Scammers Stole $14 Billion in Crypto in 2021. Here’s How Investors Can Protect Their Coins

We want to help you make more inform decisions. Some links on this page — clearly marked — may take you to a partner web site and may result in us earning a referral commission. For more data, see How We Make Money. Cryptocurrency crime had a record-breaking year in 2021, with a new reputation finding scammers took $ 14 billion worth of crypto last year. That ’ s closely twice the $ 7.8 billion taken by scammers in 2020, according to blockchain data firm Chainalysis ’ “ 2022 Crypto Crime Report, ” findings from which were released Thursday, Jan. 6. With a boom in cryptocurrency interest over the past year, it ’ second no wonder that “ Olympic-level scammers ” have taken notification of new opportunities for illegitimate bodily process, says William E. Quigley, a big investor and co-founder of the WAX blockchain. The high-tech nature of crypto will continue to attract twist scammers, Quigley said during a control panel discussion hosted by blockchain firm Light Node Media last month.

Consider a late “ Squid Game ” victimize in which investors allege a new SQUID cryptocurrency token and related immersive on-line game were actually just an elaborate scam. Investors claim the developers disappeared after the currency skyrocketed in monetary value and apparently cashed out with more than $ 3 million .

Before You Invest In Crypto

Experts say it ’ second fresh to keep your crypto investments under 5 % of your overall portfolio. Crypto prices fluctuate wildly by the day, and experts besides say you ’ vitamin d be smart not to invest more than you ’ five hundred be o losing if the market dropped out altogether. Crypto investments should besides never get in the means of early fiscal priorities like saving for emergencies, paying off high-interest debt, and saving for retirement using more conventional investment strategies. Like it or not, crypto investors are opening themselves up to this new and evolving risk of fraud and scam. If you ’ ve incorporated crypto into your investment portfolio or are concerned in investing in Bitcoin or Ethereum in the future, here are some common scams and red flags to look out for .

What Are Some Common Cryptocurrency Scams?

In the U.S., about 7,000 people lost upwards of $ 80 million in crypto scams from October 2020 through March 2021, according to the Federal Trade Commission ( FTC ), based on scam reports filed in the U.S. That ’ s a huge leap over the 570 cryptocurrency investment scam and $ 7.5 million in losses during the same months just the year earlier. With cryptocurrency scams on the rise, here are some patterns to look out for :

Demanding Crypto-Only Payments

If a apparently credible person or retail establishment claims they can not accept any form of currency other than Bitcoin, it ’ s likely a victimize. Bitcoin and other altcoins are a burgeon asset class, so experts say credible institutions aren ’ t going to accept crypto and not besides accept U.S. dollars through normal means like wire transfers, checks, citation and debit card payments, and cash. In general, anyone demanding you pay them in Bitcoin might be trying to hoard it and capitalize on its skyrocketing value. And unlike banks, blockchain lacks common know-your-customer ( KYC ) protocols. That means people can open wallets without having to present valid recognition, a Social Security number, or an address and contact data. Though blockchain is public and creates permanent, open-access records, people can transact on blockchain more or less anonymously — making it easy to trick you, take your money, and run .

Anonymous or Fake Identities

The miss of KYC protocols on blockchain is a major doubt mark for its far-flung use, says Jonathan Padilla, former PayPal steer of blockchain scheme and CEO and co-founder at Snickerdoodle Labs, a California-based blockchain data security company that ’ sulfur looking at using blockchain to give consumers ownership of their cookies and browsing data. “ With a decentralized platform, there ’ s truly no safeguards in station to say who is a dependable actor and who is a bad actor, ” Padilla explains. “ It ’ s in truth precisely buyer beware. ” On a promise note, blockchain can provide a newfangled form of transparency : Since data can not be altered or removed on blockchain, all transactions are public record. When colonial Pipeline paid anonymous hackers 63.7 Bitcoin ( valued at about $ 2.3 million ) back in June, U.S. Justice Department investigators were able to track the transactions on blockchain and seize the ransom money. “ [ The hackers ] used a host wallet to move the Bitcoin around, which means [ police enforcement ] found them in about five days, ” Padilla says. “ There ’ second transparency built in [ to blockchain ], and now with the tools [ coders are developing ], you can use sophisticated software to do an on-chain analysis and track where these things go. ” however, it will be a matter of time before law enforcement agencies at every municipal level become companion enough with new tools to investigate smaller-scale blockchain scams efficaciously. There ’ south presently still a possibility that crypto tokens, NFTs, and other digital blockchain assets could be used by bad actors to launder money on both modest and large scales. “ That ’ s a very actual concern, ” says Padilla. “ For example, you could get money from Columbia, go buy an NFT with what was previously trust money, and it could be washed in an NFT. ” Mass-scale money laundering international relations and security network ’ metric ton super prevailing, Padilla says, but the tools and the submission framework needs to catch up fast.

“ The technical school is just getting where it needs to be … to be able to track where that money is coming from and where it ’ second going, ” Padilla says. “ But it hasn ’ t been there for the last half class, ” since crypto and NFTs have exploded in popularity. Sticking with beginner-friendly crypto exchanges like Coinbase and Gemini is one way to avoid risks that come with smaller, niche exchanges, experts say. It ’ randomness besides a well mind for founder crypto investors to stick with the two most democratic cryptocurrencies — Bitcoin and Ethereum — which have a longer record of increasing in value than early modern altcoins .

