Crypto Scams Are Costing People Millions. Here's How to Invest Safely.

Cryptocurrencies are incredibly safe data storage systems. They keep a detailed ledger of transactions wide open to the public, but only for reading. Inserting new transactions requires some heavy-duty computing, and high-quality encryption ensures that nobody can change existing records.
Unfortunately, these ultra-safe cryptocurrencies are tied to imperfect trading systems. Despite their best security efforts, every crypto exchange is vulnerable to painful combinations of clever hacking and human error. Just last week, for example, the popular Bybit exchange lost $1.4 billion of Ethereum (CRYPTO: ETH) to a well-known North Korean hacker group. The hackers used some sophisticated technical know-how, but the hack was ultimately only possible because the attackers tricked several human transaction managers into signing a bad digital contract.
Just like with the internet and social networks, you have to be careful with cryptocurrency investing. According to a recent Motley Fool research report, Americans lost $3.9 billion to investment scams in the first three quarters of last year, and one-third of the scams involved cryptocurrencies. And I know the feeling after a moment of weakness nearly erased my crypto holdings in 2023.
Here's how you can make safer crypto investments, avoiding the scams and social engineering that lurk around the market's edges.
Enter the crypto world at your own peril
Any investment comes with a certain amount of risk. That's the deal -- investors provide capital to businesses, hoping to profit from future success while accepting the risk that things might not work out.
In most cases, investors are protected by regulations. The crypto market doesn't have those safeguards yet, and the cryptocurrencies themselves are treading-brand new paths in a global economy dominated by traditional banking systems.
So crypto investments come with more investor risks than most asset classes. This sector may be too hazardous for some investors. That's all right. Your situation is probably very different from mine, and maybe you're best served by safer stuff such as index funds and income-generating Dividend Kings.
Pick a secure trading platform
Once you decide to invest in crypto, you need to pick a secure trading platform. Leading names like Coinbase (NASDAQ: COIN) and Robinhood (NASDAQ: HOOD) make it easy to get started, and their accounts are wrapped in many layers of additional security. Actual trades are only possible after several double-checking steps, including two-factor authentication and email-based identity checks.
Once you've put some Bitcoin (CRYPTO: BTC), Ethereum, or altcoins in your new portfolio, it's extremely important to take those safeguards seriously. Attacks can start via email, text messages, or even direct phone calls. Attempting to earn your trust, the hackers may claim to work for your chosen crypto exchange. In my case, they said my account was under attack and I needed to take some steps to secure it against unauthorized transfer requests. In the Bybit hack, at least three people signed off on a large transfer from one Ethereum storage system to another, using a hacker-crafted version of the transaction approval app. It's anyone's guess how those bad apps were installed, but it only takes one careless click on an emailed link.
Yes, that iffy request is probably a trap!
The Bybit people wouldn't have the power to make billion-dollar Ethereum transactions without robust security training, and I've been around the data security block a few times. Yet, we're all human and 100% security is never guaranteed. Question every incoming request to fiddle around with your crypto account.
If it seems like something the platform's actual security team could do themselves, it's probably a scam. No matter how sincere the request to "help us secure your account" may seem, it's best to assume that they're trying to trick you. If there really is something going on, real security professionals should be on the case and you'll only see some notifications about a potential hack. I can't imagine a scenario where the trading platform really needs your help with unlocking the account.
Hang up the phone, block and report the emails, mute the text message thread. Log in to Coinbase or Robinhood to change your passwords, just in case. You can never be too safe, after all.
How to keep your crypto safe
Investing in cryptocurrencies may be the best way forward, but it's not an easy path, and you need to keep an eye on the risks involved. Hacking attempts rarely look like the exciting action scenes you see in the movies -- they have more in common with spam emails and car warranty robocalls. To help prepare yourself, check out the SEC's insight on some ways that fraudsters may lure victims into crypto scams.
It's up to you to keep that crypto wallet safe and secure. Anything that looks just a little bit suspicious is probably a very bad idea. Stay informed, stay vigilant, and keep your own best interests in mind. You don't want to become a part of the multibillion-dollar scam statistics.