The world of cryptocurrency is growing rapidly — and cryptocurrency scams are following close behind. In fact, scammers ran away with $14 billion in crypto in 2021, and victims saw a 79% increase in losses from cryptocurrency crime, including scams and theft, over the previous year.
Michela Menting, digital security research director at global technology intelligence firm ABI Research, said there are two main types of cryptocurrency scams: one is a traditional scam that demands payment in cryptocurrency, and the other is a crypto-specific fake investment or venture.
Any scam involving cryptocurrency can cost you. So how do these scams work, and what should you look for to avoid getting conned?
How do traditional scams use cryptocurrency?
The essence of a scam is a ploy to steal your money, your personal information, or both. Romance scams, imposter scams, and e-commerce scams are just a few of the common types of online scams that criminals use to trick you into sending them money.
Cryptocurrency scams are similar, except that instead of requesting dollars or another fiat currency via bank transfer, gift card, or money order, the scammer demands payment in cryptocurrency. The risk to the victim is high: cryptocurrency transactions have no legal protection or dispute process, and they are not usually reversible.
Traditional scams that use cryptocurrency payments are “fairly well-known and nothing new in cyberspace,” Menting said. “Unlike with banks and the possibility of reverse charges, no third party can make the recipient return the money.”
Amy Nofziger, director of the AARP Fraud Watch Network, said that her organization’s helpline is receiving a lot of complaints about romance scams involving cryptocurrency.
Criminals are approaching targets on dating apps or social media, as in a traditional romance scam — but after establishing a relationship, they are offering to help victims get into crypto investing and ultimately stealing their money.
While anyone can be a target for this scam, Nofziger says victims are often adults in their 40s or 50s.
“Remember, anytime you are on any platform where you are interacting with new people, there is a criminal waiting to build your trust and steal your money,” Nofziger said.
Other common pay-in-crypto schemes include cryptocurrency ATM scams, in which a caller pretending to be a government official, law enforcement officer, love interest, or lottery representative asks you for money. They’ll direct you to a cryptocurrency ATM and request that you transfer the funds to them using a QR code.
Scammers are also setting up cryptocurrency wallets to receive “charitable donations” meant for other causes and running gated-investment or giveaway scams that promise you can double your money if you send in your cryptocurrency, but you either lose your money or have to pay a lot to get it back.
The FTC has warned about blackmail and extortion emails demanding payment in cryptocurrency as well as tweets, texts, and social-media posts sent from hacked accounts telling recipients to send funds in crypto to get huge returns.
You may also encounter business opportunity or recruitment scams, which involve paying fees or buying into a platform using crypto with the promise of growing your money.
What are cryptocurrency investment scams?
Another type of cryptocurrency scam capitalizes on the hype surrounding digital currencies, conning people into investing in crypto with the promise of big returns or access to an exclusive application or product.
Menting describes one popular scam that involves buying cryptocurrency created for use within a specific game or app. Once players have bought in to make in-game purchases, the scammer discontinues or abandons the platform, taking the money people have spent on a now-worthless coin.
One example of this so-called “rug pull” scam: in late 2021, investors lost more than $3 million on a fraudulent coin based on the Netflix series “Squid Game.”
“This type of scam [can] be applied to any type of application really, where the crypto is useless outside of the application itself,” Menting said.
Non-fungible tokens, or NFTs, create another opportunity for fraudsters. Bad actors are creating counterfeit NFTs of digital art and selling them as genuine — or openly marketing the fakes or gimmicks. Some schemes use fraudulent NFT trading platforms or airdropped NFTs to engage in phishing and gain access to victims’ crypto wallets.
Pump-and-dump scams also take advantage of eager investors. Criminals spread rumors that a celebrity or billionaire is planning to back a specific cryptocurrency. Once people have bought in and driven up the price, scammers sell their shares and watch the value plummet.
Of course, cryptocurrency can also be lost in straight-up theft. Hackers can steal from public exchanges or find ways to gain access to private wallets using malware. In late March 2022, someone stole $625 million in cryptocurrency from a company called the Ronin Network, which operated the blockchain on which the NFT-based online game Axie Infinity ran.
Be wary of anything involving cryptocurrency, especially if the person pitching it to you is creating a sense of urgency or putting other kinds of pressure on you to buy in.
If someone you don’t know — or even someone you think you know — demands payment in crypto, it’s almost certainly a scam. Investing in or trading with digital currencies is risky, as cryptocurrency is speculative and does not guarantee real value or returns.
“Undoubtedly, the cryptocurrency space is fraught with uncertainty,” Menting said, “existing in a volatile and completely unpredictable bubble of hype, fraud and opportunity.”