True believers have touted cryptocurrency as a better, more efficient, futuristic replacement for cash as we know it. They are right in one very specific way: These virtual currencies have proven to be incredibly efficient at separating people from their money in ways that more traditional scams could only dream of achieving. An analysis published recently by the Federal Trade Commission found that Americans lost more than $1 billion to cryptocurrency scams in 2021, and that number is likely to grow.
The biggest source of cash lost in the Web3 era has been bogus cryptocurrency investments. These are scam coins and rug pulls in which founders and influencers trick a bunch of people into pouring cash into a project, before cashing out and leaving their marks holding the bag. The FTC estimates that $575 million vanished this way.
But scammy cryptocurrencies weren’t the only way that people were able to turn their virtual money into virtually nothing. Romance scams, in which tricksters get poor saps to part with their cryptocurrency through the promise of love, were used to separate people from $185 million last year, per the FTC. That number is almost certainly on the low end, too, because victims of these scams are often too embarrassed to report them. Business and government impersonation scams also sucked nearly $100 million out of peoples’ crypto wallets, with scammers pretending to be officials to trick people into paying them.
The FTC’s report collected accounts from 46,000 people who suffered a median loss of $2,600 a piece. But this is likely just the tip of the iceberg. This year, the popular cryptocurrency Luna — the ninth-largest cryptocurrency by market capitalization — crashed to zero and erased $45 billion in value. Other cryptocurrencies also dropped dramatically this spring.
While Luna is the most high-profile failure, people have watched the value of other crypto investments disappear all year. The once-buzzing NFT market that generated million-dollar sales for cartoon monkeys has all but evaporated, and Web3 projects keep falling apart despite lots of cash flowing into the market.
Perhaps the worst part is we haven’t hit the crypto bottom yet. It seems like the entire market is intent to embrace the motto of Sean Parker in The Social Network, except for losses instead of gains: “Losing a billion dollars isn’t cool. You know what’s cool? Losing a trillion dollars.”
