Cryptocurrency: what it is, and why scammers love it

Cryptocurrency is a digital form of money that operates outside the traditional banking system. Here’s what to know before considering it as an investment, and before sending it to anyone who asks.

What is cryptocurrency?

Cryptocurrency is a digital form of money that exists only electronically, with no central bank or government backing its value. As an investment, buying cryptocurrency means purchasing a digital asset whose price is determined entirely by market supply and demand, with no underlying cash flow, dividend, or interest payment the way a stock or bond typically provides. Unlike a traditional currency transfer, most cryptocurrency transactions are also irreversible once completed, meaning there’s typically no equivalent to a chargeback or refund process if something goes wrong, a feature that matters both for investors and, as covered further below, for anyone targeted by a scam.

How cryptocurrency investing works

Unlike a stock, which represents ownership in a company with real assets and earnings, or a bond, which represents a loan with a contractual promise to repay, cryptocurrency’s value is derived purely from what other market participants are willing to pay for it at a given moment. This structural difference is part of why cryptocurrency prices have historically shown considerably more volatility than most traditional investments, with substantial price swings occurring over short periods, sometimes within a single day.

Investing in cryptocurrency typically involves purchasing it through a dedicated exchange, then either holding it in an account with that exchange or transferring it to a personal digital wallet held directly. This second option, self-custody, shifts responsibility for securing the asset entirely onto the individual, since a lost password or a compromised wallet can mean permanently losing access to the cryptocurrency, with no central institution able to recover it the way a bank might help recover access to a traditional account.

Cryptocurrency as an investment: benefits, limitations, and what to watch for

What some investors find appealing:

• Potential for significant appreciation. Certain cryptocurrencies have seen substantial price increases over specific periods, which has attracted considerable investor interest and media attention.

• Accessibility. Cryptocurrency can often be purchased in small amounts through widely available apps and platforms, without some of the account minimums or paperwork associated with certain traditional investments.

• Operates outside traditional banking infrastructure. For someone in a country with an unstable currency or limited banking access, this feature is sometimes cited as an advantage, though it comes with its own tradeoffs, including the scam risk discussed below.

What to watch for:

• Substantial price volatility. According to the CFTC⁠(opens in new window), virtual currency values can be extremely volatile, and a significant portion or all of an investment’s value can be lost in a short period.

• Limited regulatory protection compared to traditional securities. Cryptocurrency investments generally don’t carry the same investor protections as a registered stock or mutual fund, meaning less recourse if something goes wrong with a specific platform or exchange.

• No underlying cash flow. Unlike a dividend-paying stock or an interest-paying bond, cryptocurrency generates no income on its own, meaning any return depends entirely on selling it for more than the purchase price.

• Security responsibility falls heavily on the individual investor. Self-custody wallets offer no institutional backstop if credentials are lost or a wallet is compromised.

Why cryptocurrency’s features make it attractive to scammers

The same features that some legitimate investors find appealing about cryptocurrency, limited regulation, transaction irreversibility, and the ability to move funds without going through a traditional bank, are exactly what make it a favorite tool for scammers. Once a cryptocurrency payment is sent to a scammer, there’s generally no bank or card issuer to call for a reversal, while the pseudonymous nature of many transactions makes tracing and recovering funds considerably more difficult than with a traditional bank transfer.

Common ways cryptocurrency shows up in scams

A romance scam or investment scam frequently asks the victim to purchase cryptocurrency and send it to a wallet address controlled by the scammer, often framed as an urgent, one-time opportunity or a way to help someone in a fabricated crisis. A fake “recovery service” scam sometimes targets people who’ve already lost money to a scam, promising to recover it in exchange for an upfront cryptocurrency payment, a payment that simply disappears along with the original loss. Recognizing that a legitimate financial institution, government agency, or genuine business essentially never requires payment exclusively in cryptocurrency is one of the most reliable ways to spot this pattern before sending anything.

Cryptocurrency’s genuine price volatility also means that even legitimate investments carry real risk of significant loss, which makes any offer promising steady, guaranteed, or unusually high returns specifically through cryptocurrency worth treating with heightened skepticism. If an opportunity claims to have found a way around this inherent volatility to deliver consistent, risk-free returns, that claim itself is a strong signal something isn’t right, regardless of how convincing the surrounding presentation might be.

