Dealing with Virtual Currency Scams
The growing popularity in cryptocurrencies (such as Bitcoin) has resulted in a greater number of people wanting to invest in this form of digital currency. Unfortunately, cyber criminals have taken advantage of this opportunity by scamming victims into parting with their money. This type of scam can come in different forms, but it usually ends up with you, the victim, being tricked into sending money or cryptocurrency to an investment that will never materialise. These scams include:
Fake Investment Websites
‘Pump and Dump’ schemes
Fake ICO’s (Initial Coin Offerings)
Giveaway Scams
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Fake Investment Websites – These sites aim to promote a “get rich quick” scheme whereby a user deposits fiat money or cryptocurrency into a user account or wallet with the hopes of receiving a large return. However, once the funds have been transferred, victims may find that they are unable to withdraw any of their fiat or crypto inside of that account. Scammers take advantage of this further and may demand further payment in order to be able to ‘unlock’ the funds.
‘Pump and Dump’ Schemes – This scheme works by scammers misleading victims to invest into a particular cryptocurrency (hence ‘pumping’ up its value). Once the price of that cryptocurrency goes up, scammers would ‘dump’ and sell off what cryptocurrency they have to rake in large profits. Victims would find that the value of their cryptocurrency falls sharply and in return lose money.
Fake ICO’s (Initial Coin Offering) – When a start-up or company wishes to raise funds, it may launch an ICO and entice investors to invest a certain amount of bitcoin (or other forms of cryptocurrency) to purchase the company’s newly introduced coin. A fake ICO involves a scammer enticing victims to invest in a coin that does not and has never existed.
Giveaway Scams – This type of scam is prominent on social media platforms. Scammers would hack or impersonate legitimate accounts (usually celebrities and high-profile figures) and pretend to be giving away crypto. Victims would be asked to send a certain amount of crypto to the scammer in which they would receive double of what they initially put.
If your virtual currency has actually been hacked from your wallet then visit our Hacked Virtual Currency Guide.
Approaches to dealing with a crypto scam:
Don’t send any further fiat money or crypto – If you believe you have fallen for a scam and you are asked to send more money or crypto – don’t! Doing so would only lead to you losing out on more.
Contact the police - Report the crime to Action Fraud or Police Scotland. They will log the crime and give you a crime reference number. Even if they can’t help, they will look at how they can try and stop the scam which will help others.
Report the scam to the Financial Conduct Authority - like the police they will try and stop the scam and warm others before they fall victim. You can report here.
If you have paid money or provided card/bank details - contact your bank ASAP and explain what has happened. Check our Money Recovery Guide.
Follow the money – Since the blockchain ledger is public, you’ll be able to see all the transactions going from and into the wallet address you were scammed into. You can use browser-based blockchain exploring software such as https://www.blockcypher.com/ to ‘follow’ the payment through to an end crypto address. In order to trade crypto to regular money on most popular exchanges, the thief would need to submit KYC (Know Your Customer) information, such as names, addresses, and ID information. Contacting the exchanges can potentially help you to track down the scammer’s identity, which can help to lead to his/her arrest. This is another reason why it is important for you to file a police report as soon as the incident has taken place.
Will I get my money back?
Cryptocurrencies are very lightly regulated in the UK and therefore do not have the same level of protections as other financial products (for instance a debit or credit card). Also, from a technical point of view, crypto transactions are irreversible and therefore it is very unlikely that you will be able to recover any of your money.
How do I avoid virtual currency scams in the future?
Avoid unsolicited attempts to get you to invest – You may get contacted via social media, email or a cold call about an investment opportunity – it is likely for these to be scam.
Do your research – Like with any other important decision, it’s best to do your research. Research the cryptocurrency, company, the individuals involved, but more importantly, whether they are associated with any scams.
Never rush your decisions – If you feel you’re being rushed into making an investment e.g., a limited time offer – distance yourself and do your research until you are confident.
Too good to be true? – If it sounds too good to be true – it probably is. Any sort of investment requires some degree of risk and those that claim to give you guaranteed returns are the riskiest of them all.
Check the FCA Financial Services Register - In the UK, nearly all financial service activities must be authorised by the Financial Conduct Authority. You can use the Financial Services Register on the FCA website https://register.fca.org.uk/s/ to see if a company is registered.