Wednesday, June 19th, 2024

Too Good to Be True: Avoiding Crypto Scams on Social Media

If you’ve spent any time on social media, you’ve almost certainly come across an internet scam.

If you’ve spent any time on social media, you’ve almost certainly come across an internet scam. Whether it’s a hacked social media profile that now exclusively posts about Ray Ban sales or a suspicious link in your direct messages from an unfamiliar username, to be online anywhere means it’s only a matter of time before scammers try and trip you up.  

Dr. Leo Hong, management professor at Millersville University.
Dr. Marc Tomljanovich, dean of the Lombardo College of Business.

With the rise in popularity of cryptocurrency, it was only a matter of time until scammers found a way to trick users into giving away valuable information. We talked with management professor Dr. Leo Hong, and Dr. Marc Tomljanovich, dean of the Lombardo College of Business about how to spot a scam online.  

1. What are some red flags that social media users can look for to avoid being scammed?

HONG: If a legitimate giveaway circulates on social media, be very cautious before interacting with it. Do a Google search for the giveaway. You should check the actual website because scammers use legitimate-looking addresses and use fake pages to fool victims.  

Second, you need to be aware of trust signals on social media. Many scammers create fake profiles that include a verification badge to indicate their authenticity or break into accounts. Scammers also disseminate crypto giveaways through legitimate official Twitter accounts belonging to high-profile individuals.  

2. Why do you think there are so many crypto scams online?

TOMLJANOVICH: This is a huge issue that crops up any time a new innovation appears. The financial opportunities arise faster than regulation, and it’s often unclear how big the risks can be, simply because the market is so nascent and untested. Investors, especially uninformed ones, get caught up in the massive potential returns. 

These cycles of extreme hype are followed by mass panic and ultimately crashes. Whether it’s the South Sea Bubble in the 1700s, the stock market crash of 1929, the dot-com bubble of the 1990s, or the housing crisis of the 2000s, these cycles are painfully regular. The crypto market is today’s version of these things.

3. If someone wants to invest in legitimate cryptocurrency, where should they look?

HONG: To buy legitimate crypto, you will need to find a broker or exchange institution. Cryptocurrency exchanges are platforms where sellers and buyers meet to trade currencies. It charges a low transaction fee. The most well-known exchange platforms are Coinbase, Binance and Bitcoin.  

4. What other advice do you have for those who want to invest in cryptocurrency?

HONG: Do not provide credit/debit card account information until you check the legitimacy of a company. Be aware of cryptocurrency pitches on social media platforms, even if they offer investment tips or secrets on message boards. Be wary of celebrity endorsements, which can seem very enticing at first and check the U.S. Securities and Exchange Commission for more information about crypto fraud. 

5. What are some steps people can take to protect themselves online? 

TOMLJANOVICH: Do your homework. If you decide to throw your money into, say, dogecoin, because of comments you read on a Reddit thread, then who is to blame when that currency crashes? I strongly suggest that investors step away from social media to get these information sources, and only come back once they feel well informed.

Understand the risks! And I encourage any investor to think very hard about why the cryptocurrency they want to invest in has value. How is it different or better than, say, Bitcoin? What does it set out to accomplish? If the only reason that an investor can find to invest in a particular asset, like a cryptocurrency or a stock or an Exchange Traded Fund, is because others are saying it’s a good buy, and they don’t have real data to back up those assertions, then walk away from it. At this point, if a person wants a rush from winning money, Vegas has better odds. 

More broadly, become financially literate. Think very carefully about the incentives driving the folks on the other side of any deal. And don’t get caught up in the hype. To be a good investor, you need to realize that there are no shortcuts to financial security. If something looks to be too good to be true, it certainly is! 

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