Growing interest in cryptocurrency is leading to more scams

·3 min read
Photo by: STRF/STAR MAX/IPx 2021 1/29/21 Bitcoin prices rise as much as 20% today as large fluctuations in the stock market continue.
Many Canadians are investing in Bitcoin and cryptocurrency, but experts say this is leading to more scams. Image credit: Associated Press

The increasing popularity of cryptocurrency has meant more people are being scammed, says the Canadian Anti-Fraud Centre (CAFC) in a new warning notice to Canadians.

“As the value of cryptocurrencies reach new highs, the Canadian Anti-Fraud Centre (CAFC) wants to remind Canadians to recognize that fraudsters also seek to benefit from the growing interest in cryptocurrency markets,” the post reads. “Data breaches, thefts, exit scams and frauds tied to initial coin offerings have all been documented in 2020.”

Jeff Thomson, a senior intelligence analyst at the CAFC, said in an interview that investment scams have seen considerable growth over previous years, and that the dollar loss from investment scams rose from $9.7 million in 2018 to $16.5 million in 2020.

“With cryptocurrency surging, people are looking at ways to make money,” he said. “It’s becoming more mainstream... you’re hearing more about it. You’re going to see people looking to invest or trying to invest, so maybe they get one of these unsolicited emails saying here’s an investment opportunity.”

Thomson insisted that if Canadians are going to invest in crypto then they should do their research and retain their coins with reputable and compliant services.

He added it’s important to understand the difference between the types of wallets out there and to be extra cautious with sending crypto.

“If somebody is asking to be paid by crypto, make sure you have the exact wallet or crypto address to send to and you want to double-check it thoroughly,” he said. “Beware of phishing emails saying to punch in your information tied to [crypto wallets].”

Karl Schamotta, chief market strategist at Cambridge Global Payments, said the surge of Canadians investing in cryptocurrency is primarily due to the pandemic and looking at new ways to make money.

He also said an increase in institutional adoption and interest from bigger investors, hedge funds, and other players, more recently Elon Musk, investing in these markets is also “giving the space the veneer of credibility.”

According to a securities filing Monday, Musk’s company Tesla purchased $1.5 billion worth of bitcoin. The filing also indicated that it would allow customers to accept the cryptocurrency as a form of payment for its products. That news shot bitcoin (BTC-USD) shares nearly 14 per cent.

The richest man in the world also discussed the digital payment on voice-chat app Clubhouse indicating he thinks it “is a good thing.”

“I am a supporter of bitcoin. Like I said, I was late to the party, but I am a supporter of bitcoin,” Musk said.

Schamotta said Musk should be taking the time to educate his followers on everything there is to know about crypto and the risks around fraud.

“Any of these celebrities getting involved in this tend to give [bitcoin] greater credence and more respectability; that does persuade people who are on the sidelines to join it,” he said.

“Unfortunately, Mr. Musk is not living up to his responsibility. As a very influential person, he’s failing to ensure that he does protect people against loss.”

Schamotta explained that traditional financial systems include various levels of protection of funds. When you transfer between individuals there are a number of checks and balances in place, he said, adding this allows the financial institution to reverse potentially fraudulent transactions.

The same is not the case with cryptocurrency. “In crypto, in general, there is no such level of protection,” he said. “Once you’ve sent funds they’re gone.”

Using a cold wallet, or one that is not connected to the internet, is also highly vulnerable because most people lose their keys or password to it. “And even if you do use a service to hold your currency, that can be hacked and stolen from,” Schamotta said. “There are millions of cases of people losing their funds in this process.”

To ensure you’re staying safe, the anti-fraud centre suggests using strong and unique passwords for online accounts, and using multi-factor authentication.