Everything You Need to Know About Cryptocurrency Scams

What is cryptocurrency?

Odds are, you’ve probably heard the term cryptocurrency being used quite a lot in the last few years. But do you really know what it is, how it’s managed, or how you can use it? For many, cryptocurrency is still quite mysterious, and since so much of this world is still very much in its infancy — yet is considered highly desirable and unbelievably lucrative in certain circles — many people are falling victim to scammers, some of which are financially hobbling people. 

So, you might be wondering, what exactly is cryptocurrency? The simplest way to describe it is that it is a digital asset. But that doesn’t go quite far enough. One of the most appealing factors of cryptocurrency to many is its ability to exist outside of typical financial structures, particularly those that are monitored and controlled by governments and financial institutions. 

This is done by distributing the currency across a vast network of encrypted computers, which is where the currency gets its name from. This network of linked peer-to-peer computers is called “blockchain.”

Cryptocurrency is hailed by many for its ease of transfer between parties without being managed or monitored by financial institutions, its anonymity, and security, but critics argue that crypto, in its current form, is too unregulated and therefore fertile ground for illegal activity, like money laundering, drug distribution, and more. 

Added to those concerns are potential vulnerabilities to its infrastructure, as well as scammers who are on the lookout for victims who are quick to take advantage of this currency’s possibilities but do not have the understanding of the system or how they can be taken advantage of. 

Beware of cryptocurrency scammers

According to the Federal Trade Commission, victims have lost over $80 million dollars in just a six-month period between 2020 and 2021. 

One of the central ways in which scammers take advantage of victims is by giving away some form of personal information so that the scammer can get access to the victim’s digital wallet, which is, as you might have guessed, the venue in which people can store their digital currency. 

Typically, in order to maintain high levels of privacy and security, these digital wallets have at least two types of keys that are used to keep the currency protected: public keys and private keys. Both are needed in order for transactions to occur, and both are generated when the transaction is initiated. 

Public keys are often generated from the private key, but private keys can never be generated from the public keys. This means that a person must be extremely careful about protecting their private information. 

If they were to lose a public key related to a transaction, they could use their private key in order to generate a new public key. However, if they were to lose their public key, then that information — and access to an account containing all of their digital currency — is likely lost forever. 

Scammers want access to the private key, which is known only to one party and is used as authorization for their personal account transactions. If a scammer is given access to this private key, they may be able to wipe the victim’s account of all funds, with very little ways for anyone to pursue the scammer or to retrieve their funds. 

What are the most common cryptocurrency scams?

Authorities most commonly see two broad categories of cryptocurrency scams:

  • Scams aiming to access a person’s digital wallet
  • Or scams aiming to defraud someone into transferring their digital currency directly to a scammer

Due to crypto’s incredibly complex nature, the former category, while not impossible, is far less common than the latter category. The latter category  — those scams aiming to defraud someone into transferring their digital currency themselves — is more akin to financial scams you’re probably already familiar with..

These schemes will include impersonating trustworthy institutions, like the government or a bank; catfishing (the impersonation of a potential romantic partner in order to gain access to their property); phishing scams (the use of emails designed to trick someone into sharing personal info); fake investment scams; and blackmail. 

What should you do if you’ve been a victim of a crypto scam?

As you should with any crime you’ve fallen victim to, you should contact the authorities. Due to the nature of cryptocurrency, getting your stolen assets back may be a difficult task, but the more the authorities understand the nature of these crimes, the better they can be at educating the public, identifying these crimes, and prosecuting them when they occur. 

As with anything new, this will take time for them to be most effective. 

I’ve been accused of a crypto scam — what do I do?

First things first: Get legal representation. The crypto world is largely unknown, in and out of the legal system. In order to get the best defense possible, you need counsel that is well-versed in protecting defendants accused of financial crimes, which is one of the Law Offices of Robert J. DeGroot’s areas of specialty. 

For fifty years, we’ve worked with the accused so that they get the representation they deserve in a court of law. If you’d like more information about how we can assist you in protecting your constitutional rights, contact us today for your confidential consultation!