Here’s how to protect yourself from cryptocurrency-related problems

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According to the FBI, cryptocurrency scams totaled $3.96 billion in 2023, up 53% year-over-year

Published May 19, 2024 • Last updated 5 hours ago • Read in 4 minutes

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A sign advertising a Bitcoin ATM at a store in Halifax, NS Photo by Andrew Vaughan/The Canadian Press files

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Many investors have shied away from cryptocurrencies, and for good reason. After all, who wants to invest in something invented, it has no real use nothing but helping to commit crimes and is as unstable as a chair with two legs.

That said, investors who got into the early days of, say, Bitcoin or Elon Musk’s prank, dogecoin, they’ve made a lot of money and aren’t afraid to brag about it. So much so that even diehard conservative investors are at least giving cryptocurrencies another look, especially since then Canadian Securities Regulatory Authorities and the U.S. Securities and Exchange Commission is putting tougher rules in place to protect the innocent.

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Despite this new oversight, cryptocurrency-related fraud and illicit activities are still prevalent, leaving investors with questions about the safety of putting their money in the industry’s hands.

“The decentralized and pseudonymous nature of many cryptocurrencies makes it difficult to trace fraudulent activities back to their perpetrators,” says Tony Anscombe, chief security evangelist at ESET Canada Inc., a cybersecurity firm based in Thornhill, Ontario. “Transactions on the blockchain, unlike traditional banking, are often irreversible, which provides fraudsters with the certainty of monetizing their crimes.”

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Here, he offers his take on why cryptocurrency fraud is so widespread and how both investors and consumers can protect themselves.

Q: Why is cryptocurrency fraud so widespread?

A: The absence of regulatory oversight in the cryptocurrency industry leaves investors vulnerable to various scams and fraudulent schemes. The lack of a central authority to monitor and regulate transactions also contributes to the prevalence of fraud, as fewer safeguards exist to protect investors. Furthermore, the rapid growth and popularity of cryptocurrencies have attracted opportunistic individuals seeking quick riches without understanding the risks or processes needed to keep their investments safe.

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Unsolicited emails or social media ads lure victims with the promise of great returns on their cryptocurrency investments. They usually link to a legitimate-looking investment app or website. However, it is all fake and the money will never be invested or returned. According to the FBI, cryptocurrency-related scams totaled $3.96 billion in 2023, an increase of 53% year-over-year.

Q: What are the most common types of cryptocurrency fraud to watch out for and how do they work?

A: The most common types of cryptocurrency fraud involve a series of deceptive practices through which criminals build a relationship of confidence and trust with the victim.

• Scams like Ponzi schemes promise high returns on investments, but rely on new investors’ funds to pay returns to previous investors, leading to inevitable crashes as the inflow of new capital declines.
• Social engineering is often used through dating apps and social media to gain victims’ trust and then claim that they or a close friend are experts in cryptocurrency investing and are earning large amounts of money, then offer the victim a cut of the stock if they want to invest.
• Phishing scams involve tricking people into revealing their private keys or login credentials, allowing scammers to access and steal their cryptocurrency holdings.
• Fake Initial Coin Offerings (ICOs) lure investors with promises of revolutionary projects or products, then disappear with investors’ funds once the ICO concludes.
• Pump-and-dump schemes artificially inflate the price of a cryptocurrency through misleading information before orchestrating a coordinated sell-off, leaving unsuspecting investors with substantial losses.
• Fraudulent wallets or exchanges trick users into depositing funds, only to abscond with the money or manipulate transactions for personal gain.

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There are also recovery scams to watch out for. When you fall victim of a cryptocurrency scam or a cyber attack, resulting in the theft of funds, you feel remorse and shame, not to mention anger at the monetary loss. Unfortunately, for many victims, the story doesn’t end there. Imagine an even worse outcome: You get approached by someone or see an ad offering cryptocurrency recovery services, but instead of recovering your funds, all they do is run away with the upfront fee you paid them.

Unfortunately, this type of “recovery fraud” is increasingly common and the The FBI issued a public service announcement about it last year.

Detections of malware specifically designed to steal cryptocurrency from users’ wallets (cryptostealers) also increased by 68% during the first half of 2023, according to the latest data ESET Threat Report. One of the most popular is Lumma Stealer, aka LummaC2 Stealer, which targets digital wallets, user credentials, and even browser extensions with two-factor authentication.

Q: How can investors reduce the risk of falling victim to cryptocurrency fraud?

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A: Investors can mitigate the risk of falling victim to cryptocurrency-related fraud by implementing several strategies. First and foremost, it is essential to conduct thorough research before investing in any cryptocurrency project or platform. It’s worth being skeptical of any low-risk, high-return investment scheme, even what they might seem celebrity approved or other trusted individuals. And it is always better to pay for goods online by credit card, since this way there are more protections for the buyer. No legitimate company is likely to ask you to pay them up front in cryptocurrencies.

Verifying the legitimacy of projects, teams, and exchanges can help identify potential scams before funds are committed. Using hardware wallets to securely store your cryptocurrency assets adds an extra layer of protection against hacking and theft.

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Be wary of unsolicited offers via email, social media, or messaging apps, and never share private keys or sensitive information online. Separate emotions and investments, especially with any romance or confidence scammer you meet online offering investment advice, even if you feel a close connection to them. Go with a reliable and reputable exchange with good reviews and some legacy of being a solid cryptocurrency trading platform.

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