Scammers are always shifting their tactics, so make sure you know how to recognize the signs of cryptocurrency fraud.
Investment fraud is on the rise in Canada and those looking to make a lot of money quickly often end up losing the most to fraudsters. In particular, the intense popularity of cryptocurrencies has attracted not only a flood of investors but scammers as well.
When it comes to fighting fraud, knowledge is power, so let’s get into it! (If you think you’re pretty scam savvy, why not try the fraud awareness quiz from the Financial Consumer Agency of Canada and see where you stand?)
- What is cryptocurrency?
- What is an NFT
- Anatomy of a crypto scam
- Tips for dodging scams
- Reporting scams
- Words to know
What is cryptocurrency?
Cryptocurrency, or simply crypto, is tradable digital asset that uses cryptography powered by blockchain technology to secure transactions. You may have heard of cryptocurrencies like Bitcoin, Ethereum, Cardano and Solana but, since Bitcoin appeared on the scene in 2009, hundreds more have been created. Cryptocurrencies operate independently of a central bank and are currently unregulated in Canada.
What is an NFT?
A non-fungible token (NFT) is a non-interchangeable (“non-fungible”) unit of data stored on a blockchain. Unlike cryptocurrencies, which are interchangeable (one bitcoin is equal to another), NFTs are unique digital assets. NFTs can be any digital property, including drawings, music or videos, but most of the recent hype surrounds the use of this technology to sell digital art.
Anatomy of a crypto scam
Many scammers take advantage of the complex and largely unregulated cryptocurrency landscape to carry out their schemes. Unfortunately, there are as many different scams out there as there are criminals to carry them out, but they often fall into one of two categories. One involves swindling you out of your personal information and the other begins with building a connection or otherwise gaining your trust before making a fraudulent request.
Gaining access
The first type of cryptocurrency fraud involves obtaining access to a victim’s digital wallet or authentication credentials. Potential victims may be contacted through email, social media, online message boards or other means. These fraudsters will often mention guaranteed high returns with little to no risk and pressure their victims to act quickly. Before long, the scammer will find some means of accessing your personal information. They may urge you to download malware onto your computer, send you to an illegitimate website intended to collect your credentials or inform you that they need you to share your private information in order to process your investment, offer technical support or release funds to you.
Never trust anyone who contacts you directly asking for payments in cryptocurrency or offering you a so-called investment opportunity.
To dodge these scams, avoid investing in or trading cryptocurrencies on the advice of someone you've only dealt with online and never share your personal key code, verification information, authentication credentials or access to your digital wallet with anyone — even if someone claims to need that information to provide technical support or to help you. Finally, while there are plenty of wallet programs and hardware to choose from, it’s critical to ensure your cryptocurrency wallet comes from a reliable and trustworthy source. Remember scam artists can create websites, programs, devices and mobile apps that look legitimate — and even appear to show that the value of your investment is rising — before pulling the rug out from under you and absconding with your money.
The federal government is also currently advising Canadians to be on the lookout for blackmail scams in which a cybercriminal contacts you, typically through Instagram, claiming to have incriminating information about you. They may demand payment in cryptocurrency or try to force you to promote their fake cryptocurrency platform to those in your network. This individual is a scammer; victims will never recover their social media account and any funds invested through the fraudulent cryptocurrency platform are at risk of being lost.
Building trust
A second broad category of cryptocurrency fraud involves using impersonation, manipulation or relationship-building techniques to gain a victim’s trust. Scammers may pose as celebrities, social media influencers, community members, representatives of government agencies or loved ones. They may even use dating sites or other means to make victims feel as though they are in a loving long-term relationship (known as a “romance scam”). Once trust is established, the scammer will make a pitch, often presenting an emergency that requires payment in cryptocurrency. They may also request personal information or pressure you to invest in a particular cryptocurrency or to purchase an NFT.
To avoid falling victim, don’t invest in a cryptocurrency — or in anything — that you don’t truly understand and be wary of anyone who approaches you online and requests payment through a cryptocurrency platform, whether that person claims to be a celebrity, a technical support person, a loved one, a friend, a member of an organization you belong to or a government official. Remember that Canadian government agencies and law enforcement will never demand payment in cryptocurrency.
Online dating can be a wonderful way to meet someone new, but it can also be fraught with fraud. Be wary of anyone who professes their love too soon.
Four tips to dodge crypto scams
Luckily, the warning signs and red flags for cryptocurrency fraud are similar to those for other types of fraud. Be wary of any offer or prize that seems too good to be true and never invest money that you can’t afford to lose. With those two important messages in mind, here are our top four tips to avoid falling victim to a crypto pirate.
- Don’t invest in anything, whether that’s a cryptocurrency, an NFT or something else, that you don’t understand. Scammers will often try to obscure facts, redirect questions and avoid providing details.
- Don’t invest in a cryptocurrency on the advice of someone you have only dealt with online. It could be a “hot tip” from someone claiming to be an expert or a supposed romantic partner whose advances have turned into demands.
- Don’t be reckless when it comes to security. Never share your cryptocurrency platform login information, security codes, personal keys or passwords. Enable two-factor authentication when possible and refuse any request to gain remote access to your computer.
- Don’t give in to pressure tactics. Whether it’s a cryptocurrency scam or another type of fraud, scam artists will almost always pressure you to make a decision or to send funds right away. Take a moment to collect your thoughts and reach out to someone you trust to talk through the situation.
Cryptocurrencies and NFTs offer many rewarding opportunities, but don’t skimp on your research. Be sure to thoroughly research any cryptocurrency platform or digital wallet provider before investing or providing personal and financial information. Visit the Canada Revenue Agency newsroom to learn more about cryptocurrencies and refer to the Canadian Anti-Fraud Centre for more information about ongoing scams targeting Canadians.
Scammers often make big claims without any details or explanations. If you feel confused, don’t invest!
Reporting scams
To report a scam, fraud or cybercrime, whether you are a victim or not, connect with the Canadian Anti-Fraud Centre by using the Online Reporting System tool or calling 1-888-495-8501 (toll-free). If you have been a victim of fraud or of any cybercrime, be sure to also contact your local police.
To learn more about the steps to take if you suspect that you have been the target of fraud, refer to the Canadian Anti-Fraud Centre.
Words to know
Blockchain
A blockchain is a decentralized digital ledger of transactions. Data is distributed across the entire network of computer systems on the blockchain.
Cryptocurrency
Cryptocurrencies, or simply crypto, are tradable digital assets that use cryptography powered by blockchain technology to secure transactions.
Digital wallet
A digital wallet, also known as e-wallet, is an electronic device, online service or software program that securely stores users' payment information. Hot wallets are digital cryptocurrency wallets, while cold wallets are physical devices that store cryptocurrency.
NFT
A non-fungible token (NFT) is a non-interchangeable (“non-fungible”) unit of data stored on a blockchain. NFTs are unique digital properties that can have only one owner at a time.
Two-factor authentication
Two-factor authentication (2FA) strengthens security by requiring two methods of identity verification when accessing an account. This is a type of multi-factor authentication (MFA).