Home Crypto News After COVID-19, 2020 Could Be the Biggest Year Yet for Crypto Scams

After COVID-19, 2020 Could Be the Biggest Year Yet for Crypto Scams

19 min read


Earlier this week, cybersecurity agency Cipher Trace revealed a report with findings that to date this yr, practically $1.4 billion {dollars} in cryptocurrency have been stolen by malicious actors.

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On the floor of issues, it seems to be as if the crypto area could be cleansing up its act: whereas the quantity is sizeable, the determine is significantly lower than the quantity of cryptocurrency that had been stolen round the identical time final yr; each 2019 and 2020 are displaying exponential improve in thefts over 2018, when $1.7 billion was stolen by means of the yr.

Specifically, CipherTrace’s Q2 report from 2019 revealed that $4.26 billion had been taken in the first six months of the yr. The majority of the stolen funds in 2019 have been taken in reference to PlusToken, an enormous Ponzi scheme based mostly out of China that made off with some $3 billion in crypto cash.

However, whereas scammers have taken fairly a bit much less this yr than they’d in 2019, there are some eerie similarities between this yr’s crypto rip-off panorama and final yr’s: particularly, most of this years’ stolen funds may be attributed to Wotoken, which–like PlusToken–is shaping as much as be one other large-scale Ponzi scheme with greater than $1 billion in spoils.

Indeed, “the largest contributor to 2020’s crypto crime total was Wotoken’s billion-dollar Ponzi scheme out of China,” mentioned John Jeffries, Chief Financial Analyst at CipherTrace, to Finance Magnates. 

John Jefferies, Chief Financial Analyst at CipherTrace.

As such, “2020 is on track to be, at minimum, the second-highest year on record for the total amount netted by criminals from cryptocurrency crime,” he mentioned. “However, it’s possible that 2020’s cryptocurrency crime numbers could exceed 2019’s $4.5 billion.”

This could also be notably true if scams like PlusToken and Wotoken proceed to permeate the cryptocurrency world. While Plustoken and Wotoken are definitely a few of the most outstanding examples, there are various others, together with the notorious OneCoin rip-off, which made off with $4 billion over the course of a number of years.

Why do these scams proceed to be so efficient? And has the crypto rip-off panorama modified–or do crypto criminals maintain singing the usual tune?

Greed and altruism: Ponzi schemes are so profitable as a result of the play on peoples’ feelings

Nir Kshetri, Professor in the Bryan School of Business and Economics at UNCG and analysis fellow at Kobe University, instructed Finance Magnates that Ponzi schemes proceed to proliferate the cryptocurrency area as a result of they’re so efficient.

Indeed, “the criminals behind crypto frauds are likely to utilize proven techniques that they have been using for quite some time,” Kshetri mentioned. Specifically, “many cryptocurrency fraudsters appeal to people’s greed.”

In different phrases, these sorts of schemes are so profitable as a result of “they promise big returns.”

Indeed, excessive returns are important in the crypto Ponzi playbook: they have been a characteristic of Plustoken, Onecoin, and Bitconnect–one other rip-off that was shut down in 2018.


Bitconnect assured every day returns for customers, with increased charges for traders who have been prepared to ‘lock’ extra of their capital into the Bitconnect ‘network’ for longer intervals of time.

Kshetri pointed to a different alleged Ponzi scheme that seems to nonetheless be operational for instance: “an unknown group of ‘entrepreneurs’ runs the scam bot iCenter, which is a Ponzi scheme for cryptocurrencies such as Bitcoin and Litecoin,” he mentioned.

“It doesn’t provide information on investment strategies, but somehow promises investors 1.2% daily returns.” Some of iCenter’s Facebook posts promised returns over 2.5% “according to your investment amount.”

At press time, the iCenter web site was down, and appeared to have been defunct for fairly some; a message on the iCenter Telegram group (which had 4,432 subscribers) courting again to October 2018 mentioned that “Our server provider is currently experiencing a technical issue. They are already aware of it and it should be sorted very soon. We appreciate your understanding, the Bot’s should be working very soon. (sic)”

(Exit rip-off, anybody?)

Unwitting victims of crypto Ponzi schemes can recruit different victims

Another downside with these Ponzi schemes is that they don’t simply play on peoples’ greed: additionally they insidiously play on peoples’ altruism.

After all, in the event you had simply discovered an incredible, life-changing platform that may shortly multiply your financial savings, wouldn’t you additionally ship it to your mates? Your neighbors? Your mother and father? Your grandma?

“Victims may [incidentally] exploit friends and family through social media,” Kshetri defined. “When one person is [taken in] by the promise of big returns on cryptocurrency investments, they may spread the word to friends and family members.”

These schemes additionally invoke the visages of trusted celebrities with a view to reel in unwitting victims: “sometimes big names such as celebrities get involved, [although] not all the celebrities know they’re involved,” Kshetri continued.

