6 Common Crypto Scams, and How Investors Can Protect Their Coins | NextAdvisor with TIME

We want to help you make more inform decisions. Some links on this page — clearly marked — may take you to a partner web site and may result in us earning a referral commission. For more information, see How We Make Money. Cryptocurrency crime had a record-breaking year in 2021, with a new report finding scammers took $ 14 billion deserving of crypto last year. That ’ s about doubly the $ 7.8 billion taken by scammers in 2020, according to blockchain data firm Chainalysis ’ “ 2022 Crypto Crime Report, ” findings from which were released Thursday, Jan. 6. With a boom in cryptocurrency pastime over the past year, it ’ second no wonder that “ Olympic-level scammers ” have taken detect of new opportunities for illicit action, says William E. Quigley, a outstanding investor and co-founder of the WAX blockchain. The high-tech nature of crypto will continue to attract sophisticated scammers, Quigley said during a jury discussion hosted by blockchain firm Light Node Media last month.

Consider a late “ Squid Game ” victimize in which investors allege a fresh SQUID cryptocurrency token and relate immersive on-line game were actually barely an elaborate scam. Investors claim the developers disappeared after the currency skyrocketed in price and apparently cashed out with more than $ 3 million .

Before You Invest In Crypto

Experts say it ’ second fresh to keep your crypto investments under 5 % of your overall portfolio. Crypto prices fluctuate wildly by the day, and experts besides say you ’ vitamin d be smart not to invest more than you ’ five hundred be all right losing if the market dropped out raw. Crypto investments should besides never get in the way of other fiscal priorities like saving for emergencies, paying off high-interest debt, and saving for retirement using more conventional investment strategies. Like it or not, crypto investors are opening themselves up to this new and evolving gamble of fraud and scam. If you ’ ve incorporated crypto into your investing portfolio or are matter to in investing in Bitcoin or Ethereum in the future, here are some common scams and crimson flags to look out for .

What Are Some Common Cryptocurrency Scams?

In the U.S., about 7,000 people lost upwards of $ 80 million in crypto scams from October 2020 through March 2021, according to the Federal Trade Commission ( FTC ), based on scam reports filed in the U.S. That ’ s a huge alternate over the 570 cryptocurrency investment scam and $ 7.5 million in losses during the same months just the year ahead. With cryptocurrency scams on the heighten, here are some patterns to look out for :

Demanding Crypto-Only Payments

If a apparently credible person or retail establishment claims they can not accept any form of currency other than Bitcoin or Ethereum it ’ s likely a scam. Bitcoin and other altcoins are a burgeon asset course, so experts say credible institutions aren ’ thymine going to accept crypto and not besides bear U.S. dollars through normal means like wire transfers, checks, credit and debit menu payments, and cash. In general, anyone demanding you pay them in Bitcoin might be trying to hoard it and capitalize on its skyrocketing value. And unlike banks, blockchain lacks common know-your-customer ( KYC ) protocols. That means people can open wallets without having to present valid identification, a Social Security number, or an address and contact information. Though blockchain is public and creates permanent, open-access records, people can transact on blockchain more or less anonymously — making it easy to trick you, take your money, and run .

Anonymous or Fake Identities

The lack of KYC protocols on blockchain is a major question set for its widespread consumption, says Jonathan Padilla, early PayPal headway of blockchain strategy and CEO and co-founder at Snickerdoodle Labs, a California-based blockchain data security company that ’ south looking at using blockchain to give consumers ownership of their cookies and browsing data. “ With a decentralized platform, there ’ s actually no safeguards in topographic point to say who is a commodity actor and who is a bad actor, ” Padilla explains. “ It ’ s very just buyer beware. ” On a predict note, blockchain can provide a modern human body of transparency : Since data can not be altered or removed on blockchain, all transactions are public record. When colonial Pipeline paid anonymous hackers 63.7 Bitcoin ( valued at about $ 2.3 million ) back in June, U.S. Justice Department investigators were able to track the transactions on blockchain and seize the ransom money. “ [ The hackers ] used a host wallet to move the Bitcoin around, which means [ law enforcement ] found them in about five days, ” Padilla says. “ There ’ south transparency built in [ to blockchain ], and now with the tools [ coders are developing ], you can use advanced software to do an on-chain analysis and track where these things go. ” however, it will be a matter of fourth dimension before law enforcement agencies at every municipal tied become conversant enough with modern tools to investigate smaller-scale blockchain scams effectively. There ’ second presently still a possibility that crypto tokens, NFTs, and other digital blockchain assets could be used by bad actors to launder money on both small and large scales. “ That ’ s a very real concern, ” says Padilla. “ For case, you could get money from Colombia, go buy an NFT with what was previously trust money, and it could be washed in an NFT. ” Mass-scale money laundering international relations and security network ’ triiodothyronine extremely prevailing, Padilla says, but the tools and the submission model needs to catch up fast.

“ The technical school is just getting where it needs to be … to be able to track where that money is coming from and where it ’ mho going, ” Padilla says. “ But it hasn ’ triiodothyronine been there for the death half year, ” since crypto and NFTs have exploded in popularity. Sticking with beginner-friendly crypto exchanges like Coinbase and Gemini is one room to avoid risks that come with smaller, recess exchanges, experts say. It ’ south besides a dear mind for novice crypto investors to stick with the two most popular cryptocurrencies — Bitcoin and Ethereum — which have a longer record of increasing in rate than other fresh altcoins .

