What you should know about cryptocurrencies and fraud

Are you confused about cryptocurrencies, such as Bitcoin or Ethereum (linked to Ethereum)? You're not alone. Before using or investing in cryptocurrencies, learn how they differ from cash and other payment methods, and how to spot scams or identify potentially compromised cryptocurrency accounts.

What You Need to Know About Cryptocurrencies

What are cryptocurrencies?

Cryptocurrencies are a type of digital currency that typically exists only electronically. You typically use your phone, computer, or a cryptocurrency ATM to purchase cryptocurrencies. Bitcoin and Ethereum are well-known cryptocurrencies, but there are many different cryptocurrencies, and new ones are constantly being created.

How do people use cryptocurrencies?

People use cryptocurrencies for many reasons, including speeding up payments, avoiding transaction fees charged by traditional banks, or providing a degree of anonymity. Others hold them as an investment, hoping their value will increase.

How do you get cryptocurrencies?

You can buy cryptocurrencies through trading platforms, apps, websites, or ATMs. Some people earn cryptocurrencies through a complex process called "mining," which requires advanced computer equipment to solve extremely complex mathematical problems.

Where and how are cryptocurrencies stored?

Cryptocurrencies are stored in a digital wallet, which can be online, on your computer, or on an external hard drive. A digital wallet contains a wallet address, which is usually a long string of numbers and letters. If something happens to your wallet or cryptocurrency funds—such as an online trading platform going down, you sending cryptocurrency to the wrong person, you losing your digital wallet password, or your digital wallet being stolen or hacked—you'll likely find that no one can help you recover your funds.

How are cryptocurrencies different from the US dollar?

Because cryptocurrencies are only available online, there are fundamental differences between them and traditional currencies, such as the US dollar.

• Governments do not back cryptocurrency accounts. Furthermore, cryptocurrencies deposited in accounts are not government-insured, unlike US dollars deposited in an FDIC-insured bank account. If your account or cryptocurrency funds suffer any damage—for example, if the company storing your wallet goes bankrupt or is hacked—the government is under no obligation to intervene and help you recover your funds.
• Cryptocurrency values ​​are constantly changing. Their value can change rapidly, even by the hour. The amount of change can be significant. This depends on many factors, including supply and demand. Cryptocurrencies tend to be more volatile than traditional investments, such as stocks and bonds. An investment worth thousands of dollars today may be worth only hundreds of dollars tomorrow. And if its value declines, there's no guarantee it will rise again.

Paying with Cryptocurrency?

There are several ways that paying with cryptocurrency differs from paying with a credit card or other traditional payment methods.

• Cryptocurrency payments do not come with legal protections. Credit cards and debit cards have legal protections in case a problem arises. 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 are typically irreversible. Once you pay with cryptocurrency, you can usually only get your money back if the person you paid returns it. Before purchasing anything with cryptocurrency, ensure the seller's reputation by doing some research before paying.
• Some information about your transactions is likely to be public. People talk about cryptocurrency transactions being anonymous. But the reality is not that simple. Cryptocurrency transactions are typically recorded in a public ledger called the "blockchain." This is a public list of all cryptocurrency transactions, both payments and receipts. Depending on the type of blockchain, the information added to the blockchain may include details such as the transaction amount, as well as the sender's and recipient's wallet addresses. Transaction and wallet information can sometimes be used to identify the people involved in a particular transaction. When you purchase a product from a seller who collects other information about you, such as your shipping address, this information can also be used to identify you later.

How to Avoid Cryptocurrency Scams

Scammers are constantly devising new ways to steal your money using cryptocurrency. To avoid falling victim to a cryptocurrency scam, here are some things you should know.

• Only scammers ask for payment in cryptocurrency. No legitimate company will ask you to send cryptocurrency upfront—not to buy something, and not to protect your money. That's always a scam.
• Only scammers guarantee profits or large returns. Don't trust anyone who promises you quick and easy money in the cryptocurrency markets.
• Never confuse online dating with investment advice. If you meet someone on a dating site or app, and they want to show you how to invest in cryptocurrency, or ask you to send them, it's a scam.

Detect Cryptocurrency Scams

Scammers are using tried and true scam techniques, but now they're demanding payment in cryptocurrency. Investment scams are one of the most prominent ways scammers trick you into buying and sending cryptocurrency. They also impersonate companies, government agencies, and people associated with them, among other methods.

