All you need to know about cryptocurrency scams

18 October, 2018

Digital and virtual currencies secured by cryptography – cryptocurrencies  are a scary unknown for many. But for almost a decade now, people from all walks of life have been legitimately using and trading this new type of currency for great rewards. 


Unfortunately, with any new investment opportunity, an influx of investment fraud and scam attempts also arises. In 2017, $32.5 million lost to cryptocurrencies was reported to the Australian Competition and Consumer Commission (ACCC). This figure is likely to increase, with $26 million reported lost in such scams in the first six months of 2018 alone.

This makes cryptocurrency fraud the second most common type of investment scam affecting Australians. Scammers encourage people to invest in cryptocurrencies with the promise of making a quick buck, and the lack of knowledge about these currencies makes it harder for people to tell a scam from a genuine opportunity.

What are cryptocurrencies?

Although they're often thought of as a new trend, cryptocurrencies have been in development for a long time. Bitcoin, the most well-known cryptocurrency, was launched in 2009. As of September 2018, more than 2,000 cryptocurrencies are on the international market.

Standard currencies (such as the Australian dollar) are centralised and regulated. These have a middleman (a bank or the government) to keep a record of how much currency is available and who has what. This helps to track fraud attempts, such as counterfeiting. 

A cryptocurrency is a peer-to-peer trading system that has no middleman. Instead, all logs are recorded in a 'blockchain'. People who own some of a particular cryptocurrency all keep track of payments and transfers of money. If person A sends a bitcoin to person B, every bitcoin owner is notified. The blockchain speaks to participants' computers, and when they all agree on where the money is, an extra 'block' is added to the chain with updated balances and the whereabouts of the money. 

Common cryptocurrency scams

Like any type of financial fraud, scammers can target subjects in different ways. Some of the most common scams include phishing and malware.

Phishing scams attempt to trick potential investors into giving out personal information. It is a major method by which cryptocurrencies can be lost. Often, fraudsters send an email designed to look like it has come from a legitimate website that trades in cryptocurrencies. The email directs the recipient to a fake website made to look like the real one in an attempt to gain login details, digital wallets and/or private keys.

Malware, likewise, is likely to target subjects via email, with a  file that infects a computer once it is downloaded. The file is likely to have a keylogger that tracks what the recipient types and which then sends vital information back to the scammer. 

Unregulated brokers

Like any investment, decisions about cryptocurrencies can be made by the investor or through a broker. Legitimate brokers will invest money and charge a small fee for their services. Illegitimate brokers steal investments or try to fleece investors out of more cash. 

Crooked brokers operate with fake websites, apps or automated trading systems that invite people to make investments but siphon the money off for their own use. 

They may also work from call centres, usually based overseas, by cold calling people with enticing offers and promises of hot tips that will return high dividends. 

Have you been involved in a cryptocurrency scam?

Just like many types of investment fraud, cryptocurrency scams are often carried out internationally – sometimes across many jurisdictions. This is to limit and frustrate Australian police in tracking scammers and to make it harder for investors to reclaim their money.

Scams should be reported to the ACCC via its ‘report a scam’ page so others can be warned about current scams and they can be disrupted where possible. 

If you think you may have been scammed, it's important to act quickly and get professional help from a private investigation agency. Read IFW Global case studies in our free-to-download ebook, Online Investment Fraud: How to Recover Your Stolen Assets.

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