types include utility, payment, security, and stablecoins. There also are DeFi tokens, NFTs, and asset-backed tokens. Of all cryptocurrencies, the most common are utility and payment tokens.

How does crypto work for beginners? ›

It's a peer-to-peer system that can enable anyone anywhere to send and receive payments. Instead of being physical money carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database describing specific transactions.

How can a beginner learn crypto? ›

There are 5 steps to getting started:
  1. Do your research to work out whether cryptocurrency trading is right for you. ...
  2. Decide whether you want to do long-term or short-term trading. ...
  3. Choose the trading method that's right for you. ...
  4. Learn how to place trades and read charts. ...
  5. Choose an exchange and start trading.
28 Aug 2022

Can you turn crypto back into money? ›

Use an exchange to sell crypto

One of the easiest ways to cash out your cryptocurrency or Bitcoin is to use a centralized exchange such as Coinbase. Coinbase has an easy-to-use “buy/sell” button and you can choose which cryptocurrency you want to sell and the amount.

Can someone steal money from crypto with wallet address? ›

Your crypto addresses are safe to display anywhere you would like to accept tips, payments, or donations. It is not possible to steal digital currency with a public address alone.

Can you get money back from crypto? ›

Posted by Frank Gogol in Crypto | Updated on November 15, 2022. At a Glance: Withdrawing money from Crypto.com can be done in a series of steps. Every month, you can withdraw about $50,000. In case you try to withdraw less than $100, they will notify you.

What is the best way to protect cryptocurrency? ›

  1. Use Two-Factor Authentication for Your Exchange. ...
  2. Withdraw Your Crypto. ...
  3. Back Up Your Seed Words Properly. ...
  4. Use a Strong Password to Protect Your Crypto. ...
  5. Use a Hardware Wallet If Possible. ...
  6. Check the URL (Avoid Fake Software) ...
  7. Don't Enter Your Seed Words on a Website. ...
  8. Avoid Public Wi-Fi.
3 Nov 2022

How to know fake cryptocurrency? ›

So, how to spot a crypto scam? Warning signs to look out for include: Promises of guaranteed returns: No financial investment can guarantee future returns because investments can go down as well as up. Any crypto offering that promises you will definitely make money is a red flag.

Can you track a crypto scammer? ›

In order to trade crypto to regular money on most popular exchanges, the thief would need to submit KYC (Know Your Customer) information, such as names, addresses, and ID information. Contacting the exchanges can potentially help you to track down the scammer's identity, which can help to lead to his/her arrest.

Can stolen crypto be traced? ›

Realistically, every bitcoin can be traced and tracked from its initial wallet to the one it currently sits in today. However, the blockchain only stores the public addresses of crypto wallets, not real-world identities. This makes bitcoin pseudonymous rather than anonymous.

Can you track a scammer? ›

IP tracing

An IP address can be used to trace the location of the scammer if the IP address is not hidden using a VPN or other means. There are a variety of ways to obtain someone's IP address.

Can a Bitcoin wallet be traced? ›

All Bitcoin transactions are public, traceable, and permanently stored in the Bitcoin network. Bitcoin addresses are the only information used to define where bitcoins are allocated and where they are sent.

Can police track your crypto? ›

If the bitcoin wallet is not encrypted, law enforcement has complete access (provided proper warrants have been obtained for the seizure of the device). If the bitcoin wallet is encrypted, getting the suspect to volunteer the encryption code is the easiest method of access.

What is the safest place to hold crypto? ›

A Hardware Wallet May Be the Safest Option

Hardware wallets can be the safest option because you can keep your crypto wallet offline—as a cold wallet—when you don't want to trade your crypto. While it's offline, you don't have to worry about a hacker or malware breaking into the wallet.

How do hackers cash out crypto? ›

“Tornado Cash is the typical first destination”

To hide their trail, cyber thieves often use “mixers,” which let anyone deposit cryptocurrency and “mix” it with other people's cryptocurrency. Users can later withdraw the same amount they put in, but it's not the same cryptocurrency.

