Cryptocurrency Users and Investors Face New Wave of Scams

Cryptocurrency scams now cost $1 billion a year: Internet Scambusters #878

Cryptocurrency — virtual cash you can use but never see — is increasingly common both as a payment method and investment vehicle.

But it’s also fraught with a growing number of scam risks costing more than a billion dollars a year, as we report this week.

We’ll tell you how the latest scams work and the measures you should put in place to avoid getting caught out.

Let’s get started…


Cryptocurrency Users and Investors Face New Wave of Scams


Have you ventured into the cryptocurrency world yet?

We’re talking digital money, the most common being Bitcoin. It’s a virtual currency because it only exists as numbers in computers, though it has a dollar (or other) value based on supply and demand.

When we wrote about it a year ago, scams were already appearing on the horizon. But since then, the number of incidents has risen sharply, with losses estimated at more than $1 billion a year.

As we wrote last time, dubious initial coin offerings (ICOs), which see the public launch of new digital currencies, remain a key source of scams.

It’s simple. Investors put up their money for a new currency and then the organizers disappear with the cash.

Now, these phony offerings, along with other dubious digital currencies, are being promoted by so-called “influencers” — people with huge followings on social media, which enables them to “recommend” certain products, sometimes in return for payment.

Sometimes, the influencers are actually the brains behind the scam, enabling them to make all sort of outrageous claims not just about cryptocurrencies but other questionable investments.

In other cases, market-makers calling themselves cryptocurrency exchanges — in other words, offering a forum where investors can buy and sell several or many digital currencies — have disappeared, claiming they’ve been hacked.

Investors who deposited money with these exchanges, so they can trade instantly, have found it difficult or impossible to secure the return of their funds.

Other scammers have been operating digital versions of a Ponzi scheme, in which early investors make money, encouraging others to join in. The later your join, the more you’ll lose when the scheme collapses.

In one notorious case, the perpetrator later claimed his identity had been stolen and that he wasn’t involved in the scheme at all.

YouTube and Code Generator Scams

Various other cryptocurrency scams have come to light recently via YouTube, the online social media video service.

The service has been used by alleged fake influencers. It’s virtually impossible for YouTube to spot them before they do their dirty work.

In another incident, a YouTube channel offered a cryptocurrency giveaway via downloads. But the downloads simply turned out to be data-stealing malware or computer-freezing ransomware.

However, the most audacious current scams are showing up via so-called crypto code generators.

Without getting too technical, legitimate users of cryptocurrencies who are transferring money between each other — for instance when buying and selling — can generate a unique smart code that both parties share.

Sellers, for example, do this by inputting information about themselves, including their payment address, on a code generating site. A smart code (or QR code) is then generated for the buyer to scan to transfer the payment.

This is supposed to make transactions more secure, with code generators easily available online. But in a study published last month (September), currency “wallet” specialist ZenGo reported that four out of the top five sites appearing on a Google search were scams.

The generators, which require a payment address, were doctored to direct payments to the scammers.

Said ZenGo: “Summing up the balances of the scammy addresses we had observed, we found out about scams worth about $20K. We assume they are just the tip of the iceberg, as scammers probably change their addresses to avoid detection and blacklisting.”

If you need to export your address as a QR code, says ZenGo, don’t Google it; use a well-known site.

More importantly, after generating a code, you can verify that it contains the right information by scanning it with a wallet app — a program that acts as a holder for your digital currencies.

“We believe that we will hear of more QR-related fraud in the future and that the cryptocurrency community needs to address these issues and come up with better protections,” says ZenGo.

Protect Yourself

If you want to avoid a cryptocurrency scam, our best advice is not to use these types of currencies at all unless you fully understand how they work.

Many retail and consumer sites that accept cryptocurrencies like Bitcoin usually have alternative payment methods such as credit cards or PayPal.

From an investment perspective, here are three more key actions you should take to avoid falling victim to a cryptocurrency scam:

  1. Don’t make investment decisions based on the word of someone online. Always work with a trusted financial adviser.
  2. Before you trade on a cryptocurrency exchange, check out their reputation, most notably how long they’ve been operating and whether they are operating “in the open,” as against dark web exchanges that nearly always turn out to be scams.
  3. Check that there’s a business plan for any cryptocurrency offering. All legitimate ICOs are required to draw up a business plan. Get your adviser to cast an experienced eye over it.

Alert of the Week

Ranchers and other agricultural businesses are being warned about an advance fee scam when they advertise livestock or agricultural equipment for sale online.

The scammers send a fake cashier’s check and then ask the victim to wire part of the money to pay for transportation — before the check is exposed as fake.

Don’t wire money to people you don’t know!

Time to close today, but we’ll be back next week with another issue. See you then!