How to Avoid Scams Involving Cryptocurrency

From phony investments to irreversible payments, crypto has fraud risks

If it seems like cryptocurrency (or “crypto”) is being talked about everywhere these days, that’s because it is. The hype around it has been building for years, and the number of different cryptocurrencies on the market only keeps growing. Social media is filled with people claiming to have quickly gotten rich through crypto. And because it’s designed to circumvent the traditional banking system, many people use it for transactions they’d rather keep private.

But the reasons why people are drawn to it—its investment potential and its relative anonymity—are also what make it risky, and why cybercriminals love it so much. According to a report from the FBI’s Internet Crime Complaint Center, losses related to crypto fraud totaled more than $5.6 billion in 2023—up 45% over 2022.

There are two main types of crypto-related fraud: one is centered on bad actors trying to steal your money by convincing you to invest in a crypto scam; the other involves scammers impersonating legitimate companies or organizations and urging you to pay them in crypto. We’ll look at both types of fraud here. First, though, it’s important to understand the basics.

What is cryptocurrency and how does it work?

The Federal Trade Commission (FTC) defines cryptocurrency as a type of digital currency that generally exists only electronically. You can invest in it or use it to buy goods and services. There are countless types of crypto on the market—Bitcoin and Ether are two of the most popular. It can be purchased via exchanges, apps, websites, or cryptocurrency ATMs, and is stored virtually in a digital wallet that exists online or on your phone. As with any currency, the value of individual cryptocurrency funds is continually changing.

While crypto has taken off in popularity both as an investment vehicle and as a currency offering some measure of anonymity when used in financial transactions, it carries risks that you won’t find with traditional currencies like the U.S. dollar. According to the FTC, these risks include:

• Cryptocurrency is not insured by any government. If the company that provides storage for your digital wallet gets hacked or goes out of business, the government is not responsible for recovering your money.
• Similarly, if your own digital wallet is compromised or stolen with your phone, it’s extremely difficult to get help in recovering your crypto funds.
• Most cryptocurrencies don’t offer the same kinds of legal protections as credit cards and debit cards. There is usually no process in place to get your money back if something goes wrong.
• If you pay for something using crypto, the payment is usually not reversible. If you want your money back, you’ll have to rely solely on the discretion of the seller.

Cryptocurrency investment scams

Stories about people making fortunes off cryptocurrency have made it easier for scammers to trick victims into “investing” in a crypto fund by claiming zero risk and huge returns. In reality, the scammer takes the victim’s money and disappears with it.

Crypto investment scams often begin with the scammer luring the victim through social media or on dating sites or apps. They may also reach out with an unexpected text, email, or call. Here are some of the most common types of crypto investment schemes, according to the FTC:

The investment manager scam—Someone claiming to be an investment manager contacts you and tells you they can bring you big profits if you buy a certain crypto fund and transfer it into their online account. They set up an “investment” website that seems to show your investment growing, but it’s fake. You won’t be able to withdraw your money, because it’s gone.

The celebrity scam—The scammer pretends to be a famous person who can help you grow any cryptocurrency you send them. They’ll provide you with a link or QR code where you can send your initial investment funds. Any money you send them will disappear.

The dating scam—One common tactic in online romance scams involves a person wooing you on a dating site or app, earning your trust, and pushing you to invest in a crypto fund that they claim is a guaranteed winner. Once you’ve sent them money to “invest” on your behalf, you’ll never see it again.

The crypto coin or token scam—Scammers pretending to be a real company send messages inviting people to invest in their new crypto coin or token. They set up fake social media ads, news articles, or websites to make it look legit. Before acting, do your homework. If a legitimate company has actually issued a crypto coin or token, you’ll find reports about it on trusted media sites.

Scammers demanding payment in cryptocurrency

The semi-anonymous and difficult-to-trace nature of cryptocurrency transactions has made crypto the payment method of choice for fraudsters. Scammers contact victims claiming to represent a legitimate company, nonprofit organization, or government entity, and insist on being paid in cryptocurrency. The FTC warns consumers to watch out for various types of fraud involving crypto payments, such as:

Scammers impersonating trusted companies—You receive a text, call, email, or social media message that seems to be from a real bank, retailer, delivery company, tech company, or similar. The message notifies you of some urgent issue with your account; to fix it you’ll need to purchase crypto and send it to them. Avoid clicking on any link in the message. Instead, report it and delete it.

Scammers impersonating trusted agencies—You receive a message claiming to be from a real government agency, law enforcement entity, or utility company. You’re told that you have a legal issue or some other problem that’s under investigation. To solve the problem, you need to buy crypto and send it to them. You’re told to scan a QR code and send payment via the link. Don’t engage. Report the message and delete it.

Scammers impersonating employers on job sites—Fraudsters list fake jobs on job sites. When you apply, you magically get the “job.” Then, the scammer might insist that you pay an upfront fee in crypto. Or they might send you a phony check for deposit into your bank account, tell you to withdraw funds from your own account, buy crypto on behalf of a non-existent “client,” and send it to their crypto account. The result: You’ve handed over money from your bank account, and the “employer” has disappeared.

Scammers directing you to a Bitcoin ATM—Fraudsters who demand crypto payments often instruct you to visit a Bitcoin ATM (or BTM). These machines are located in places like convenience stores and gas stations. The scammer informs you that in order to fix whatever “issue” they’ve contacted you about, you must convert cash to crypto at the BTM and send them the funds via a QR code they’ve provided. FTC data shows that fraud losses at BTMs increased nearly tenfold from 2020 to 2023. In the first half of 2024, the median loss reported by victims was $10,000.

Tips for avoiding crypto-related fraud

Whether you’ve been invited to invest in cryptocurrency or you’ve been instructed to use crypto as payment, remember:

• If someone contacts you out of the blue and demands payment with cryptocurrency, it’s a scam. No legitimate business or government entity will email, text, or direct-message you and insist that you pay them with crypto.
• If anyone guarantees that you’ll make a profit from an investment—whether it’s crypto-related or not—it’s a scam.
• If you see a celebrity endorsement of a cryptocurrency, be extremely wary. It could easily be a fake.
• If you meet someone online through a dating site or app and they push you to invest in a certain cryptocurrency—or they simply ask you to send them crypto—walk away.
• Before investing in any cryptocurrency, search online for the fund’s name plus terms like “review,” “scam,” or “complaint.”
• Never click on any link in an unexpected text, email, or social media message. If the sender claims to be a company you know, contact the real company through their official channels to find out if the message is legitimate.
• If you’re searching for a job and the employer asks you to pay a fee upfront to secure the job, or tells you to buy crypto as part of your official duties, it’s a scam.

While cryptocurrency in many cases can be a legitimate investment vehicle or payment method, its popularity with fraudsters means that you should always proceed with extreme caution. If you’ve spotted a crypto-related scam, help others avoid becoming victims by reporting it to the FTC at ReportFraud.ftc.gov.