Cryptocurrency

Understanding Cryptocurrencies & Their Risks

What are Cryptocurrencies?

Cryptocurrencies are digital assets that exist solely in the virtual world. They are designed to function as a form of currency for transactions over decentralized networks, enabling users to transfer value or assets without relying on traditional financial institutions. The term "crypto" refers to the cryptographic techniques used to secure these transactions and to control the creation of new units.

Unlike traditional money, cryptocurrencies do not have inherent or legislated value. Their worth is entirely determined by what people are willing to pay for them in the market. Cryptocurrencies operate independently of central banks and governments, making them both a novel financial instrument and a target for misuse.

Some examples of widely recognized cryptocurrencies include:

  • Bitcoin (BTC)
  • Binance Coin (BNB)
  • Ethereum (ETH)
  • USD Coin (USDC)
  • Tether (USDT)
  • Cardano (ADA)
  • Dogecoin (DOGE)
  • Solana (SOL)
  • Ripple (XRP)
  • Tron (TRX)

These digital currencies can be used for a range of transactions, from online purchases to speculative investments, and even cross-border transfers.

Why Do Criminals Utilize Cryptocurrency for Illicit Transactions?

Cryptocurrency’s decentralized nature and anonymity features make it an attractive tool for criminals seeking to evade detection. Here’s why:

Decentralized Nature

Cryptocurrencies operate on decentralized networks, meaning no central authority or intermediary (such as a bank) is involved in verifying transactions. This absence of oversight provides criminals with the ability to move funds anonymously, often circumventing traditional financial regulations.

Irrevocable & Quick Transactions

Cryptocurrency transactions are immediate and irreversible. Once funds are transferred, they cannot be undone or reversed. This is advantageous for criminals who seek to quickly move illicit funds across borders without the risk of chargebacks or intervention from financial institutions.

Challenges to Tracing Funds

Although cryptocurrency transactions are recorded on public, distributed ledgers known as blockchains, which allow for some degree of traceability, tracking funds can be challenging, especially when funds move across international borders. Some jurisdictions have weak or no anti-money laundering laws, making it harder for law enforcement to trace criminal transactions effectively.

What to Do If You Were the Target of a Cryptocurrency Scam

If you believe you have fallen victim to a cryptocurrency scam, swift action is essential. The FBI recommends taking the following steps:

Submit a Complaint to the FBI

Whether or not you have experienced financial loss, it is crucial to report cryptocurrency scams to the FBI. The more information you provide, the better. This includes transaction details like cryptocurrency wallet addresses, amounts, types of currencies, transaction hashes, dates, and times. You should also include any relevant details about the scam, such as the platforms you used to communicate with the scammer, domain names involved, and contact information like phone numbers.

Important Reminder: Be cautious of "cryptocurrency recovery services" that ask for upfront payments. These services are often scams in themselves.

File a Complaint with IC3

You can file a complaint with the Internet Crime Complaint Center (IC3) by visiting www.ic3.gov

. For individuals aged 60 or older, assistance is available through the National Elder Fraud Hotline at 833-372-8311 to help with filing an IC3 complaint.

Stay Informed

For up-to-date information on trends in cryptocurrency scams and fraud schemes, check for updated public service announcements (PSAs) at www.ic3.gov

The site provides critical information on specific fraud patterns, including those related to real estate, prepaid cards, and tax scams.

Understanding Cryptocurrency Terminology: Wallet Address vs. Transaction Hash

To assist with reporting cryptocurrency transactions or scams, it’s important to understand key terminology:

Transaction Hash (ID)

A transaction hash (or transaction ID) is a unique identifier for a cryptocurrency transaction. It is usually a fixed-length string of characters generated from the transaction’s data. For example, Bitcoin and Ethereum transactions typically have a 64-character hexadecimal hash.

Wallet Address

A wallet address is the unique identifier for a cryptocurrency wallet. It varies in length depending on the cryptocurrency:

Bitcoin: Wallet addresses range from 26 to 63 characters, with different prefixes (e.g., P2PKH, P2SH, or Bech32).

Ethereum: Wallet addresses are always 42 characters long, starting with "0x" to represent a 160-bit hash.

For more detailed information on cryptocurrency terminology and trends, refer to the latest IC3 Annual Report.

Why Action Fraud Matters

At Action Fraud, we are committed to raising awareness about the growing risks associated with cryptocurrencies and fraud. Our mission is to educate individuals and businesses on how to identify, prevent, and respond to digital currency scams and fraud.

By staying informed and taking the right steps, you can better protect yourself from the dangers of cryptocurrency-related fraud.