According to the Federal Trade Commission (FTC), over 46,000 people have lost more than $1 billion in less than two years to crypto frauds. According to an FTC report published on 3 June 2022, crypto scams have increased by 60 times in size since 2018. They claimed that the anonymity of blockchain transactions is the primary driving force behind crypto scams because the perpetrator’s identity is unknown and the transaction irreversible.
Crypto scams cost cryptocurrency investors over $1 billion in losses
According to market reports, crypto scams are on the rise in the decentralized finance industry. In a statement, FTC indicated that the decentralized finance sector’s structure has provided an open door for swindles. According to the FTC, crypto has several characteristics that attract fraudsters. There’s no bank or other central authority to identify fraudulent transactions and try to prevent them from happening in the first place. There’s no way to get the money back once it’s gone.
Last year, customers lost 60 times more money than they did the year before, with a median individual loss of $2,600. The FTC notes that bitcoin (70%), tether (10%), and ether (9%) were among the most popular cryptocurrencies reported by scammed individuals. At the end of last year, cryptocurrencies were all the rage as bitcoin hit a new high of $69,000 in November.
The fact that payment transfers in cryptocurrencies, such as bitcoin, are irreversible is one of their most appealing features. This isn’t always a positive thing. Chargebacks are a type of tool intended to protect customers that allows them to reverse a transaction if they believe it was fraudulently charged for anything they did not receive. However, this feature is not available for crypto transactions.
According to the FTC, over half of respondents who had lost digital currencies in crypto scams stated that it began with an advertisement, post, or a message on a social media platform. According to the report, almost four out of every ten dollars lost to a social media fraud was in crypto, far more than any other payment method. Instagram, Facebook, WhatsApp, and Telegram were the most popular social media platforms in such cases, according to the FTC report.
The FTC advised against building investment portfolios out of social media-driven and targeted promotional campaigns. According to the FTC, combining social media and cryptocurrency is a volatile combination for fraud. In addition, it said that most social media scams are disguised as business opportunities due to people’s susceptibility to false promises.
The most frequent kind of crypto fraud was phony investment possibilities, which accounted for more than 90% of crypto scams. In 2021, the FTC received reports of $575 million in crypto fraud losses associated with investment opportunities. Many investors said that investment websites and applications would allow them to follow the development of their cryptocurrency, but the apps were fraudulent, and trying to get your money out proved difficult.
There’s no bank or other centralized authority to flag suspicious transactions and attempt to stop fraud before it happens. These considerations are not unique to crypto transactions, but they all play into the hands of scammers.
FTC warns crypto investors to trade carefully in the decentralized industry
Romance scams, which involve deceptive promises of love or marriage in exchange for money, make up a substantial portion of crypto scams report, with losses totaling $185 million. Many of these swindlers approach people via social media or dating apps. “Pig slaughtering,” a form of dating app fraud — in which offenders develop a phony relationship with a victim in order to defraud them into investing in cryptocurrency — has grown more prevalent.
The FTC says that the second sort of crypto scams are business and government impersonation scams, which may begin with phony communications claiming to be from tech firms like Amazon or Microsoft.
Younger customers were more likely to be fooled by crypto scams. According to the FTC, people aged 20 to 49 were nearly three times as likely as those over 50 were to report losing cryptocurrency to a con artist.
The FTC advises crypto investors to be wary of fraudulent offers since cryptocurrency investments do not come with guaranteed returns. They should also avoid business transactions that need a bitcoin purchase. Finally, they should be on the lookout for romantic gestures accompanied by a crypto offer.
The latest development comes on the heels of a tumultuous few weeks in the cryptocurrency markets. The failure of a U.S. dollar-pegged stablecoin largely contributed to the depression of the entire crypto asset class. In addition to that, investor confidence was hit following the price drop, which erased 500 billion dollars from market capitalization and damaged it.
For the most part, market investors lost money, as well as numerous institutional and retail investors. Moreover, there are no backstops from the FDIC or any other consumer insurance protections.
The cryptocurrency market has been beset by a number of difficulties in recent months, forcing prominent figures including Cameron and Tyler Winklevoss to lay off staff at Gemini. “Crypto winter,” which the two billionaire bitcoiners called a “contraction phase,” has been “further compounded by the present economic and geopolitical turmoil.”
It’s vital to remember that the FTC study is only a small portion of what has actually happened in the cryptocurrency world because the agency is relying on firsthand reports provided by victims.
According to an FTC paper, only about five percent of crypto scam victims notified a government agency, and very few notify the FTC. The number of bitcoin scams has grown as cryptocurrency becomes more popular. In 2019, Chainanalysis forecasted that unlawful addresses received approximately $14 billion in cryptocurrency, almost twice the amount obtained in 2020.