AARP Eye Center
Cryptocurrencies such as bitcoin, ethereum, cardano and hundreds more are hot commodities in online trading, and it’s possible for a lucky investor to make a big profit. But the prospect of quick riches can blind some people to the risks and enable crooks to lure them into scams.
This virtual money isn’t backed by any government or central bank. Even so, you can use crypto to buy goods and services, exchange it for U.S. dollars and other conventional currencies on digital markets, and even obtain it at specialized ATMs.
But unlike government-backed money, the value of virtual currencies is driven entirely by supply and demand. That can create wild swings that produce big gains for investors, or big losses. And crypto investments are subject to far less regulatory protection than traditional financial products like stocks, bonds and mutual funds.
Cryptocurrency fraud has taken a quantum leap in the past few years. The Federal Trade Commission (FTC), which recently warned consumers that “crypto investing comes with lots of risks, including scams,” says that from the start of 2021 through June 2022, more than 46,000 people reported losing a total of more than $1 billion in crypto to scams. The median individual loss was $2,600.
Cryptocurrency Safety
Social media is a hot spot for perpetrators of investment scams: Nearly half the people who reported losing money to a scam involving crypto said it started with an ad, post or message on a social media platform, according to the FTC. And despite cryptocurrency’s high-tech gloss, many of the related scams are just newfangled versions of classic frauds. For example:
- Bogus websites. Phony sites festooned with fake testimonials and studded with crypto jargon promise huge, guaranteed returns on investments.
- “Celebrity” endorsements. Con artists posing online as billionaires or other big names promise to multiply your investment in crypto but instead pocket what you send.
- Pump-and-dumps. Using messaging apps or social media, crypto promoters plant rumors that a famous mogul is backing a certain currency. The aim is to lure investors to buy and drive up the price; the promoters then sell their stake, causing the currency’s value to plummet.
- Ponzi schemes. Some crooks peddling crypto create the illusion of big returns by paying off old investors with new investors’ money. Four founders of a supposed cryptocurrency investment platform called Forsage were recently indicted in Portland, Oregon, and accused of running it as a pyramid scheme; they took in $340 million from people around the world, while promoting Forsage on social media as a legitimate, low-risk investment opportunity.
- Romance scams. Crooks persuade people they met on dating apps or social media to invest or trade in virtual currencies. The FBI’s Internet Crime Complaint Center (IC3) received more than 19,000 reports of crypto-focused romance scams in 2022, with losses of nearly $740 million.
Other scammers pose as legitimate crypto traders or set up phony exchanges to lure people into giving them money. Another con involves fraudulent sales pitches for “IRS-approved” individual retirement accounts in cryptocurrencies. There are also straight-up hackers who break into the “digital wallets” where people store their virtual currency.
