Fraudsters are increasingly targeting cryptocurrency because it has many features that make it very difficult to detect. One of these is its digital nature. Transactions are irreversible, and no third parties or other intermediaries are involved. Another feature of cryptocurrencies is their speed. Transactions are instant, and anonymity is built into the process.
Cryptocurrencies Are Digital by Design
Cryptocurrencies are digital assets that can be mined or bought on cryptocurrency exchanges. They are used primarily as trading instruments but are also becoming popular for cross-border transfers and other uses. They are based on blockchain technology, a series of interconnected blocks containing transactions independently verified by the network’s members.
This decentralized system eliminates the need for central authorities, such as banks or governments, to police and enforce transactions. This also eliminates a single point of failure that could lead to a global crisis. And while cryptocurrencies may seem like a wonderful solution to financial problems, their inherent insecurity makes them a ripe target for criminals.
Because they exist in the digital world, cryptocurrencies rely heavily on design and branding. While there is no physical form for a cryptocurrency, many have adopted the design of coins or tokens.
Transactions Are Irreversible
In the last few years, cryptocurrency-related scams have skyrocketed, costing more than $80 million to victims. These scams target cryptocurrency exchanges and their users, aiming to obtain digital cash as quickly as possible. Since cryptocurrency transactions are irreversible, fraudsters only need access to a computer to carry out their schemes. As a result, it is nearly impossible to recover funds once transferred fraudulently.
The irreversibility of Bitcoin transactions attracts fraudsters and makes them more likely to commit fraud.
Cryptocurrencies Are Decentralized
One of the biggest concerns about cryptocurrency is its potential to be used for money laundering and cybercrime. In the dark web, illicit transactions are carried out using cryptocurrencies. These transactions include buying and selling narcotics, counterfeit products, stolen bank card information, and software with viruses. In some cases, these transactions also involve the sale of pornographic images. In 2013, the FBI shut down one of the biggest dark web exchanges, Silken Road.
Cryptocurrencies are vulnerable to fraud because they are decentralized and are not regulated. Although the regulatory framework for crypto exchanges is developing, they remain an attractive target for fraudsters.
The primary reason is that cryptocurrency is digital, making it easy for fraudsters to steal from the unsuspecting public. Because of this, fraudulent transactions can’t be reversed once they are completed.
Another reason cryptocurrency is attractive to fraudsters is that transactions are made easily. But the reality is that the process isn’t any easier than with existing payment processors. Even worse, it opens up new opportunities to lose money. According to a Wall Street Journal analysis, nearly 20 percent of all Bitcoin tokens were lost in 2018. Moreover, lost Bitcoin tokens are not recoverable.
Anonymity is Built Into the Process
Unlike the traditional banking system, cryptocurrency doesn’t have a central authority or government. Instead, the currency is distributed in a distributed network, and each transaction is publicly recorded on the blockchain. In a way, this creates a public ledger of transactions, which makes it easier for law enforcement to trace suspicious transactions. However, cryptocurrency’s anonymous nature can be compromised due to various factors, including hacker activity.
For example, a popular adult website recently adopted Verge, a cryptocurrency that ensures anonymity. While this is a desirable feature in the virtual world, it also attracts a large criminal element. This can make it difficult for cryptocurrency operators to protect their accounts from being hacked. Furthermore, large transactions are more likely to be investigated by law enforcement, so anonymity is key for crypto operators.
While cryptocurrencies do not offer complete anonymity, there are many measures to protect your privacy. One way is to avoid using a website that stores personal information, which can contextualize cryptocurrency addresses. Another method is to trade in cash.
Common Cryptocurrency Scams and Fraud Trends
One of the most common scams in crypto investing is the creation of fake accounts. These scammers pretend to be friends of the victim on social media and create posts that promise huge gains. They often hack into the victims’ Facebook accounts and post non-legitimate posts to entice them to invest in crypto.
Cryptocurrency Investment Scams
The first type of scam involves a person posing as a famous person on social media or in a messaging app. They then promise massive returns for large up-front payments or fees.
The second type of scam involves the misuse of cryptocurrency for criminal activity. This type of fraud is usually related to ransomware. This type of crime is similar to other types of cyber fraud and involves cyber-technology and cryptocurrencies. As cryptocurrency use becomes more common, new forms of cyber-fraud could also emerge.
Another common cryptocurrency scam is a rug pull, a scam in which a new cryptocurrency is listed on an exchange to entice investors to spend money on it. In this type of scam, the developers of the new coin then pull out of the project once enough money flows in. This scam can rip off up to $3 million worth of investors.
Cryptojacking is an attempt to gain control of a system that mines cryptocurrency. It can be carried out on both enterprise and consumer machines. Cryptojacking activity peaked in December, January, and February and was most prevalent on consumer machines. During the peak months, detections were nearly double that of enterprise machines.
Since March, the rate of detections has declined. The numbers are now almost equal between enterprise and consumer machines.
Cryptocurrency prices increased during the last quarter of 2017, and crypto-jacking activity skyrocketed. Browser-based coin mining was prevalent. At its peak, the Monero coin hit $350, but by July 2018, it was worth only $130. This is still nearly three times its value in August 2017.
How to Protect Against Cryptocurrency Fraud
Cryptocurrency fraud is a big problem, and some ways to protect yourself. One way is to protect your identity. Many crypto companies will ask you to provide proof of identity when you register for a new account or make a high-value trade. In many cases, you’ll be asked to upload a photo of your ID document, which will be authenticated against third-party data.
Crypto companies must adopt better identity verification methods to protect users. A common way to do this is to use digital identity verification services, which can help fight fraudulent activity at scale. They can also help users feel safer when trading on the internet. This type of security feature also helps crypto companies avoid the loss of customer trust.