JAKARTA - Cryptocurrencies are not yet considered mainstream by most people. But crypto has become commonplace, especially as an investment and payment method. But with increasing popularity, there are more opportunities for fraud.
The Federal Bureau of Investigation (FBI) states that crypto is the method of payment of choice for various types of fraud. This does not only apply on the dark web, where cryptocurrencies are used to fund illegal activities.
The environmental crypto market is perfect for scams
According to CNBC, one in five Americans has used cryptocurrencies, representing about 59 million people. Of the group of users, the Federal Trade Commission (FTC) reported that from early 2021 to the first quarter of 2022, more than 46.000 people have reported missing more than $1 billion in crypto scams.
That means one in every four dollars reported missing more than the amount lost through other payment methods.
US banking regulators recently warned financial institutions that dealing with cryptocurrencies puts them at various risks.
Last year's events have been marked by significant volatility and vulnerability exposure in the crypto asset sector, read a joint statement from the Federal Reserve, FDIC, and OCC. The comments come just weeks after the spectacular collapse of the crypto exchange FTX.
Regulators say the risks include: "fraud and fraud among participants in the crypto asset sector" and "risk of transmission in the crypto asset sector resulting from interconnection among participants of certain crypto assets."
There are several reasons why the cryptocurrency market allows scams to thrive:
There are no banks or centralized authorities to mark suspicious transactions and try to stop fraud before that happens, as is the case with fiat currencies. Crypto transfers cannot be canceled, once money is lost, users cannot get them back even if they report transaction fraud.
Many people are still not used to how digital currencies work, causing users to become victims of fraud for the first time due to lack of understanding.
Crypto scams to watch out for in 2023
According to the FTC, the top ten trends of crypto scams that must be considered in 2023 are:
Investment scams: Investment scams come with "fast-rich" and "riskless" promises, often starting through social media or online dating apps. In this scam, cryptocurrencies can be in the form of investments offered or payment methods. Crypto invested directly goes into the scammer wallet.
A romance scam: A love affair preys on relationships and can have an investment and payment perspective. After gaining user trust, the perpetrator pretends to have wealth and sophistication and casually offers investment tips for their scheme to roll on. Once the relationship is established, the victim is asked and can send crypto to the scammer.
Implication scams of business identity, government, or work: In a scheme of imitating business identity, government, or work, the perpetrators present themselves as a trusted online source, such as Amazon, FedEx, or user bank, and convince users to send them funds by buying crypto. Crypto offered for sale by scammers is often fraudulent.
Fraud of carpet recalls: The so-called carpet withdrawal scam is when investment scammers propose new crypto opportunities or nonfungible tokens (NFTs) that require funding. Once project initiators receive payment, they disappear, so their investors have no way to get money back.
Phishing scams: Phishing scams use emails with malicious links to collect personal details, such as user crypto wallet key information. If they acquire sufficient information, scammers can gain unlimited access to victims' cryptocurrencies. This type of scam can also be done via text messages with a method known as smishing.
Social media scam: FTC reports that half of those who have reported crypto losses since 2021 say the scam started with ads, posts, or messages on social media. The most well-known platforms used are Instagram, Facebook, WhatsApp, and Telegram.
Ponzi scheme: Ponzi schemes through cryptocurrencies work in the same way as traditional payment methods. Frauders raise funds from new investors to pay old investors, thus not creating legitimate investment opportunities and leaving investors on the road.
Updating scams: Crypto platforms are a form of software that sometimes requires updating. Consumers are accustomed to upgrades as part of innovative technology. They can easily be tricked into handing over their personal keys as part of an "increase" that turns out to be cheating.
SIM-Swap scam: SIM-swap scam occurs when someone gets a copy of your phone's SIM card to access your phone data. With user data on hand, scammers can steal the two-step authentication code needed to unlock their crypto wallet, allowing fraudsters to access funds and account information.
False crypto exchanges and crypto wallets: Entrepreneured crypto users can be lured into investing in non-existent high-value cryptocurrency exchanges or "cheap" Bitcoins.
The fraudster advertised the investment at a price below market value, and the victim did not realize that the exchange was fake until their investment was lost. A fake crypto wallet is a malware scam that infects the computer and eventually steals the user's private key.
Guidelines of Red Flag
The Financial Crime Enforcement Network (FinCEN) regulates all virtual currencies for anti-money laundering and against terrorism financing programs (AML/CFT). The US Securities and Exchange Commission (SEC) regulates crypto assets that securities can consider. When educating yourself or your client about potential fraud, consider using this red flag tip from the FTC to protect against becoming a victim:
Reporting from Abrigo, only scammers will guarantee significant profits or returns. No crypto investment is guaranteed to make money, let alone big money. No official entity requires you to buy crypto. Not to solve the problem, not to protect your money. It's a scam.
Never mix online dating and investment advice. If interest in new love wants to show you how to invest in crypto or ask you to send them crypto, be careful of scams.
No legitimate business or government will send you emails, texts, or messages on social media asking for crypto. The legitimate fundraiser will never ask you to buy or pay with crypto.
Never click on links from random texts, emails, or social media messages, even though they appear to come from companies you know. Don't pay anyone who calls you suddenly, demanding crypto payments.
Urgency is a red flag. Never pay a fee to get a job. If someone asks you to pay upfront for a job or says buying crypto as part of your job, it's a scam.
Risk Mitigation
Crypto scams are no different from other types of scams, and the same red flag and deterrence can be used to avoid becoming victims of fraud. Of course, crypto is not insured by the Federal Deposit Insurance Corporation (FDIC) and is a risky investment.
Coupled with it easy for scammers to succeed in sacrificing consumers, the best thing is to be prepared and diligent in digital investment or other transactions. Remember, an opportunity that sounds too good to be a reality is probably so.
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