Though cryptocurrency can be an attractive investment, it’s more susceptible to scams than any other payment method. Over $1 billion has been reported stolen through crypto scams between January 2021 and June 2022, according to a report by the Federal Trade Commission.
Crypto scams are a type of investment fraud that can take many forms, from phishing scams to rug pulls. Since crypto’s blockchain technology isn’t regulated by a central authority like a bank, bad actors can easily take advantage of hopeful investors.
Crypto transactions are also pseudonymous (users interact through coded addresses, not legal names) and irreversible, so it’s unlikely that you’ll be able to recover any money lost to a scammer. Here are the most common crypto scams, how to avoid them, and what to do if you’ve been scammed.
Why is crypto prone to scams?
Cryptocurrency is especially attractive to scammers for three main reasons: a lack of centralized authority, irreversible transactions and the ability to be almost anonymous.
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Decentralized: Since crypto assets and applications are part of a decentralized financial (DeFi) system, intended to be used without oversight from a bank or government, there’s no central authority to stop a transaction or flag something if it looks suspicious.
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Irreversible: Because of the way the blockchain works, once you’ve sent a crypto transaction, there’s no way to retrieve your funds.
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Pseudonymous: Crypto users interact through wallet addresses, not legal names, so it’s difficult to track down specific users, especially if they’re trying to stay hidden.
Though crypto can be more prone to scams than other assets, “a lot of the scams that take place were happening before crypto existed,” says Sol Nasisi, founder of cryptocurrency gifting service GiftaBit.
“With crypto, both the risks and rewards are supercharged,” Nasisi says. “And as with any new technology, there will be bad actors that exploit it.”
