3 Things to Know About Cryptocurrency ScamsCryptocurrencies, digital tokens like Bitcoin that secure themselves with computer cryptography, are a hot topic right now, both in the news and in the markets. Bitcoin’s value has increased nearly sixfold since the beginning of 2017, celebrities like Paris Hilton and Floyd Mayweather endorse cryptocurrencies and tech startups have raised an estimated $3 billion this year alone by running initial coin offerings, or ICOs, where they sell their own cryptocurrencies to investors that will supposedly increase in value if the company does well. With money like that involved, it’s tempting to hop aboard the hype train, but as cryptocurrency has boomed, so has cybercrime surrounding it. Cryptocurrency scams are on the rise, and even things that cryptocurrency experts thought were safe sometimes reveal glaring security errors. Whether you’re an active cryptocurrency user, or you’re still on the fence about diving into the world of digital money, you should be keeping the following in mind.

Cryptocurrency is especially prone to scams

While cryptocurrency is secure in theory, there are a few factors that make it attractive to scammers. First, while a lot of people know what cryptocurrency is, not many people actually know how it works. Cryptocurrencies are based on technologies, such as blockchain and cryptography, that are difficult to understand and have a lot of jargon associated with them, making it easier for scammers to confuse and manipulate victims. Second, cryptocurrencies are decentralized with no managing authority, so there’s no specific organization or group with the power to resolve cryptocurrency scams. For example, if you accidentally send money to a scammer using a service like PayPal, you could talk to PayPal’s customer support and potentially get your money back. By contrast, if you accidentally send bitcoins to a scammer, that money is gone and there is no one who can recover it for you. Third, most cryptocurrencies don’t require you to give out personal information when you set up a wallet, meaning scammers can operate with relative confidence that their real identities won’t be revealed.

Some ICOs are Ponzi schemes

Ponzi schemes, such as Bernie Madoff’s infamous investment scandal, have been around for well over a century, and Ponzi scheme Initial Coin Offerings (ICOs) are just the latest twist on an old formula. In a Ponzi scheme, a scammer will claim to have an incredible investment opportunity with high returns. Initially, the scammer will pay out returns to early investors to make the opportunity seem legitimate, but in reality those old investors’ returns are paid for using money from new investors. Once the scammer has a lot of new investors, they’ll take all of that investment money themselves and vanish.

In Ponzi scheme ICOs, the scammer could be an “investment expert” who claims they can invest in ICOs to generate high returns, as in the case of Bitcoin Savings and Trust, or it could be a company selling a cryptocurrency that it says will drastically increase in value like Bitcoin, similar to OneCoin. Some red flags for Ponzi scheme ICOs include promises of consistent returns on investment regardless of market performance, secretive strategies or code behind the project and heavy encouragement to keep your money within the investment and not withdraw. When in doubt, if you don’t understand how an investment opportunity works, the safe choice is to not invest in it. If you think you have invested money into a Ponzi scheme, you can file a report with the Securities and Exchange Commission.

Phishers can drain your cryptocurrency wallets

Phishing is a common cybersecurity threat, and in the world of cryptocurrency scams, it’s actually the No. 1 source of criminal revenue. With cryptocurrency phishing, phishers target traditional personal information such as names, birth dates and social security numbers, but they also try to get people to give up their wallet passwords. With access to a cryptocurrency wallet, a phisher can easily take all of a person’s tokens within minutes, and that person has few to no options for getting that currency back. Cryptocurrency phishers will often employ fake websites in their scams, creating convincing mockups for popular cryptocurrency services and companies to trick people.

When phishers go after cryptocurrency, they tend to do it in one of two ways. In the first, they target cryptocurrency investors by sending out links to fake websites mirroring the sites of companies running ICOs, then steal the investors’ financial information. These links tend to be posted in online investor communities on tech-oriented platforms like Slack, though with cryptocurrency’s increasing popularity, they may also start popping up on more mainstream websites like Facebook and Twitter. In the second, they target all cryptocurrency users with fake websites designed to look like popular digital wallet sites, usually sent out over email or placed as Google ads in an attack similar to malvertising. The aim of this cryptocurrency scam is to get people to enter in their wallet account passwords, then steal directly from their cryptocurrency wallets. While an identity theft protection service could potentially help you deal with the theft of your financial details in the first case, in the second, you have no defense other than immediately changing your wallet password on the legitimate version of the website.

Protecting yourself from a cryptocurrency phishing scam is the same as protecting yourself from other kinds of phishing. Be very careful clicking links in emails or chat rooms, and double check that the URL of the website you’re on is accurate and has an HTTPS security lock next to it. Even if an email looks like it’s from a legitimate website that you trust, it’s safer to type the URL of a website into the address bar yourself than to click any potentially malicious links.

Cryptocurrency and the blockchain technology it’s built on have a promising future ahead of them, but they’re still very prone to old-fashioned deception and fraud. That’s why it’s important for those who want to invest in cryptocurrency to know about these three scams and be skeptical of anything that seems off. For more tips on how to avoid being tricked out of your money (or your identity), follow our scams blog.