The first modern cryptocurrency, Bitcoin, took the financial world by storm with its meteoric rise in 2009. As Bitcoin’s value and popularity grew, cryptocurrencies – virtual funds that exist within a decentralized currency system – have steadily gained their place within the modern financial market, despite their high volatility and lack of benchmark for evaluation.
The current market value of one Bitcoin is $6766 US Dollars. Stories of early investors such as Erik Finman, who purchased Bitcoin for $12 US Dollars a coin, motivate many to seek the same success by investing in Bitcoin and new coins alike. In the aftermath of the Bitcoin boom, the frenzy and excitement over these novel investment options have led to the emergence of numerous cryptocurrencies and online exchange platforms.
Unfortunately, this has placed unsuspecting investors at risk for cryptocurrency-related scams. In 2019 alone, the Blockchain Forensics Company CipherTrace estimated that cybercriminals stole $4.26 billion through such scams.
Common Cryptocurrency Scams: Fake Currencies, Malware, and Ponzi Schemes
Among the most common cryptocurrency scams are fake currencies that are introduced as new Bitcoin alternatives. These new currencies are presented as viable investment options and promoted under the guise that they will follow the path of Bitcoin and experience extreme appreciation in a short period of time, when in fact the money invested into these fake coins is funneled into the personal accounts of those committing fraud. Fake bitcoin exchanges that masquerade as true platforms are also common, with criminals stealing Bitcoin directly from users who execute trades on the platforms under their control.
Other common cryptocurrency scams include malware that hackers use in attempts to access the virtual wallets of those with cryptocurrencies. Once the hackers gain access, they are able to steal funds directly from investors.
In addition, older scam formats, such as ponzi schemes where organizers use money from new investments to fund past investments, are also a risk with cryptocurrencies. Con artists also pose a threat, as they often claim to be government agency employees and demand debts and back taxes be paid via Bitcoin.
Warning Signs and Best Practices to Avoid Cryptocurrency Scams
When in doubt, investors should search for common warning signs to help spot a cryptocurrency scam. A standard theme across these scams is a false sense of urgency that encourages investors to buy immediately. When reviewing currencies, websites, and mobile apps, check for common signs of fraud such as missing “https” in the site address, a numerical “0” in place of the letter “o”, and obvious misspellings or inauthentic branding.
When interacting with online accounts on social media, remain vigilant of bots impersonating real accounts – do not respond to offers online that seem too good to be true, or to anonymous tips from social media. Do not respond to suspicious requests or demands for your virtual funds, and do not invest in suspicious new currencies that you cannot verify the validity of.
Engaging in the cryptocurrency market can offer a high reward, but it is essential that investors are well informed on how to safely navigate this continuously evolving market. Before investing, protect yourself by thoroughly researching the cryptocurrency that you plan to invest in and the platform that you plan to use.