Scammers involving cryptocurrency also often frame their request as a single, one-time favor or opportunity, specifically because a single instance feels more manageable to agree to than an ongoing commitment would. Recognizing that this framing is itself a manipulation tactic, rather than evidence the request is modest or low-risk, helps in applying the same scrutiny to a “just this once” request that would apply to a larger, more obviously risky one. Some cryptocurrency scams also allow a small test withdrawal specifically to build confidence before a larger deposit, and experiencing this small, real withdrawal can feel like strong proof the platform is legitimate. Recognizing that this single successful small withdrawal is a calculated, deliberate step in the scam’s structure, not evidence of a platform’s overall legitimacy, protects against the false confidence it’s specifically designed to create.

Red flags to watch for

• Any request to pay in cryptocurrency to “unlock,” “verify,” or “insure” a transfer. Legitimate transfer providers never require this.

• Pressure to buy cryptocurrency at a specific kiosk or exchange and send it immediately. The urgency itself is a warning sign.

• A “recovery service” asking for cryptocurrency upfront to help recover money lost in an earlier scam. This is almost always a second scam layered on the first.

• An online romantic or business contact who eventually asks for an investment in or transfer of cryptocurrency. This is one of the most common pivots in a longer-running scam.

• Guarantees of high, risk-free returns from a cryptocurrency “investment” opportunity. No legitimate investment can honestly promise this.

Cryptocurrency and cross-border money movement

Some cryptocurrency proponents specifically market it as a tool for sending money internationally, and it’s worth understanding this claim clearly and separately from both the investment question and the scam patterns above. Reviewing how families actually fund significant needs abroad, such as funding home construction in another country⁠(opens in new window), shows that most cross-border financial needs are met through regulated, traditional transfer methods precisely because of the consumer protections, dispute resolution processes, and price predictability they offer, protections that a cryptocurrency transaction generally doesn’t carry in the same way.

Currency risk note

Beyond cryptocurrency’s own price volatility, holding or transacting in cryptocurrency introduces a currency-like risk of its own, since its value relative to any traditional currency can shift substantially and rapidly. Converting cryptocurrency to a traditional currency at an unfavorable moment means whatever gain existed on paper can shrink or disappear before it’s actually realized. This compounding of cryptocurrency’s own volatility with ordinary currency conversion risk is a factual feature of using cryptocurrency in a cross-border context, worth understanding clearly rather than assuming cryptocurrency simply removes currency risk from the equation.

How cryptocurrency taxation typically works

In the United States, the IRS treats cryptocurrency as property for tax purposes rather than as currency, which means selling, trading, or even using cryptocurrency to purchase goods or services generally triggers a taxable event, similar to selling a stock. This means every transaction, not just an eventual cash-out, can create a reporting obligation, and keeping detailed records of when specific cryptocurrency was acquired, at what price, and when it was disposed of, however it was disposed of, is essential for accurate tax filing. Many investors underestimate how quickly these individual transaction records can pile up after numerous smaller trades, and using dedicated tracking software or working with a tax professional familiar with cryptocurrency reporting can help avoid a significant compliance headache at tax time, on top of the investment risk and scam exposure already discussed above.

How Remitly protects you

Remitly focuses on regulated, traditional currency transfers specifically because of the consumer protections, dispute resolution processes, and price predictability that come with them, protections that a cryptocurrency transaction generally doesn’t carry in the same way. If a request ever comes in to fund a transfer or “verify” an account using cryptocurrency instead of Remitly’s standard, regulated payment methods, that request did not come from Remitly.

Questions worth asking before considering cryptocurrency

1. Is losing the full amount being considered affordable? Given the documented volatility, treating any cryptocurrency investment as money that could genuinely be lost entirely is a reasonable starting assumption.

2. Is there a clear understanding of how to securely store and access specific holdings? Self-custody carries real responsibility, and researching wallet security thoroughly before committing significant funds protects against a costly, often irreversible mistake.

3. Has the specific platform or exchange been researched? Checking a platform’s regulatory status and reputation, rather than assuming all platforms offer equivalent protection, is a reasonable precaution.

4. Is cryptocurrency being compared against traditional options for the same goal? When the actual goal is sending money internationally rather than investing, comparing the total cost and reliability of cryptocurrency against a regulated transfer service gives a clearer picture of which genuinely serves the specific need.

In Summary

Cryptocurrency operates differently from traditional money in ways that create both genuine investment tradeoffs and a disproportionate appeal to scammers, and understanding both sides protects against two different kinds of costly mistakes. For cross-border money movement specifically, comparing cryptocurrency honestly against regulated transfer options, rather than assuming it’s automatically faster, cheaper, or safer, helps in choosing what genuinely fits the need.

This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.