According to the Federal Bureau of Investigation, Americans lost over $2 billion in cryptocurrency to scams last year. Stolen crypto assets are virtually impossible to recover, so the best defense is to know what fraudsters are up to — and then steer clear.
Cryptocurrency is becoming more mainstream.
In 2021, the Pew Research Center found that 16 percent of Americans have invested, traded, or used cryptocurrency — and 86 percent had heard at least a little about it.
But as more people adopt digital currencies, reports of crypto scams are rising sharply.
In 2022, Americans lost a whopping $2.57 billion to cryptocurrency investment fraud, according to the Federal Bureau of Investigation (FBI).
Here at Allstate Identity Protection, we’ve seen crypto scams lead to thousands of dollars in losses. Unfortunately, once a crypto asset is transferred, it’s nearly impossible to recover. That’s one reason why it’s important to know about common crypto scams — and then steer clear.
Read on for further advice on navigating this fraud type, plus tips to help you stay protected.
What is cryptocurrency?
Some fraudsters target people who have actively invest in crypto like Bitcoin, Ethereum, and Dogecoin; others prey on people largely unfamiliar with crypto.
If you fall in the latter category, it might help to know a few basics:
Cryptocurrency is a type of virtual currency.
Most crypto isn't issued by a central authority, such as a government or bank.
Instead, crypto runs on blockchain technology. A blockchain is essentially a digital ledger that records and secures most crypto transactions on a peer-to-peer computer network.
Why is crypto linked to fraud and scams?
Crypto is an attractive payment type for scammers because, like cash or money sent via wireless transfer, once a payment is transferred, it’s difficult to recover.
“One man called us after he transferred thousands of dollars of cryptocurrency to a scammer,” says Vera Tolmachoff, Restoration Manager at Allstate Identity Protection.
But unfortunately, when it comes to transferring crypto, there’s no undo button.
“If you’ve sent crypto to someone, the transfer cannot be reversed. It can only be refunded by the person receiving the payment— which isn’t likely if you’ve accidentally transferred funds to a scammer,” Tolmachoff adds.
In addition, crypto is not recognized as legal tender in the United States, so there’s little regulation around it. Unlike traditional types of bank accounts, crypto assets are not insured by the Federal Deposit Insurance Corporation (FDIC), so there’s no government protection if a cryptocurrency provider or exchange goes under.
How common are crypto scams?
52,091 — the number of people who lost money to crypto crimes in 2022
$2.57 billion — the amount reported lost to crypto scams during that same time period
183 percent — the amount losses to this fraud type increased from 2021 to 2022
SOURCE: Federal Bureau of Investigation
How to spot a crypto scam
There are two common ways a crypto scam can play out: a fraudster convinces you to transfer your digital currency to them. Or, a scammer tricks you into sharing your credentials, then obtains control over your account and locks you out.
But, how do they do it?
In one common scheme we’ve seen, fraudsters post fake customer service numbers online for real cryptocurrency exchange platforms.
"People search for a crypto platform’s customer service department and wind up calling the fake number,” explains Tolmachoff.
The phony customer service rep convinces the victim to transfer their money to a “temporary account,” then steals the funds, or tricks them into sharing their credentials.
Here are some other common crypto scams to be aware of:
Phony investment schemes: Fraudsters lure victims with promises of sizable — and often immediate — returns on cryptocurrency investments. Sometimes they even promise free money. Phony celebrity endorsements (which can be easily faked) are sometimes part of the ploy. In other cases, scammers let victims make small withdrawals of money from their crypto accounts, tricking them into thinking the investment is legitimate.
Romance scams: A fake love interest — often met through a dating app — convinces a victim to buy cryptocurrency, either as an investment opportunity or as a way to help them out of a sticky situation.
Business and government imposter schemes: Fraudsters pretend to be a legitimate business (like a retailer, delivery service, or software company) or a government agency reaching out about an outstanding bill or account issue. They use scare tactics to pressure people to send payments via cryptocurrency to rectify the issue.
It’s important to note that many crypto-related fraud cases reported to the FBI in 2022 originated on social media — so be wary of related ads or messages on social sites.
How to protect yourself and those you love
To stay safe from crypto scams, steer clear of any “get rich quick” advertisements on social media and beyond.
Remember that, as with any investment, there is absolutely no way someone can guarantee a return on a crypto investment, so promises of that point to a scam.
Know that no government agency will require you to pay an invoice or fee in cryptocurrency, so ignore any outreach of this kind. Lastly, consider any unsolicited investing advice from someone you’ve met online (dating sites included) as a major red flag.
Because it is not recognized as a legal tender in the United States, money lost to cryptocurrency scams is not covered by your identity protection plan. However, if you suspect that you’ve been scammed, our identity specialists are available 24/7 to help you determine next steps, including closing any cryptocurrency trading accounts you have open and reporting a suspected scam to the proper authorities.
As with any fraud, the best defense against cryptocurrency fraud is to know what you’re up against, and be wary of any advertisement that seems too good to be true, or any unsolicited investing advice or pressure.
And if you’re ever in doubt, give us a call before you transfer crypto.