That Get Rich Quick Scheme Is a Scam
More than 46,000 people lost over $1 billion in crypto to ‘get rich quick’ schemes reported the Federal Trade Commission (FTC), as cryptocurrency fast becomes a popular way to scam money from people.
In a briefing with Ethnic Media Services on September 9, the FTC warned that scammers were coopting digital-based currencies like Bitcoin, Tether, and Ether to swindle people.
Rosario Mendez, from FTC’s Bureau of Consumer Protection, said it was time that people identified scams to avoid losing money.
What is Cryptocurrency?
According to the FTC’s Elizabeth Kwok, cryptocurrency is a digital asset that can be transmitted online. Kwok is the Assistant Director of Division of Litigation Technology and Analysis for the FTC‘s Bureau of Consumer Protection.
She explained that cryptocurrency, which was created in 2009, is not a physical token. It’s a digital currency, “used primarily electronically and is analogous to other currencies like airline miles or rewards points on credit cards.”
One exception is Bitcoin ATMs which provide a physical card of bitcoin holdings. But these are not common, said Kwok. They are “unique to a particular set of people, for example, in Puerto Rico where people live off the grid as an alternate community.”
Crypto Has No Middleman
One of the hallmarks of cryptocurrency is that there typically is no middleman in the transaction. People can interact without having to set up accounts or share their identity.
This peer-to-peer system allows individuals to choose how they want to deal with a transaction. They can send cryptocurrency directly to a person to get paid or to receive payment.
“I can get cryptocurrency online or through an ATM and send it to XYZ and don’t have to open an account or store it somewhere,” explained Kwok.
Crypto is Risky
High value software-based cryptocurrencies are being developed every day and birthing largescale financial systems of their own.
For example, Bitcoin and Ether are now worth around $35 billion and $17 billion respectively. Dogecoin which was created as a joke from an online meme, clocked in at $4 million. But the value of cryptocurrency is undermined by its instability, warned FTC experts.
Unlike the US dollar, cyptocurrency is not backed by the federal reserve and does not have a safety net to ensure that its value is stable. If there is a run on a particular coin-based exchange, there isn’t a government entity that will step in to help consumers get their money back.
The value of crypto currencies changes daily because of volatility which makes cryptocurrency unreliable as a currency to transact goods and services.
Without a middleman, paying someone with cryptocurrency is risky. If money is sent to the wrong person, you will not get it back. It is lost.
Crypto Promises Wealth In A Hurry
Consumers view cryptocurrency as a speculative investment vehicle used to gain wealth; they hope that its value rises so they can can sell it.
According to Kwok, “The greatest advantage of cryptocurrency is to send small amounts of money with no fees. For instance, Bitcoin can be used for cross-border payments in a developing country, where sending a couple of dollars is expensive and time consuming.”
However, without a middleman to check identity and authenticity, cryptocurrency does not register who you are.
But it’s inaccurate to say that transactions are totally anonymous, because there are several ways to identify people and patterns. Every Bitcoin transaction records on the Bitcoin logchain, registering pieces of information like a wallet address and a PayPal email address – data that can identify who is sending multiple transactions.
Crypto Is Software-Based
“You open an app on a phone, access your wallet which has your funds, and you can send half a Bitcoin to whoever,” said Kwok.
“In the background this information gets added to the ledger and the software validates all the information. All this takes about 10 minutes and then the bitcoin is sent. The software is run across all computers and is constantly updating the ledger. This is why Blockchain is supposed to be the currency of the future as it cannot be manipulated.”
Crypto Fraud
According to the FTC’s Consumer Sentinel network, from January 2021 to June 2022, one of every four dollars was lost to fraud.
Christina Miranda, the FTC consumer education specialist, said that in 2018, “$12 million was lost to cryptocurrency scams, and this figure jumped to $680 million in 2021.”
The top crypto currency scams are investment related frauds ($785 million), romance scams ($220 million), business imposters (21 million) and government imposters ($56 million).
Investment related fraud relates to art, gems, rare coin investments, investment seminars and advice, stocks and commodity futures trading, and miscellaneous investments. People don’t want to miss out on making money said Miranda, so there is enthusiasm for crypto investing.
Romance scams find people on dating sites and tap into emotions, charm people, and then offer advice about cryptocurrency investing before asking for cryptocurrency to invest.
Government of business imposter scams involve receiving a text or computer popup from someone impersonating Amazon on Microsoft. Clicking on the link connects you to a scammer who reports fraud in your account or that your account has been frozen because of some type of investigation.
According to the FTC, “Nearly half the people who reported losing crypto to a scam since 2021, said it started with an ad, post, or message on a social media platform”
Jeffrey Vaulx, a special education teacher in the Memphis city school district, described being scammed from a friend’s Facebook post.
“It was about how to make money fast through Bitcoin. I lost $1000 on the transaction and realized later that my friends Facebook account was hacked!”
Who Gets Scammed
Cryptocurrency targets a range of people open to using these kinds of payment technologies because it appears to provide services they usually cannot access.
They include minority populations, people who live outside the financial system without bank, credit or debit card accounts, and 18 to 35-year-olds for whom crypto is now the prevalent payment method.
How To Avoid Crypto Scams
The bottom line is that cryptocurrency scams are always too good to be true.
Beware of promises to make an investor lots of money in a short period alongside plenty of zero-risk guarantees, warned Miranda. Usually, scammers guarantee returns and offer no details about the transaction. Honest money investment managers on the other hand, will always share that information.
Miranda urged people to do their research.
Avoid scams that demand cryptocurrency payments to secure a job, or emails that use blackmail to keep compromising information (photos etc.) out of the public domain. These scams amount to criminal extortion and should be reported to the FBI said Miranda.
Scammers often use phone calls to announce a prize that needs upfront payment. Then they direct the winner to a cryptocurrency ATM machine to purchase cryptocurrency through a QR code which leads directly to the scammer’s wallet.
“If you see a tweet or text or email or other message on social media that tells you to pay with cryptocurrency, it is usually a scam. Always ask how it works and where that money is going.”
Report fraud to:
reportfraud.ftc.gov
Commodities Futures Trading Commission t cftc.gov/complaint
U.S. Securities and Exchange Commission sec.gov/tcr.
Resources
Photo by Jeremy Bezanger on Unsplash