FTC Data Shows Huge Spike in Cryptocurrency Scams – Over $1 Billion Lost Since 2021, Younger People Most Likely to Report a Loss
From the start of 2021 through June 2022, people have reported losing over $1.3 billion in cryptocurrency to scams. Nearly half say the scam began with an ad, post, or message on social media. The largest share of the losses, about $785 million, involved bogus investment opportunities. Cryptocurrency was the payment method used for about one in every four dollars reported lost to fraud during this period. In a briefing organized by EMS(Ethnic Media Services), FTC experts explained how cryptocurrency scams work, why they are growing so fast, and what the latest “trending” scams are. They also talked about which population groups are most at risk, how to spot and avoid cryptocurrency scams, and how to report them. The briefing educated about cryptocurrency and provided information that alerted audiences about how not to lose money to the next “crypto con”.
Rosario Mendez, Senior Member, FTC reiterated the importance of spotting scams. “Education is the first line of defense to avoid problems in the marketplace,” she said. This helps consumers avoid losing money it is our responsibility to alert people about consumer information and protect them from scams.
How Did Cryptocurrency Come About?
Elizabeth Kwok, Assistant Director of Litigation Technology & Analysis, Bureau of Consumer Protection, FTC shared basic cryptocurrency information including what they are and how they are stored or used. She explained cryptocurrency as a digital currency. It is not new and is analogous to other forms of digital currency that we know already like airline miles or reward points on your credit card Etc. They function similarly as simple digital assets that enable people to transmit online and are however different because of how they were created. They came about through a different technology that was created around 2009, exist online and you rarely see any physical token or representation of them. There are however exceptions to that rule such as Bitcoin ATMs where you can get a physical card or representation of your Bitcoin holdings. Those are not very common.
Secondly, cryptocurrency is meant to be a peer-to-peer system where you are sending your cryptocurrency back and forth to the person you are either paying or getting funds from and there is typically no middle man. This was meant to create a financial system where you can interact without having to set up accounts or having to give over information about your identity. There are also centralized places where you can get online which are more user-friendly such as coinbase where you can go online and purchase different types of cryptocurrency.
How Many Types of Cryptocurrency Exist?
There are different types of cryptocurrencies. Even though you may have heard of Bitcoin there are lots of cryptocurrencies created every day because it is based on software to accommodate what the creator wants them for.
Why Are Cryptocurrencies Useful?
Cryptocurrencies pack a lot of value, for instance, very recently there were 35 billion dollars worth of bitcoin in the world followed by Ether with 17 billion. Understanding the scale of money here is important since we think it is a crazy thing that’s going to fade away. The truth is that it has become a very large financial system of its own.
How Is Cryptocurrency Different From the US Dollar?
She explained the differences between cryptocurrencies and US dollars. First and foremost they are not backed by the US government like the dollar is that has the fed and insurance on your deposit. There is nobody overlooking cryptocurrency and there is no protection. They are also very volatile and the values change all day long and from day to day, there is no middle man. If you trade in cryptocurrency it is like using cash, in the event of a ‘mistransaction‘ or that you send money to someone you are not planning to. Unless that person you sent money to chooses to send it back to you there is nobody to help you.
How and why do people use cryptocurrencies?
Elizabeth said that it is a speculative investment. You should rely on it as a way to gain wealth by holding on to it with the hopes that the values grow and that you can sell it. It is currently viewed as an investment vehicle and not a form of payment. Quick payments exist and are supposed to be one of its advantages where you can send small amounts of money with no fees. Speed helps in this case because there is no middleman to check and it is self-run by the software. Also, anonymity is great because it removes any registry tracking and the digital ledger runs on its own blockchain. All transactions are registered in the ledger. This makes it completely anonymous even though there are ways to make it such. Finally avoiding fees is the ultimate benefit since you don’t pay to send money back and forth.
How does it work?
It is all based on software; you start by opening an app on your phone to send money. You go online to a browser on your computer and choose a method. You can use your software or a website like coinbase where you access your account that has your funds in what is called your wallet. Then you tell it what you want to do such as send money. It then validates the information in the background in about 10 minutes, the transaction is validated, and the Ledger has been updated to show your transaction.
Lastly, the whole concept is based on the underlying software running across all users’ computers. These computers are constantly updating this ledger and so they all have to agree on the latest piece of information which is why blockchain technology is shared and lauded as the possibility of the future because it cannot be manipulated.
Cristina Miranda, Consumer Education Specialist, Division of Consumer & Business Education, Bureau of Consumer Protection, FTC Showed the data on fraud reports indicating cryptocurrency as the method of payment.
Beware of Scams
Jeffrey Vaulx, a Memphis teacher, shared his personal story and experience with cryptocurrency scams on Facebook. A situation that clearly happens because he was not listening to his instincts. This led him to be scammed on social media by someone he thought he knew.