What is difference between crypto and Bitcoin? ›

Cryptocurrency is the term used for all forms of electronic currency including Bitcoin. Cryptocurrency may make sense as an investment and as a form of currency for your business. But, it is Not Regulated and Not Under the Supervision of any Central Bank.

What do I need to know before buying cryptocurrency? ›

Here are the 5 important things you should know before you consider investing in cryptocurrencies.
  • Cryptocurrencies Are Decentralised. Cryptocurrencies use blockchain technology to create decentralised networks. ...
  • Speculative in Nature. ...
  • Highly Volatile. ...
  • Subject to Cyberattacks. ...
  • Gains from Cryptocurrency Are Taxed in India.
28 May 2022

How safe is cryptocurrency? ›

Despite its decentralized nature, transactions on most cryptocurrency networks are very secure — as long as crypto users take precautions. The underlying blockchain technology is inherently secure.

How does a crypto make money? ›

Well, at their core, crypto exchanges make money off trading fees: When you buy or sell something, you pay the exchange a cut. These vary drastically by the size of the trade and often by the trader's monthly volume — and, of course, there are withdrawal fees for off-ramping funds.

Is crypto hard to learn? ›

Cryptocurrency by its very nature is incredibly complicated. For one, you'll need to get to grips with the minefield that is blockchain technology to even begin to process the intricacies of this asset.

How much money do you need to start with crypto? ›

Invest even $10 on any recommended cryptocurrency exchange or broker. This way you'll get started and you'll have a much better understanding of what it is to be a cryptocurrency investor.

Which crypto is good for beginners? ›

9. Bitcoin (BTC) – Best Beginner Crypto to Trade with Low Fees. Bitcoin needs no introduction, as this digital currency was what started the cryptocurrency revolution and has become the best Proof-of-Work coin on the market.

Which crypto wallet is best? ›

Our Top Picks for the Best Crypto Wallets of November 2022
  • Coinbase Wallet - Best for Beginners.
  • MetaMask - Best for Ethereum.
  • TrustWallet - Best for Mobile.
  • Ledger Nano S Plus - Best Crypto Hardware Wallet.
  • Electrum - Best Desktop Bitcoin Wallet.
  • BlueWallet - Best Mobile Bitcoin Wallet.
  • Exodus - Best for Desktop.
4 Nov 2022

Which crypto to buy beginners? ›

Bitcoin: Bitcoin is a great starting place for any beginner. Every currency exchange supports Bitcoin, which means that you'll know what you're buying into. Bitcoin is merely a form of digital cash.

Can I cash out my crypto to my bank account? ›

To cash out your funds, you first need to sell your cryptocurrency for cash, then you can either transfer the funds to your bank or buy more crypto. There's no limit on the amount of crypto you can sell for cash.

Do banks accept Bitcoin? ›

But surprisingly, some banks are crypto-friendly. Some big banks even allow you to buy digital assets. Whether you're looking to switch banks or want to know if your bank has any crypto integrations, this guide will break down your options.

How do you earn daily from cryptocurrency? ›

Buy and sell. Trading digital assets is how most traders make money with cryptocurrency. The idea is simple: you buy cryptocurrencies at a low price and then sell them after a short period. If you haven't started yet but are looking to try it out, you can check out Paxful for easy Bitcoin trading.

Can crypto account be traced? ›

It is certainly possible to trace a Bitcoin (BTC) transaction. Bitcoin explorers allow you to map activity on the Bitcoin blockchain. Thanks to this transparency, transactions are traceable and you can think of the blockchain as a kind of open database full of Bitcoin transactions.

How do hackers steal crypto wallet? ›

Security flaws can make a Bitcoin wallet vulnerable to theft through hack attacks. In some cases, service providers keep private keys inside virtual wallets to enhance convenience. Unfortunately, hackers can exploit a wallet's vulnerability to steal both the access and funds in a single fell swoop.