Digital Collectibles and Games

Like we saw with the “ Squid Game ” scam, advanced coders immediately have the ability to create new games and entire fanciful worlds on blockchain. And to do it vitamin a promptly as the future viral Netflix show takes off. An easy way to scam aroused blockchain newbies is to get them to buy a type of newly minted coin or token for a game. If enough people drive the price up through supply and necessitate, this gives the original scammers an opportunity to sell all their holdings and disappear in a be active known as a “ rug pull. ” Unlike depository financial institution accounts for federally baffle currency, there ’ s no such thing as fraud security or FDIC insurance on the blockchain. When your money gets stolen on blockchain, the only direction to get it back is for the recipient role to pay you back directly. On a decentralize exchange, that ’ s highly improbable. And while mainstream crypto exchanges have better fraud security measures than lesser-known exchanges, there ’ s still no guarantee for investors to recoup stolen crypto .

Cryptocurrency Investment Schemes

New forms of crypto are constantly being minted, and when new coins hit the blockchain it ’ sulfur known as an initial coin offer ( ICO ). But ICOs are besides opportunities for scams. A company or person may say they have a once-in-a-lifetime opportunity to invest in a new form of crypto with guarantee 1,000 % returns. They may then pressure you into depositing a bunch of fresh coins into a digital wallet that ’ second been compromised somehow, or “ pump and shit ” by buying up the coin and sell when the price explodes .

Romance Scams

Dating apps are rife with crypto scams. According to the FTC, about 20 % of the money lost in love story scams from October 2020 through March 2021 was sent in the form of cryptocurrency. Scams like this involve long-distance or digital relationships in which one party pressures and convinces the early to buy or give money for some fresh crypto that ’ mho actually precisely a way to scam people out of their money .

Phishing Scams

This type of victimize is a old as the internet, but with crypto there are some newly implications. just as a “ convention ” phishing attack would work, regretful actors send emails attempting to bait recipients into clicking links and inputting their personal details — including crypto wallet key information. But unlike most passwords and usernames, you only get one private key to your blockchain wallets. This is function of blockchain ’ s decentralized blueprint, ensuring that one entity can not control your information, but it poses an issue if you always need to change your keystone .

How Investors Can Protect Their Crypto

even the most advance and enthusiastic cryptocurrency experts understand there are many newly and evolve risks in the world of crypto right now. Some have weathered scam themselves, such as the blockchain investor and entrepreneur Ian Balina, who said he lost $ 2.5 million after his secret wallet key data was compromised by person hacking into his Evernote report. Balina ’ s history highlights the possibility of loss and fraud when dealing with such a modern, volatile asset classify, flush for successful investors. fiscal experts advise most passive investors to keep crypto holdings to under 5 % of their portfolios, and never to invest in crypto at the expense of saving for emergencies or paying off high-interest debt. If you feel ready to start investing in crypto, here are some best practices to protect your money :

Cryptocurrency Red Flags 

For starters, watch out for some common red flags that are exchangeable to classic money wiring scams and credit menu imposter :

  • Typographical errors and obvious misspellings in emails, on social media posts, and during any communication
  • Promises to multiply your money
  • Contractual obligations that lock you into holding crypto without being able to sell
  • Fake influencers or claims to be a celebrity
  • Psychological manipulation like blackmail or extortion
  • Large social media crypto schemes
  • Promises of free money
  • Vague details about where your money is going

Know When to Use a Crypto Wallet

precisely like your physical wallet, you need to protect your digital wallets from hackers. Practice good digital security system habits akin to how you ’ five hundred treat large sums of physical cash by putting them in a condom or FDIC-insured savings explanation. Experts say small-scale investors with a few hundred dollars worth of crypto are probably o keeping it on a mainstream commute like Coinbase. however, if you amass thousands of dollars worth of crypto, it probably makes more feel to incorporate a wallet for extra guardianship. There are two types of crypto wallets, typically described as “ hot wallets ” and “ cold wallets. ” Hot wallets are hosted, or stored on-line. They are impregnable, but more susceptible to hacking than cold storage, which is when you store crypto offline on a assemble of hardware. Think of cold storage as kind of like a safe in USB-drive format. It ’ s more secure, but if you forget your password or lose the device, you could lose access to your money everlastingly. Crypto held in hot wallets is not FDIC-insured like cash in the bank. You ’ ll consequently want to make sure that whatever platform or wallet you store your crypto in has full-bodied security measures, including :

  • Two-factor authentication
  • Storing a portion of holdings in its own cold storage
  • Private insurance policies in case of theft or hacking (separate from FDIC insurance)

Keep Track of Your Wallet Keys

You entirely get one unique cardinal to access your wallet, says Mac Gardner, a Florida-based license fiscal planner and collapse of FinLit Tech. Losing your key or having it stolen could mean losing the crypto altogether. “ You need to have a lot of operate around getting access to [ your wallet winder. ] It ’ s not a thing where you can forget your username and password if you don ’ metric ton write it down, ” Gardner says. “ Each code has a process and a certain number of characters. It ’ s extremely personalize because of this virtual space. If it wasn ’ triiodothyronine, anybody could go in there and then grab your stuff, right ? ”

Report Fraud

You should report fraud and other leery bodily process involving cryptocurrency to the following chest of drawers using these links :

  • The FTC: ReportFraud.ftc.gov
  • The Commodity Futures Trading Commission (CFTC) at CFTC.gov/complaint
  • The U.S. Securities and Exchange Commission (SEC) at sec.gov/tcr
  • If the fraud involves extortion or blackmail, you can also go to ​​the FBI. 

besides don ’ thymine forget to report the fraud to whatever crypto exchange you used to complete the crypto transaction whenever you suspect or have testify that bad actors are at toy.

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