The crypto crash is not the only way for the decentralized currency to lose a lot of real money to its holders. Cryptocurrency is increasingly being used in scams, either as part of the scam itself or simply as the way scammers want to be paid.
The FTC says 46,000 people reported losing more than $1 billion worth of crypto to scams between January 2021 and March 2022, noting that this number is only for people who reported their losses to the FTC. It is likely that the actual number of people scammed and crypto lost is much higher, as most victims do not report their losses to the FTC.
While that $1 billion figure may not reflect the true amount of money lost, it does indicate just how much crypto scams have grown: reported losses were nearly 60 times higher in 2021 than they reported. were in 2018. And in the first quarter of 2022 alone, losses were already about half of what they were in 2021. A quarter of the money lost in reported scams is now in crypto.
Crypto already has a bad reputation as a playground for illegal purchases, hacker ransoms, and money laundering. Its growing role in old-fashioned scams won’t help enthusiasts argue that virtual currency should play a bigger role in financial markets and legitimate banks. While President Biden signed an executive order last March to craft cryptocurrency regulations, it’s unclear what those regulations will be, when they’ll be put in place, or if they’ll do anything to prevent scams.
Fraud experts say the trajectory is alarming and will likely only get worse.
“When criminals latch onto a new way to steal people’s money, others follow,” Kathy Stokes, director of fraud prevention at AARP, which has its own resources related to fraud, told Recode. crypto scams. Combine that with the ‘legitimizing’ forces of pro-crypto advertisements and the decision of 401(k) plan service providers to add this unregulated and highly speculative investment as an option for participants in their plan, it’s unclear. how many people will lose a lot of money — that they probably won’t get back.
More than half of that $1 billion came from investment-related scams: people promising they could invest victims’ money in crypto for big returns. This type of scam is not new, even if the type of currency used is, but the once booming crypto market has likely made it easier to sell to victims. It certainly helped that, until recently, people regularly reported making huge amounts of money as crypto prices skyrocketed. Combine that with the fact that most people don’t know much about crypto in the first place and you have the perfect recipe for scams.
The second highest losses came from romance scams, which appear to be related to investment scams. Typically, someone earns the victim’s trust through a relationship and then coerces them into donating their money to an investment scam or “Casanova Keypad,” as the FTC colorfully calls them. The scammer then promises to invest the funds – only for the scammer to disappear with the money.
In third place are commercial and government impersonation scams that demand payment in crypto. Typically, someone will receive a text, email, or call about a purchase they made or money they owe to a government agency. Although the victim never made this purchase and does not owe this money, he is told that he must pay to make the problem go away. Increasingly, they are being told to make these payments in crypto, thanks to the widespread availability of crypto ATMs that allow victims to make these payments quickly and easily and make it difficult for investigators to track them down.
Young people (aged 20-49) were three times more likely to be scammed this way than other age groups, but the average amount of money lost to scams increased with age . This is also generally true for non-crypto scams: while the stereotype is that only old people fall for online scams, young people are actually more likely to fall victim to them. Their losses, however, aren’t as devastating, as they’re usually less money, and it might be easier for them to recover financially.
Another reflection of the time and the medium: almost half of the people who said they had been scammed said that it came from social networks, mainly Instagram and Facebook. It should be noted that the FTC is an American agency, and platforms such as Telegram and WhatsApp (where crypto scams also proliferate) are much more popular in other countries. This is more than four times the number of crypto scams that started on social media in 2018. Overall, social media-based scams (like those that include all forms of currencies , not just crypto) have exploded in recent years.
This report is far from alone in highlighting how scammers are taking advantage of a loosely regulated and difficult to trace decentralized virtual currency landscape. This could make it harder to sell to consumers and regulators that crypto can be a legitimate and useful financial tool. While many crypto enthusiasts point out the benefits of a currency that is not controlled by banks and governments, this lack of control makes it easy for bad actors to take advantage. And that should make consumers more reluctant to invest in crypto, especially when even legitimate investments are losing money.
The FTC recommends staying away from investments that promise big returns, anything that requires payment in crypto, and not mixing online dating with investment advice. It also has a site dedicated to crypto-related fraud.