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FTC Reports Huge Jump in Cryptocurrency Scams

By John P. Mello Jr.
May 19, 2021 4:00 AM PT
FC reports record investment scam losses

Claims of losses from cryptocurrency scams skyrocketed from October 2020 to March 2021, according to a report released Monday by the Federal Trade Commission.

In its Consumer Protection Data Spotlight newsletter, the FTC revealed that during the October to March period nearly 7,000 consumers reported losing US$80 million. That compares to only 570 cryptocurrency scam reports amounting to $7.5 million in losses from October 2019 to March 2020.

That's more than a 1,100 percent rise in cryptocurrency scam reports during the period -- and more than a 900 percent increase in losses.

The agency noted that as the value of cryptocurrencies like bitcoin continue to soar, new investors are eager to get in on the action, and scammers are more than willing to accommodate them.

chart: cryptocurrency investment scams October 2020 to March 2021

Scammers blend into the cryptocurrency scene with claims that can seem plausible because cryptocurrency is unknown territory for many people, the agency explained.

Online, people may appear to be friendly and willing to share their "tips," it continued. But that can also be part of the ruse to get people to invest in their scheme.

In fact, the FTC added, some of the schemes are based on referral chains -- also known as Ponzi schemes -- that work by recruiting novice investors to bring more novice investors into the fold.

Get Rich Quick Allure

A number of factors appear to be driving the increase in cryptocurrency scams.

"Scammers follow headlines, just like you and I do, and there's not a day that goes by that you don't hear about cryptocurrency," observed Amy Nofziger, director of fraud victim support at AARP.

"When Elon Musk was on Saturday Night Live, he mentioned Dogecoin 10 times," she told the E-Commerce Times. "People hear that and stories about one-day millionaires and they want to get in on the action."

"Some people want to get rich quick," added William J. Malik, vice president of infrastructure strategies at Trend Micro.

"They hear about fabulous returns to early investors in other cryptocurrencies and want to get in first," he told the E-Commerce Times.

Cryptocurrency scams are like other speculative scams, such as penny stocks, real estate, oil and gas, noted Purandar Das, CEO and co-founder of Sotero, a data protection company in Burlington, Mass.

"With cryptocurrency, it is even more appealing as a scam since most people don't know much about it and probably know even less about how to engage with it," he told the E-Commerce Times.

Rocketing Values

Chris Clements, vice president of solutions architecture at Cerberus Sentinel, a cybersecurity consulting and penetration testing company in Scottsdale, Ariz. maintained that the biggest driver, by far, of the spurt in cryptocurrency scams is the meteoric rise in the value of many cryptocurrencies.

"Not counting the admittedly large sell off in the past few weeks, over the past 12 months a single bitcoin went from roughly $9,000 up to $60,000, that's over a [600 percent] increase in value," he told the E-Commerce Times.

"This has drawn in scores of new investors looking to capitalize on the rapid growth, many of whom are not familiar with the additional security requirements needed to keep their new investments safe," he continued.

"Unlike traditional banking or stock market investing, cryptocurrency has few safeguards in place to protect unsuspecting users from being fooled into exposing digital wallets or performing transactions that can't be recovered once compromised," he explained.

"This provides scammers with a combination of easy targets and lucrative payouts so it's no surprise that such scams are rampant," he added.

Touch of Legitimacy

Cryptocurrencies have also gained more legitimacy in recent times. That, too, may make it less daunting to new investors.

"Cryptocurrency has gained wider adoption as applications like Square's Cash app and others have begun allowing payments with bitcoin," explained Sherrod DeGrippo, senior director of threat intelligence and detection at Proofpoint, an enterprise security company in Sunnyvale, Calif.

"Coinbase as a crypto trading platform recently had an IPO, and of course Elon Musk made many references to various cryptocurrencies on SNL a week ago," she continued.

"The wider adoption and accessibility mean that it is a natural target for crimeware actors," she told the E-Commerce Times. "As the cryptocurrency payment methods go mainstream, we will see more crime and fraud associated with it."

While cryptocurrency may be relatively new, for the most part, scammers continue to use tried and true techniques.

"They use the emotional tactics they use for every scam out there," AARP's Nofziger observed.

"They get you under the emotional ether," she continued. "They get you excited about it. They make you feel special. They make the opportunity seem legitimate."

They will also try to harvest a cryptocurrency owner's credentials, added DeGrippo. "Proofpoint continues to see credential harvesting campaigns targeting users' wallets and spoofing several popular cryptocurrency companies both as the originating sender and as a landing page to collect credentials," she said.

Playing It Safe

Cryptocurrency scams can have some advantages for criminals over other types of scams, though. "Cryptocurrency scams transcend borders even more easily than other types of online scams," Forrester Vice President and Principal Analyst Martha Bennett told the E-Commerce Times.

Stealing virtual money also has advantages over the real thing. "When scammers used to get fiat money from their victims they had to use fake bank accounts and wash it losing up to 50 percent of revenues," said Giacomo Arcaro, European growth hacker and CMO of Blackchain International, a consulting firm helping with blockchain projects and social media promotion in New York City.

"Now, by getting just crypto, they have increased their profit to 100 percent, and it's safer, too" he told the E-Commerce Times.

In its newsletter, the FTC made several recommendations for playing it safe when investing in cryptocurrencies:

  • Promises of guaranteed huge returns or claims that your cryptocurrency will be multiplied are always scams.
  • The cryptocurrency itself is the investment. You make money if you're lucky enough to sell it for more than you paid. Period. Don't trust people who say they know a better way.
  • If a caller, love interest, organization, or anyone else insists on cryptocurrency, you can bet it's a scam.

"Although cryptocurrencies themselves are considered 'secure', the platforms available for purchasing are not so safe," added Thomas Beek, senior cybersecurity specialist with Digital Shadows, a San Francisco-based provider of digital risk protection solutions.

He recommended investors use a centralized exchange with a high reputation that has been operating for an extensive period of time, such as Binance, Coinbase, or Kucoin.

"Although such services are not immune to the threat of an attack," he told the E-Commerce Times, "they are known for their continual efforts to check their infrastructure for any possible frailties and look to mitigate any potential vulnerabilities -- something that can't be said for any ad-hoc exchanges that are just starting out."


John P. Mello Jr. has been an ECT News Network reporter since 2003. His areas of focus include cybersecurity, IT issues, privacy, e-commerce, social media, artificial intelligence, big data and consumer electronics. He has written and edited for numerous publications, including the Boston Business Journal, the Boston Phoenix, Megapixel.Net and Government Security News. Email John.


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