INDIANA — Cryptocurrency is the hot new trend in investing, and much is still not understood about this buzzy, volatile digital payment system that does not rely on banks to verify transactions. This has created a fertile environment for scams, according to a new in-depth investigative study by Better Business Bureau, which states: “A virtual tug of war exists between the legitimate and fraudulent use of cryptocurrency.”
“Scammers are capitalizing on the fact consumers are still relatively uninformed about how cryptocurrency works,” said Jennifer Adamany, BBB Central Indiana spokesperson. “The number of BBB Scam Tracker reports involving cryptocurrency doubled last year and tripled since 2020, which is why it’s so important to educate the public about these scams.”
Cryptocurrency is a form of digital money whereby encryption technology can enable anyone anywhere to send and receive payments. It does not exist in a physical form such as paper money, but as lines of computer code, supported by a decentralized computer system known as blockchain and stored in a “crypto wallet.” Bitcoin, developed in 2009, is the most popular form of cryptocurrency, available for purchase at tens of thousands of Bitcoin ATMs and increasingly accepted as payment in certain retail transactions. Ethereum is the second most common cryptocurrency and is centrally involved in the increasingly popular non-fungible tokens (NFTs), digital assets such as pictures or music that are purchased with cryptocurrency as an investment. Critically, cryptocurrency operates outside the traditional banking system and is not subject to the same protections as bank deposits or credit card transactions.
Reports from victims of large financial losses to cryptocurrency related scams are skyrocketing. In 2021, BBB received more than 2,400 complaints with monetary losses of nearly $8 million involving cryptocurrency companies. BBB Scam Tracker reports about crypto scams numbered more than 1,200 in 2021 and likewise totaled nearly $8 million in losses. Scam Tracker reports to BBB tripled between 2019 and 2021, and reported losses tripled over the last two years.
BBB Scam Tracker data shows that cryptocurrency scams most commonly originate on social media, with the FTC noting that 25% of crypto fraud reported in 2021 began on social media. Scammers may impersonate a victim’s friends to tell them about their success in crypto investing, or they may make Facebook posts promising big gains.
Cryptocurrency figures prominently in other scams as well. Law enforcement and BBB report that romance scammers have begun convincing their victims to invest in cryptocurrency via sophisticated fake apps, disappearing with the money when the victim attempts to withdraw proceeds. Ransomware scams also demand cryptocurrency as payment in many cases, BBB’s study notes. BBB Scam Tracker data shows that cryptocurrency also is a commonly requested payment method in fraudulent online sales, advance fee loan scams, employment scams, extortion scams, government impostor fees and more. Illicit transactions on the so-called dark web are often conducted using cryptocurrency, and it is used in money laundering.
Report suspected cryptocurrency fraud directly to the U.S. Securities and Exchange Commission online at SEC.gov/tcr