Cybersecurity Awareness Month: What is Cryptocurrency?
FBI Portland forensic accountant Brandon answers questions about cryptocurrency, blockchain, and digital wallets.
What is cryptocurrency?
Cryptocurrency is a type of digital currency that you can use to buy goods or services or to invest. You use regular currency – such as the U.S. dollar – to buy these cryptocurrencies, some of which are called tokens, and then you can spend with vendors that accept them. There are thousands of different kinds of cryptocurrencies traded publicly. They are not yet fully regulated and are unsecured unlike the money in your traditional bank account.
What is the “blockchain” ?
Blockchain is a digital ledger that tracks cryptocurrency transactions. Cryptocurrency transactions are processed in blocks, which are then added to the chain, hence the term blockchain. That ledger is maintained across many different computers around the world, which means the ledger is decentralized. This is one of the ways the blockchain works to keep the transactions secure.
What is a digital wallet and key?
A “digital wallet” is the app or device where you can store your cryptocurrency. There is a “public key” – basically the address you can give to someone to send you a payment. The “private key” is a very long string of letters and numbers. It acts as your password because you need it to access a wallet and remove currency.
Is cryptocurrency legal?
Cryptocurrency itself is perfectly legal to buy and use in the U.S. In fact, many mainstream companies are now accepting cryptocurrency for goods and services. What we are seeing, though, is an increase in bad actors who are using old style scams to steal this new-style virtual asset.
What kinds of scams are connected to cryptocurrency?
Any kind of traditional scam can take on a cryptocurrency twist. For instance, an extortionist contacts you to threaten you with the release of compromising photos. He demands that you send cryptocurrency. Same old scam, new way to pay.
We also see cryptocurrency frequently used in romance scams. For instance, the victim is persuaded by the suspect to take cash from their bank account and put it into cryptocurrency ATM kiosks. Once cryptocurrency is purchased it is sent to the suspect. It is a fast and easy way to send cryptocurrency across international borders.
From the investment side we often see victims promised fast and high returns on their investments. If an opportunity sounds too good to be true, it very likely is too good to be true. If someone is promising you fast returns on your investment, it is most often a scam.
If I want to invest or use cryptocurrencies, how can I do so safely?
First, recognize that a cryptocurrency investment is like any other investment – it can go up or down. Buyer beware!
When it comes to fraudsters, though, there are some specific steps you can take:
- Do your research. Look for reputable sources to explain how to buy it, how to trade it, and how to use it.
- Don’t respond to unsolicited offers or click on links you may receive through email, texts, or social media; and
- Never share your private key or seed phrase with anyone. That private key or seed phrase is all that is standing between you and someone trying to take your money.
- Cryptocurrencies experienced an enormous growth over the last five years. A lot of that growth has plateaued, but it appears the general public is trying to recreate that price boom so individuals can get rich with enormous and fast returns on investment.
What should I do if I become a cryptocurrency scam victim?
If you are the victim of a cryptocurrency or other type of cyber scam, make sure you report it to the FBI right away through our Internet Crime Complaint Center. Go to www.ic3.gov to submit that information.
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