Digital Collectibles and Games

Like we saw with the “ Squid Game ” scam, advanced coders now have the ability to create new games and entire fanciful worlds on blockchain. And to do it ampere promptly as the next viral Netflix show takes off. An easy way to scam delirious blockchain newbies is to get them to buy a type of newly minted coin or token for a game. If adequate people drive the price up through supply and demand, this gives the original scammers an opportunity to sell all their holdings and disappear in a move known as a “ rug pull. ” Unlike bank accounts for federally regulate currency, there ’ s no such thing as imposter security or FDIC insurance on the blockchain. When your money gets stolen on blockchain, the only means to get it back is for the recipient to pay you back directly. On a decentralize commute, that ’ s highly improbable. And while mainstream crypto exchanges have better fraud security measures than lesser-known exchanges, there ’ s still no guarantee for investors to recoup stolen crypto .

Cryptocurrency Investment Schemes

New forms of crypto are constantly being minted, and when modern coins hit the blockchain it ’ sulfur known as an initial coin oblation ( ICO ). But ICOs are besides opportunities for scams. A caller or individual may say they have a once-in-a-lifetime opportunity to invest in a new form of crypto with guarantee 1,000 % returns. They may then pressure you into depositing a bunch together of new coins into a digital wallet that ’ sulfur been compromised somehow, or “ pump and dump ” by buying up the mint and sell when the monetary value explodes .

Romance Scams

Dating apps are rife with crypto scams. According to the FTC, about 20 % of the money lost in love story scams from October 2020 through March 2021 was sent in the form of cryptocurrency. Scams like this involve long-distance or digital relationships in which one party pressures and convinces the other to buy or give money for some newly crypto that ’ sulfur actually precisely a way to scam people out of their money .

Phishing Scams

This type of victimize is adenine old as the internet, but with crypto there are some new implications. equitable as a “ normal ” phishing attack would work, bad actors send emails attempting to bait recipients into clicking links and inputting their personal details — including crypto wallet winder information. But unlike most passwords and usernames, you only get one private key to your blockchain wallets. This is separate of blockchain ’ s decentralized design, ensuring that one entity can not control your information, but it poses an issue if you always need to change your key .

How Investors Can Protect Their Crypto

even the most advanced and enthusiastic cryptocurrency experts understand there are many modern and evolve risks in the world of crypto right now. Some have weathered scam themselves, such as the blockchain investor and entrepreneur Ian Balina, who said he lost $ 2.5 million after his secret wallet key information was compromised by person hacking into his Evernote account. Balina ’ s report highlights the possibility of loss and fraud when dealing with such a raw, volatile asset course, even for successful investors. fiscal experts advise most passive investors to keep crypto holdings to under 5 % of their portfolios, and never to invest in crypto at the expense of saving for emergencies or paying off high-interest debt. If you feel ready to start investing in crypto, here are some best practices to protect your money :

Cryptocurrency Red Flags 

For starters, watch out for some coarse bolshevik flags that are similar to classic money wiring scams and accredit batting order imposter :

  • Typographical errors and obvious misspellings in emails, on social media posts, and during any communication
  • Promises to multiply your money
  • Contractual obligations that lock you into holding crypto without being able to sell
  • Fake influencers or claims to be a celebrity
  • Psychological manipulation like blackmail or extortion
  • Large social media crypto schemes
  • Promises of free money
  • Vague details about where your money is going

Know When to Use a Crypto Wallet

just like your physical wallet, you need to protect your digital wallets from hackers. Practice dear digital security habits akin to how you ’ vitamin d manage big sums of forcible cash by putting them in a safe or FDIC-insured savings account. Experts say small-scale investors with a few hundred dollars worth of crypto are credibly o keeping it on a mainstream rally like Coinbase. however, if you amass thousands of dollars worth of crypto, it probably makes more feel to incorporate a wallet for extra guardianship. There are two types of crypto wallets, typically described as “ hot wallets ” and “ cold wallets. ” Hot wallets are hosted, or stored on-line. They are secure, but more susceptible to hacking than cold storage, which is when you store crypto offline on a piece of hardware. Think of cold storage as kind of like a safe in USB-drive format. It ’ s more fasten, but if you forget your password or lose the device, you could lose entree to your money everlastingly. Crypto held in hot wallets is not FDIC-insured like cash in the bank. You ’ ll consequently want to make indisputable that whatever platform or wallet you store your crypto in has robust security system measures, including :

  • Two-factor authentication
  • Storing a portion of holdings in its own cold storage
  • Private insurance policies in case of theft or hacking (separate from FDIC insurance)

Keep Track of Your Wallet Keys

You alone get one unique identify to access your wallet, says Mac Gardner, a Florida-based certified fiscal planner and founder of FinLit Tech. Losing your key or having it stolen could mean losing the crypto altogether. “ You need to have a bunch of dominance around getting access to [ your wallet key. ] It ’ s not a thing where you can forget your username and password if you don ’ thyroxine write it down, ” Gardner says. “ Each code has a process and a certain number of characters. It ’ s extremely personalize because of this virtual space. If it wasn ’ t, anybody could go in there and then grab your stuff, right ? ”

Report Fraud

You should report fraud and other leery natural process involving cryptocurrency to the following chest of drawers using these links :

  • The FTC: ReportFraud.ftc.gov
  • The Commodity Futures Trading Commission (CFTC) at CFTC.gov/complaint
  • The U.S. Securities and Exchange Commission (SEC) at sec.gov/tcr
  • If the fraud involves extortion or blackmail, you can also go to ​​the FBI. 

besides don ’ t forget to report the fraud to whatever crypto exchange you used to complete the crypto transaction whenever you suspect or have evidence that badly actors are at play.

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