We hear the word “cryptocurrency” a lot these days. It is on the news, heavily promoted on social media and frequently discussed by friends, family – and even my colleagues.
While it isn’t brand new, crypto is certainly getting a lot of attention right now, making many people curious. Whether it has a place in your financial plan is a discussion to have with your advisor. Today, I simply want to talk about safety, should you choose to dip your toes in.
Don’t believe the hype.
I won’t get into the weeds of exactly how cryptocurrencies or the crypto markets work. The technology is quite complex. But you don’t need a comprehensive understanding of it to recognize the common scams and safety pitfalls.
At a basic level, think of cryptocurrency like a digital form of cash: Once it leaves your wallet, there are very few, if any, ways to get it back.
That is what makes crypto incredibly attractive to scammers. They don’t have to worry about a bank reversing the charge once the fraud is uncovered. Also, remember that legitimate government agencies and most traditional businesses do not accept cryptocurrency as a form of payment.
Learn more
Is Crypto Back? What to Know About Bitcoin’s Surge, from The New York Times
Thinking about buying the latest new cryptocurrency or token? from Investor.gov
Investment risk, explained, from the Financial Industry Regulatory Authority (FINRA)
Digital assets, from FINRA
Look familiar?
A few of the most common crypto scams actually use very familiar, old-school tactics. For instance:
- We’ve written about romance scams before, where a scammer uses social media or dating apps to build trust with a victim before convincing them to send money. Now, they just ask for it in crypto.
- It is also common for thieves to impersonate legitimate businesses or government agencies and insist on payment via a Bitcoin ATM machine to “fix a problem.”
- Finally, some bad actors promote brand new, heavily hyped digital coins. They use excitement to get people to buy in, and then they suddenly disappear with everyone’s money in what is known as a “rug-pull” scam.
In the age of social media, we are bombarded with information from all sides, and the cryptocurrency space is no exception. A shiny new website or a glowing recommendation from a celebrity does not guarantee safety. Here are a few core rules to remember if you choose to explore the crypto market:
- If it sounds too good to be true, it is. Anyone promising “no risk” or “guaranteed returns” is running a scam.
- Looks can be deceiving. A fancy-looking app or a professional website does not mean the company is safe or legitimate.
- Beware of endorsements. “Influencers” and celebrities are often paid to promote crypto products. Their recommendation does not mean the opportunity is reputable or reliable.
Be deliberate.
Ultimately, the best defense against any financial scam is to slow down and ask questions.
Scammers rely on creating a false sense of urgency or the fear of missing out to pressure you into making a quick decision. Remember that you are in control of your money. Before sending funds to a new platform or buying into a new digital currency, take a step back, do your research and consult with a trusted professional.
Protecting your hard-earned savings is always worth the extra time.
Jason Scuglik is information systems administrator at Landaas & Company, LLC.