The cryptocurrency-cybercrime connection

If you think you’ve been hearing more about cryptocurrency these days, you’re probably right. In the US alone, an estimated 17% of adults say they have bought or traded cryptocurrency.¹

But as cryptocurrency gains wider recognition, cybercriminals have been busy devising new schemes to defraud cryptocurrency investors and users. Fortunately, being aware of these risks can help you avoid becoming a victim.

Cryptocurrency is a form of digital currency. It has no physical form—you can’t carry it in your pocket. Instead, you usually exchange cryptocurrency online directly with an individual or business without using a bank as an intermediary.

Cryptocurrency comes in a variety of types, with Bitcoin and Ethereum being the most popular.² You can purchase cryptocurrency through an online exchange and store the password anywhere, including personal digital wallets or in your memory (instead of a traditional bank account).

Digital currencies aren’t considered to be legal tender in the US, and no one is required to accept them as a form of payment. Also, payments made through cryptocurrencies are typically irreversible. Purchases can be refunded, but that depends solely on the willingness of the recipient; there aren’t any laws requiring an individual or business to do so.

Unlike the US dollar, cryptocurrency isn’t backed by a government entity, and its value—which is solely dependent on current supply and demand—can be volatile.

Scams involving cryptocurrency include:  

Investment scams

Some of these investment scams follow familiar themes, such as the ability to make an extraordinary amount of money quickly with little or no risk. Or individuals may be encouraged to recruit other investors into an investment program—similar to a pyramid scheme—with the lure of higher returns based on the number of people brought into the program.

Victims have also reported being targeted by fraudsters pretending to be investment managers who promised to grow their assets as long as the funds were sent as cryptocurrency. Sometimes scammers attract interest by falsely proclaiming that a celebrity or a well-known billionaire has endorsed an investment opportunity, and they’ll anonymously use chat rooms to drive speculation about this possibility.

A long-game, relationship-based cryptocurrency scam known as “pig butchering” typically begins with a stranger (the scam artist) contacting a victim out of the blue via text message or social media and trying to establish a dialogue. Over the course of days, weeks or even months, the fraudster may send messages about personal, non-investment-related topics and try to foster trust. Eventually, the “pigs,” or targets, are “butchered” by the scammer, who manipulates them into making phony investments involving cryptocurrency and disappears with the funds.³

Always consider thoroughly vetting investment opportunities involving cryptocurrency before taking action. Don’t respond to or click on links in unsolicited messages from an unknown contact, and never share personal financial information with someone you haven’t met in person. Carefully research any organizations or individuals involved, and check consumer protection sites about potential scams associated with these entities. Any investment opportunity that requires cryptocurrency as the form of payment or that demands immediate action warrants caution.

Extortion scams

Cybercriminals may claim to have sensitive materials about you—perhaps involving passwords, account information or private photos—and threaten to expose them unless you send a cryptocurrency payment.

In many cases, fraudsters are simply trying to scare you and don’t have any of this information. But even if they do, making a cryptocurrency payment may not resolve the matter. Always report the extortion attempt immediately to the FBI.

Fake websites

Phony websites focusing on cryptocurrency—whether it purports to be for an investment opportunity or perhaps a digital currency exchange or digital wallet provider—are quite common. So, it’s best to only deal with well-established organizations related to cryptocurrency. Again, do your research first before sending any money.

Also, type the URL of an organization’s site directly into your browser instead of relying on search results that may lead you to a phishing site that mimics the authentic site. Cybercriminals create these phishing sites with the goal of capturing your digital currency payments or sensitive personal information, such as your log-in credentials.

Giveaway scams

These schemes often use social media posts to promote fake giveaways from actual companies or celebrities by either using forged screenshots or hacking into their accounts. You’re typically encouraged to send cryptocurrency to the provided digital address with a promised return of double the amount sent (or even more).

The giveaway is usually promoted as a limited-time offer to create a sense of urgency. (Fraudsters don’t want to give you time to think or ask others about the opportunity.) To legitimatize the giveaway, scammers may leave comments from phony social media accounts claiming to have received money.

These scams work well because it can be extremely difficult to retrieve cryptocurrency after it’s been sent, so victims have little recourse. 

Other common scams

• Employment scams featuring phony recruiters with fake jobs and bogus offer letters that attempt to initially obtain personal information about you and later request a cryptocurrency payment to start your job training.
• Impersonation scams using a fraudster acting as a representative of a government agency (such as the Social Security Administration) or perhaps a prominent cryptocurrency exchange, who will require that a payment be made in cryptocurrency.

If you’re a victim of a cryptocurrency scam or notice suspicious activity, you should report it immediately to the following agencies:

• Federal Trade Commission
• Commodity Futures Trading Commission
• Securities and Exchange Commission
• Federal Bureau of Investigation

Cryptocurrency can be a fast, convenient, and inexpensive way to pay for products or services, transfer assets or conduct other types of transactions online. It also has the potential to be used as a meaningful short-term or long-term investment.

But it’s important to realize that virtual currencies don’t have an established track record of credibility or trust and they’re not regulated or backed by any central bank worldwide. So, emphasize safety when using cryptocurrency and be vigilant about protecting yourself against cryptocurrency scams.

The source of this article, The Cryptocurrency-Cybercrime Connection, was originally published on July 21, 2023.

1. Michael Faverio,  “Majority of Americans aren’t confident in the safety and reliability of cryptocurrency” April 10, 2023, Pew Research Center.

2. Morgan Stanley Wealth Management Global Investment Office, 2021.

3. FINRA, “Pig Butchering Scams,” December 13, 2022.