Blockchain technology created a secure environment for cryptocurrencies to flourish – but that security doesn’t protect virtual money from scammers.
WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) released a bulletin highlighting complaints it received related to crypto-assets. While not a major influence in the housing market yet, more buyers and sellers are accepting cryptocurrency, such as Bitcoin, in real estate sales.
While the technology to create cryptocurrency is generally secure, human scammers and other criminals cause damage by targeting human cryptocurrency users.
According to CFPB, consumers most commonly reported being victimized by frauds, theft, account hacks and scams. They also had issues executing transactions and transferring assets between exchanges.
Many complaints claimed that the user had issues accessing funds in their account due to outright platform failures, identity verification issues, security holds, or due to technical issues with platforms. And poor customer service is a common theme in crypto-related complaints, FHFA says.
“Our analysis of consumer complaints suggests that bad actors are leveraging crypto-assets to perpetrate fraud on the public,” says CFPB Director Rohit Chopra. “Americans are also reporting transaction problems, frozen accounts and lost savings when it comes to crypto-assets.”
Chopra specifically warns crypto users to “be wary of anyone seeking upfront payment in crypto-assets, since this may be a scam.”
Crypto-assets are a private sector digital asset that depends primarily on cryptography and a distributed ledger (such as a blockchain) or similar technology. These assets are also commonly referred to as “virtual currencies,” “cryptocurrencies,” “crypto tokens,” “crypto coins,” or simply “crypto.”
Scammers often target crypto-assets since it can be difficult to determine the people behind many crypto-asset addresses – and scammers have used a number of techniques to obscure crypto-assets’ movement to other accounts. This makes it more difficult for regulators and law enforcement to trace stolen crypto-assets.
Risks identified in CFPB bulletin
- Romance scams and “pig butchering”: Crypto-assets are often targeted in romance scams, where scammers play on a victim’s emotions. Some scammers employ a “pig butchering” technique: They spend time gaining the victim’s confidence, trust and romantic affection in order to get victims to set up crypto-asset accounts. Once done, the scammers steal all their crypto-assets. In addition, many attackers pretend to be customer service representatives to gain access to customers’ crypto accounts.
- Difficulty obtaining restitution: Consumers who have been defrauded or had their account hacked are often told, “There’s nowhere to turn to for help.” In addition, crypto-asset platforms and service providers often require mandatory arbitration and limit class-action lawsuits before allowing people to use their service. As a result, important terms can be buried within the Terms and Conditions and difficult to find.
- Fraudulent transactions: Some crypto-asset platforms don’t appear to take any steps to verify one person’s authority to act on behalf of another customer. They only do so after receiving a complaint and “often only after several escalations by that customer.” FHFA says that suggests some scammers may understand the controls to prevent money laundering and fraud – but “purposefully evade” them.
- Risk of identification: Some blockchain technology users aren’t aware of the public nature of the ledger that records every crypto-asset transaction. Malicious actors may be able to link those transactions and the crypto address using a consumer’s identity.
- Higher asset volatility: Especially in recent months, crypto-assets have had significantly more fluctuation in value than currency backed by governments. Some crypto-assets have gone to zero or had assets frozen by exchanges.
- Beware of common scams: In addition to romance and “pig butchering” scams, other tricks include merchant scams, which deliver the promise of goods or services in exchange for crypto-assets, only for the victim to find out the business was fake. Both the CFPB and the Federal Trade Commission have online resources available to spot common scams. Note that no government agency or regulator insures crypto-assets.
- Report suspicious FDIC insurance claims: Websites and apps may fraudulently suggest government endorsement or insurance protection of crypto-assets. Firms that misuse the name or logo of the FDIC likely violate the Consumer Financial Protection Act’s prohibition on deception.
- Submit a complaint to CFPB: Consumers having an issue with a consumer financial product or service can submit a complaint with the CFPB online or by calling (855) 411-CFPB (2372).
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