For instance, “the fraudsters behind iCenter featured a video that purported to be an endorsement by Dwayne’ ‘The Rock’ Johnson, holding a sign featuring iCenter’s logo. Videos of Justin Timberlake and Christopher Walken were deceptively edited so they appeared to praise iCenter, too.”

Coronavirus might have heightened susceptibility to crypto crimes on-line

While Ponzi schemes might play on peoples’ tendencies for greed and altruism, there’s one other form of cryptocurrency rip-off that’s taking part in on one other human emotion: concern.

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After all, 2020 has been one among the most anxiety-filled intervals of time in latest historical past; with coronavirus quarantines going into their third and fourth months, and protests raging in Hong Kong and North America, existential concern throughout the globe appears to be reaching a fever pitch.

CipherTrace’s John Jeffries instructed Finance Magnates that the Coronavirus pandemic particularly has “certainly made its mark in cybercrimes, especially as government resources and attention are funneled to mitigating impacts [of the virus] and oversight [on cybercrime] is reduced.”

Steven Merrill, head of the FBI’s Financial Crimes Section, mentioned in an interview posted on the FBI’s web site that potential victims are particularly susceptible proper now as a result of “for example, people are looking for medical attention and medical equipment. They also may be unemployed and looking for work.”

“There may be an extra level of desperation right now that may cause someone to make an emotional decision that could make them a victim,” Merill mentioned.

Corona-infected bats for sale on the darknet

Other COVID-19 crimes involving cryptocurrency are downright creepy: in April, Chainalysis revealed analysis on a dark-market vendor promoting what he claimed was coronavirus-infected blood, conveniently injected into the our bodies of bats.

Taking a barely much less unorthodox (although nonetheless unethical) route, different darknet distributors bought private protecting tools (PPE) on the darknet in trade for cryptocurrencies.

However, John Jeffries defined that darkish market crimes took the lions’ share of crypto transactions associated to COVID-19: in different phrases, darknet criminals appear to be extra excited by stealing cash on-line than in shopping for corona-infected bats.

“Though nearly all dark market COVID-19 crimes involve cryptocurrency payments, COVID-19 fake PPE did not see many successful sales on darknet markets,” Jeffries mentioned. Instead, “Coronavirus-related phishing kits,” which patrons can conveniently buy with a view to steal cash and private data from unwitting victims, “were found to be the most popular item.”

“I expect that the crypto fraud industry in 2020 will be bigger than in 2019”

With the coronavirus nonetheless taking part in a major function of human societies throughout the globe, and heightened ranges of concern and nervousness persisting, Nir Kshetri says that he believes that crypto scams might proceed to proliferate all through the globe.

“With the emergence of new COVID-19 themed frauds as well as the existing ones, I expect that the crypto fraud industry in 2020 will be bigger than in 2019,” he mentioned.

Nir Kshetri, Professor in the Bryan School of Business and Economics at UNCG and analysis fellow at Kobe University.

Similarly, CipherTrace’s John Jeffries mentioned that though “it’s nearly impossible to predict,” given the proven fact that “$1.4 billion was lost to crypto crimes during the first five months of 2020, it’s very possible that by year’s end the total netted by criminals could exceed 2019’s $4.5 billion.”

“I am [also] concerned about exit scams later in 2020 by smaller VASPs that are struggling financially,” Jeffries added.

However, in the meantime, there’s some constructive information: Jeffries instructed Finance Magnates that “to the positive, the findings in our report illustrate that the amount of criminal funds directly received by exchanges dropped by 47% in 2019.”

“This trend in an ongoing annual reduction in criminal funds funneled through exchanges can be attributed in large part to the implementation of effective AML controls,” he defined.

2020 might convey extra regulatory consideration to numerous points of the crypto business

Jeffries additionally predicts that this yr might convey extra regulatory consideration to Bitcoin ATMS.

“Despite the overall reduction in criminal funds sent to exchanges, the percentage of funds sent to high-risk exchanges from US Bitcoin ATMs (BATMs) has seen exponential growth, doubling every year since 2017,” Jeffries mentioned.

“We expect BATMs to become a greater point of regulatory focus and enforcement because of this, as demonstrated by the case made against Kunal Kalra for using his BATM operation to launder more than $25 million in cash and cryptocurrencies.”

More regulation in the crypto area might probably cut back the influence of fraud in crypto over the long run. However, so long as cryptocurrency scams proceed to look anew inside the area, traders and merchants want to remain vigilant.

“Investors looking for returns in blockchains and cryptocurrencies should note that they are complex systems that are new even to those who are selling them,” Nir Kshetri mentioned.

“Newcomers and relative experts have also fallen prey to scams. In an environment like the current cryptocurrency market combined with COVID-19, potential investors should be very careful to research before making investment decisions. Make sure to find out who is involved as well as what the actual plan is for making real money.”

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