Posted May 18, 202212:15 pm
By Josh Rovenger, Esq.
Are you confused when you hear the term “cryptocurrency”? If so, you are not alone! And sadly, some scammers are trying to make money off that confusion. Here are some basics about cryptocurrency and scams you should know about:
What is cryptocurrency?
Cryptocurrency is a type of digital currency that exists electronically. There are many different cryptocurrencies. For example, Bitcoin or Ethereum are two of the most popular types. There is no physical coin or bill unless you use a service that allows you to cash in cryptocurrency for a physical token. You usually exchange cryptocurrency with another person directly online through your phone or computer, without using a bank or credit card company.
How do you get and store cryptocurrency?
Cryptocurrency can be bought through online exchange platforms. Cryptocurrency can also be “mined,” but individual people do not usually mine cryptocurrency because it takes too much computer power to do so. Cryptocurrency is stored in a digital “wallet” in an online account, or on your computer, or on an external hard drive.
How do you make a cryptocurrency transaction?
Typically, one user will request a cryptocurrency transaction with another user. That transaction will be processed through a complex computer network. The computer network verifies that transaction. Then that transaction will be combined with other cryptocurrency transactions to create a “block” of data. The new block of data is then added to the existing list of cryptocurrency transactions known as a “blockchain” that all cryptocurrency users have access to. The transaction is then complete.
Why do people use cryptocurrency?
People invest in cryptocurrency like people invest in the stock market. Cryptocurrency is also used as a way to make quick payments (e.g. at coffee shops or online stores). Some people prefer using cryptocurrency because there are no bank transaction fees for the transactions.
How does it differ from US dollar?
Cryptocurrency accounts are not backed by the federal government. Payments made by cryptocurrency are not legally protected. So, if something goes wrong with a transaction, there is no bank or government regulator to step in and help. Also, cryptocurrency values change
constantly based on supply and demand (how many transactions are being recorded on the blockchain).
What cryptocurrency scams should you look out for?
One sure sign of a scam is anyone who says you must pay by cryptocurrency. In fact, anyone who tells you to pay by wire transfer, gift card, or cryptocurrency is a scammer. Here are some cryptocurrency scams to watch out for:
- Investment and business opportunity scams
- Some scammers start with offers from supposed “investment managers.” These scammers say they can help you grow your money if you give them the cryptocurrency you’ve bought. But once you log in to the “investment account” they opened, you’ll find that you can’t withdraw your money unless you pay fees.
- Some scammers list scam jobs on job websites or send scam job offers to help recruit cryptocurrency investors, sell cryptocurrency, mine cryptocurrency, or help with converting cash
to cryptocurrency. They’ll promise you a job (for a fee) but end up taking your money or personal information. - Here are some promises that scammers make: Scammers guarantee that you’ll make money; scammers promise big payouts with guaranteed returns; and scammers promise free money.
- Before you invest or apply for a job, do your research. Look online for the name of the company and the cryptocurrency name, plus words like “review,” “scam,” or “complaint” and see what others are saying.
- Blackmail emails
- Scammers will often send emails that say they have embarrassing photos, videos, or personal information about you. Then, they threaten to make it public unless you pay them in cryptocurrency. Don’t do it! This is blackmail and it is a crime that you should
report to the FBI.
- Scammers will often send emails that say they have embarrassing photos, videos, or personal information about you. Then, they threaten to make it public unless you pay them in cryptocurrency. Don’t do it! This is blackmail and it is a crime that you should
How do you report cryptocurrency scams? You should report fraud and other suspicious activity involving cryptocurrency to the Federal Trade Commission (federal consumer protection agency) at ReportFraud.ftc.gov.
This article was published in Legal Aid's newsletter, "The Alert" Volume 38, Issue 1, in Spring 2022. See full issue at this link: “The Alert” – Volume 38, Issue 1 – Legal Aid Society of Cleveland (lasclev.org).