Cryptocurrencies like Bitcoin, Ether, and dozens of others are popular commodities in online trade, and a skilled investor may earn handsomely. However, the temptation of instant money might blind some people to the dangers, allowing con artists to entice them into frauds.
What exactly is a cryptocurrency? The broker from The Investment Center, Christian Ricci, explains that it’s a digital representation of wealth that isn’t backed by any government or central bank, according to the US Commodity Futures Trading Commission (CFTC). Despite this, this virtual currency may be used to make purchases and traded for US dollars or other traditional currencies.
The value of virtual currencies, unlike government-backed money, is solely determined by supply and demand. This can lead to dramatic swings in the market, resulting in significant profits or losses for investors. Furthermore, compared to traditional financial instruments such as equities, bonds, and mutual funds, cryptocurrency investments are subject to significantly less governmental oversight.
Despite crypto currency’s high-tech luster, many of the scams associated with it are modern versions of old schemes. For example, the CFTC has issued a warning regarding “pump and dump” scammers who use messaging apps and chat rooms to spread reports that a well-known business magnate is investing millions of dollars in a particular digital currency, or that a big shop, bank, or credit card firm is partnering with it. The scammers sell their ownership after luring investors to buy and driving up the price, causing the currency to fall in value.
Some cryptocurrency con artists operate a virtual version of the classic Ponzi scheme, offering fictitious chances to invest in digital currencies and generating the illusion of high returns by repaying old investors with money from new investors. According to federal authorities, one such organization, Bit Club Network, generated more than $700 million before its founders were accused in December 2019.
Impersonate professional virtual currency dealers or set up bogus exchanges to defraud individuals out of their money. Another scam involves false sales pitches for “IRS-approved” cryptocurrency individual retirement plans. Some hackers break into people’s “digital wallets,” where they store their virtual cash.
Cryptocurrency fraud is one of the biggest dangers to investors in 2020, according to the North American Securities Administrators Association, nonprofit representing security operated in the United States, Canada, and Mexico. So take these steps to prevent getting ripped off if you wish to enter this brave new world of money.
Conclusion: How to avoid scams:
What you should do:
- Recognize the danger. Even if you aren’t being conned, virtual trading currencies are speculative and risky. “An investment that may be worth thousands of dollars on Tuesday may only be worth hundreds on Wednesday,” according to the Federal Trade Commission.
- Do not succumb to the impulse to buy straight away. Scammers frequently try to instill a false feeling of urgency in the public about an allegedly popular cryptocurrency.
- Before you acquire any virtual currency options or futures contracts, make sure to check out any dealer. In addition, the Consumer Financial Protection Bureau (CFPB) provides an online background check service.
- Before supplying credit card information, wiring money, or giving sensitive personal data, extensively study any virtual currency site or digital wallet provider.
- Any agreement with a digital wallet service should be carefully studied. The Consumer Financial Protection Bureau advises that, unlike banks and credit card issuers, they may not take responsibility for replacing your money if it is stolen.
What you shouldn’t do:
- If you don’t fully grasp how virtual currencies function, don’t invest in them.
- Please don’t gamble with money you can’t afford to lose when it comes to cryptocurrency.
- Don’t purchase virtual currencies based on anonymous suggestions from chat rooms or social media.
- Don’t invest in a personal retirement account that says it’s “IRS authorized” or “IRA authorized.” For example, virtual currency investments are allowed in some self-directed IRAs. However, the Internal Revenue Service does not authorize or monitor IRA investments.
- Don’t give anyone your “private keys,” which are complex letter-and-number codes that allow you to access your virtual cash. Instead, keep them in a safe place.