Can you track someone by their crypto address? ›

Are Bitcoin Addresses Traceable? A Bitcoin address by itself is not traceable, as there is no identifying information stored directly on the blockchain.

What happens if you convert crypto to cash? ›

Third-Party Broker Exchanges

Once the exchange has received your bitcoin, you can request a withdrawal in the currency of your choice. The withdrawal will be paid into your bank account. Brokers are restricted by money laundering laws, so you will need to withdraw to the same bank account that you deposited with.

Do you have to claim crypto if you lost money? ›

The IRS requires that you report all sales of crypto, as it considers cryptocurrencies property. You can use crypto losses to offset capital losses (including future capital losses if applicable) and/or to deduct up to $3,000 from your income.

Is crypto a good investment? ›

Bitcoin, the largest cryptocurrency by market cap, is a risky investment with high volatility. It should only be considered if you have a high risk tolerance, are in a strong financial position and can afford to lose any money you invest in it.

Can your crypto wallet be hacked? ›

Hackers can steal cryptocurrency in a variety of ways, from stealing or guessing your password, to hacking an exchange platform, to luring information from you in phishing attempts, and many more. However, the most common attack is stealing the private keys of a crypto wallet.

Where is the best place to hold crypto? ›

Hardware wallets are considered the most secure way to store your crypto. This is because your private keys, which allow for the spending of your crypto, physically cannot leave the hardware wallet device due to how hardware wallets are designed.

Where is the best place to store crypto? ›

Best practices for storing cryptocurrencies

Store the bulk of your crypto in a cold wallet since that's the most secure option. Use a hot wallet for smaller amounts of crypto that you want available for trading. Physically record the recovery phrases for your crypto wallets.

What are fake crypto apps? ›

Fake crypto app scammers sometimes use official app stores to distribute dodgy applications. Some of the apps are designed to collect user credentials that are then used to unlock crypto accounts on corresponding official platforms.

Can the FBI track crypto? ›

Key Takeaways. The DOJ announced a new FBI cryptocurrency crime-fighting unit to track and seize funds linked to illicit activity.

Is Bitcoin used for scamming? ›

Yes, fake crypto exchanges exist, and in some cases, have been used to scam investors out of their money. For fraudsters, it can be as easy as luring crypto investors with the promise of free bitcoin (or something similar) to get them to sign up for the exchange.

Why do criminals use cryptocurrency? ›

The anonymity of cryptocurrency accounts has previously made them attractive to criminals on the dark web, the portion of the internet only accessible through special software and popular among cybercriminals.

Which crypto wallet can be hacked? ›

There are two primary types of cryptocurrency wallets. Of the two, "cold storage" or "cold wallet" hardware devices are the safer option. These wallets look like USB drives and act as a physical store for tokens or coins. Because they're not connected to the internet, cold wallets cannot be hacked online.

Why do hackers use crypto? ›

Victims would load their computers to find a screen telling them their files have been encrypted and would only be released if they sent the hackers a certain amount of money in bitcoin. Hackers like to use bitcoin because of its anonymity.

Can you hide money in cryptocurrency? ›

However, some people may wish to keep assets out of the divorce by hiding them from their spouse or even their own divorce lawyer. Cryptocurrency, due to its anonymity, can be one option for people seeking to hide marital assets from the property division process.

What is the most secure crypto wallet? ›

10 BEST Crypto Wallet Apps (Nov 2022)
  • #2 Top Pick. Crypto.com. 4.5. ...
  • #3 Top Pick. Coinbase. 4.8. ...
  • #4 Top Pick. Binance. 4.5. ...
  • #5 Top Pick. Pionex. 4.5. ...
  • #6 Top Pick. Ledger Nano X. 4.5. ...
  • #7 Top Pick. Bitcoin IRA. 4.5. ...
  • #8 Top Pick. Trezor Model T. 4.5. ...
  • #9 Top Pick. Kraken. 4.5. Coins Supported: Bitcoin, Polkadot, Ethereum, Dogecoin, Cardano, etc.

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