Investment Scams

Investment scams often promise you the possibility of "making a lot of money" without any risk, and they often start on social media, dating apps, or websites. These scams can, of course, start with an unexpected text message, email, or phone call. In investment scams, cryptocurrency is key in two ways: it's both an investment and a 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 to their online account. The investment website they direct you to looks real, but it's actually fake, and so are their promises. If you log in to your "investment account," you won't be able to withdraw your funds at all, or only if you pay high fees.
• The scammer pretends to be a celebrity and can double any cryptocurrency you send them. But celebrities don't contact you through social media. They're scammers. If you click on an unexpected link they send or send cryptocurrency to the so-called celebrity's QR code, that money goes directly to the scammer and disappears.
• The online "admirer" wants you to send them money or cryptocurrency to help you invest. This is a scam. Once someone on a dating site or app asks you for money, or offers you investment advice, know this: they're a scammer. Advice and offers to help you invest in cryptocurrencies are nothing but scams. If you send them cryptocurrency or any kind of money, it will disappear, and you usually won't get it back.
• Scammers guarantee you money or promise huge, guaranteed returns. No one can make these guarantees, let alone achieve them in a short time. There is nothing "low-risk" about cryptocurrency investments. So, if a company or person promises you a profit, it's a scam. Even if there are celebrity endorsements or testimonials from happy investors, these are easy to fake.
• Scammers promise you free money. They may promise you free cash or cryptocurrency, but promises of free money are almost always false.
• Scammers make grandiose claims without detailed explanations. Whatever the investment, find out how it works and ask where your money is being invested. Honest investment managers or advisors are willing to share this information and will back it up with details.

Before investing in cryptocurrencies, search online for the name of the company or person and the name of the cryptocurrency, as well as words like "review," "scam," or "complaint." Get other people's opinions. And read more about other common investment scams.

Corporate, Government, and Job Impersonators

In company, government, and job impersonators, scammers impersonate someone you trust to convince you to send them money by purchasing and sending cryptocurrency.

• Scammers impersonate well-known companies. They arrive in batches and may claim to be from Amazon, Microsoft, FedEx, your bank, or other companies. They send text messages, calls, emails, or social media messages—or they may display a pop-up alert on your computer. They may claim there's fraud on your account, or that your funds are at risk—and to fix it, you have to buy cryptocurrency and send it to them. But that's a scam. If you click on the link in any message, answer the call, or call the number in the pop-up window, you will be connected to a scammer.
• Scammers impersonate new or established companies offering fake cryptocurrencies or tokens. They will claim that the company is entering the cryptocurrency world by issuing its own currency or token. They may create social media ads, news articles, or fraudulent websites to support this and trick people into buying. However, these cryptocurrencies and tokens are scams that end up stealing their buyers' money. Search online to see if the company has issued a currency or token. If the news is true, it will be widely reported in official media.
• Scammers impersonate government agencies, law enforcement, or utility companies. They may claim there is a legal issue, that you owe money, or that your accounts or benefits are frozen as part of an investigation. They ask you to resolve the issue or protect your funds by purchasing cryptocurrencies. They may ask you to send them to your wallet address for "safekeeping." Some scammers even stay on the phone with you and direct you to a cryptocurrency ATM, giving you step-by-step instructions on how to enter and convert your funds into cryptocurrency. They'll instruct you to send the cryptocurrency by scanning a QR code they provide, which directs the payment directly to their digital wallet—and then it disappears.
• Scammers list fake jobs on job sites. They may also send unsolicited cryptocurrency-related job offers, such as helping attract investors, selling or mining cryptocurrency, or helping convert cash into cryptocurrency. But these so-called "jobs" only begin with a fee in cryptocurrency. This is always fraudulent. As your first assignment in your "job," these scammers send you a check to deposit into your bank account. (This check will turn out to be fake.) They'll ask you to withdraw some of this money, purchase cryptocurrency for a fake "client," and send it to a cryptocurrency account they give you. But if you do, the money will be stolen, and you'll be responsible for repaying it to your bank account.

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

• No legitimate business or government will send you emails, text messages, or social media messages asking for money. They will never ask you to purchase or pay in cryptocurrency.
• Never click on a link in an unexpected text, email, or social media message, even if it appears to be from a company you know.
• Never pay anyone who contacts you unexpectedly and asks for payment in cryptocurrency.
• Never pay a fee to get a job. If someone asks you to pay upfront for a job or says purchasing cryptocurrency is part of your job, it's a scam.

Extortion Scams

Scammers may send emails or US mail to your home claiming they have embarrassing or compromising photos, videos, or personal information about you. They then threaten to release them unless you pay them in cryptocurrency. Don't do it. This is extortion and a criminal blackmail attempt. Report it to the FBI immediately.

How to Report Cryptocurrency-Related Fraud

Report any fraud or other suspicious activity related to cryptocurrencies to:

• Federal Trade Commission (FTC) at ReportFraud.ftc.gov
• Commodity Futures Trading Commission (CFTC) at CFTC.gov/complaint
• U.S. Securities and Exchange Commission (SEC) at sec.gov/tcr
• Internet Crime Complaint Center (IC3) at ic3.gov/Home/FileComplaint
• The cryptocurrency exchange you used to send funds