In March 2021, Sebastian received a tweet from his account thought It was the real Elon Musk.
“Dojo 4 Doge?” Read the message from an account allegedly operated by Musk’s team, describing a competition that promised to double the amount of crypto sent by participants.
Sebastian, who lives in Cologne, Germany, later told the BBC that while he had some concerns, the website he was directed to seemed legitimate, and the potential returns were too good to turn down. It wasn’t long before he sent ten bitcoins (at the time they were worth over $600,000) to the crypto address provided on the site. Unfortunately, after the time counter on the site reached zero, Sebastian (who requested that the BBC not use his real name) realized he had been scammed.
Such stories are very common. According to the Federal Trade Commission, since October 2020, nearly 7,000 people have reported losses totaling more than $80 million in the United States alone.
12 times as many reports…
Most bitcoin scams are not quite as destructive as Sebastian. The FTC report reveals that the average losses were $1,900. But compared to the same period the previous year, there was a 12 times as many reports and about a 1,000 percent increase in reported losses.
Not just amateurs like Sebastian, Wall Street investors are also falling victim. In February, Stefan Chen, a 24-year-old crypto hedge fund manager, pleaded guilty to a securities fraud crime after pleading guilty to lying to investors for years about the returns of his $90 million fund. Chen now faces up to 20 years in prison.
This issue is clearly getting worse, especially as the value of Bitcoin and other cryptocurrencies continues to rise again. Here’s what you need to know to avoid being scammed by Elon Musk.
How do bitcoin scams work?
Thanks to anonymity on the Internet, fraudsters are immersing themselves in the crypto landscape with claims that may seem plausible. Cryptocurrency remains an unknown territory for many, which makes it difficult to know what is real and what is a scam. Let’s take a look at the top five crypto investment scams highlighted by the panel:
5. Pyramid DiagramsOn the Internet, people may seem friendly and willing to share their “tips,” which is often part of the ploy to get people to invest in their scheme. Some of these schemes are based on referral chains (a kind of pyramid scheme) and work by bringing in people who then recruit new “investors,” the FTC report read. Scammers ask people to pay in cryptocurrency for the right to recruit others into a program in exchange for rewards paid in cryptocurrency. They say the more you pay, the more money they promise you will make.
4. Fake websites: Cryptocurrency enthusiasts are lured by “fake” sites that advertise opportunities to invest in or mine cryptocurrency — and many of these sites make it look like your investment is growing. However, people report that when they try to withdraw their apparent winnings, they are asked to send more cryptocurrencies, but in the end they get nothing.
3. Giveaway Tricks: So-called “giveaway scams” – promoted on Twitter, Facebook and other social media sites – that appear to be sponsored by celebrities or thought leaders in the crypto space, promise to instantly double the cryptocurrency people send out. In most cases, deceived investors send coins directly to the scammer’s wallet. In fact, impersonators of crypto-lovers and self-described “Doge Father” Elon Musk received more than $2 million in 2021 alone.
2. Online datingOther tactics include using online dating to attract people. The Federal Trade Commission has received reports of investors being lured into believing they are in long-distance relationships. When a trust is set up, these “lovers” promise huge returns on exciting new investment schemes in cryptocurrency – and then ghost them, leaving money (oh, come on, folks!).
1. Impersonation of a government authority or companyFraudsters are increasingly impersonating a government authority or corporation. Some people have reported to the Federal Trade Commission (FTC) that they deposited cash in Bitcoin ATMs to pay scammers claiming to be from the Social Security Administration. Others have reported losing money to scammers pretending to be Coinbase, the largest digital currency exchange and wallet provider in the United States.
However, it is worth noting that only 14 percent of reported losses to cyber scammers involved cryptocurrency. A much larger percentage, 86 percent, is related to fiat currency. But that ratio is likely to change: the cryptocurrency industry is growing exponentially. If the trends continue, losses related to digital currency are expected to increase in the coming years.
Fraud and hacking are not only targeted at individuals. Perpetrators of the July 2020 data breach (and subsequent data leak) of the France-based crypto wallet provider are still profiting from attack victims.
After the ledger database was hacked, the names, email addresses, home addresses and phone numbers of 272,000 customers were released. Now, cybercriminals are demanding cryptocurrency payments from victims in an extortion campaign that “threatens the users’ financial and emotional well-being.”
Big crypto companies, and perhaps more so than individual consumers, are hot targets. Despite being considered one of the leading cryptocurrency storage companies, companies like Ledger are vulnerable to malicious actors. Not only be careful who you send your cryptocurrency to, but also be careful with whom you store your cryptocurrency.
“Who is being deceived?” You might ask: Since October 2020, 20-49 year olds have been more than five times more likely to report losing money to cryptocurrency scams than the older age group.
Specifically, people in their twenties and thirties were the hardest hit, losing significantly more money to investment scams than to any other type of scam, with more than half of the cryptocurrency investment fraud losses reported. However, while people over 50 were less likely to report losing money to cryptocurrency scams, their individual reported losses were higher, with an average of $3,250.
It can be argued that young people tend to be more vulnerable to cryptocurrency scams because they are more prone to risk and are more proactive and fluent in dealing with banking services and online applications such as Venmo and Cash App. Millennials are also more likely to have an interest or knowledge of cryptocurrencies than their older counterparts.
Will More Regulation Help Stop Bitcoin Scams?
On May 25 — a week after hackers took over Colonial Pipeline and demanded $5 million in bitcoin — financier Lee Reyners published an editorial in The Wall Street Journal Titled “Ban Cryptocurrency Against Ransomware”.
As you might imagine, the crypto community hasn’t responded well, but the author has one or two interesting points. Reiners notes that crypto companies serving US clients are supposed to be subject to the same anti-money laundering (AML) requirements as traditional financial institutions. He says that to better bridge this gap, we need better coordination between the federal government and crypto companies.
It also highlights how, in mid-May, the Treasury Department proposed giving more resources to the Internal Revenue Service to process crypto tax collection, with the goal of having users report receipts of more than $10,000 worth of coins to the agency. “Both proposals should be embraced, but they will only be effective if other countries follow suit,” Reiners says.
In April, Hester Pierce, a commissioner with the Securities and Exchange Commission (SEC), argued in an interview with Market Watch That the US lags behind other countries in building a regulatory framework for the blockchain and cryptocurrency industries. They say this failure to act threatens to deprive the US economy of the benefits of this innovative technology.
“We sure are fall behind curve.”
“We have seen other countries take a more productive approach to regulating cryptocurrencies. Our approach has been to say no and tell people to wait… We need to build a framework that fits the industry.”
Arguably, this is the sentiment held by most (but not all – and for good reason) crypto enthusiasts and the users and companies associated with it.
When it comes to regulation, many in the cryptosphere are conflicted. While it may seem to go against the decentralized spirit of cryptocurrencies, government regulation can help protect traders and investors and deter bad actors. And concerted nationwide policies regarding cryptocurrencies can help legitimize the industry, leading to enterprise adoption (something both sides agree is vital to long-term success).
It’s hard to find the balance. Rather than tightening restrictions on cryptocurrencies themselves, a more tactical solution might be to better educate the public about the growing cases of crypto-related scams. This could include social media campaigns and crypto literacy classes targeting young consumers or other hobbyists entering the space.
Cryptocurrency exchanges like Coinbase could play a more visible role in educating users. We need to realize that with the growing enthusiasm in the industry, critical thinking sometimes goes out the door. People must be made aware of the risks.
How to stay safe from Bitcoin scams
The Federal Trade Commission, in its report, offered several tips to help people “play it safe” when it comes to cryptocurrencies. These include:
- Promises of guaranteed huge returns or claims that your cryptocurrency will double are (almost) always scams.
- The cryptocurrency itself He is Invest, and money is made if you can sell it for more than you paid. “Don’t trust people who say they know a better way.”
- If the caller, love interest, organization, or anyone else insists on cryptocurrency, you can bet that it is a scam.
- Scammers always find new ways to steal your money. One sure sign of fraud is anyone who insists on paying with cryptocurrency. They concluded that most of the time, anyone who tells you to pay by wire transfer, gift card or cryptocurrency is a fraud.
In conclusion, here are some final thoughts to consider if you are interested in getting involved in cryptocurrency: Use common sense and be careful where you invest your money (and with whom you invest it); Be smart, do your research, and you’ll likely come out unscathed.
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