Home Crypto News How is COVID-19 is Transforming the Crypto Fraud Landscape?

How is COVID-19 is Transforming the Crypto Fraud Landscape?

19 min read


The most ‘visible’ impact of the coronavirus on cryptocurrency markets has undoubtedly been the main fluctuations in crypto costs, significantly Bitcoin’s.

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Indeed, after a number of weeks of hovering between in the $8,000-$10,5000 vary Bitcoin plummeted from roughly $8,000 to just about $4,000 earlier than recovering to about $6,100. Since April 1st, the worth of Bitcoin has floated between $6,900 and $7,300. The fluctuations in worth brought on the dialogue round Bitcoin’s standing as a ‘safe haven’ asset to vary significantly.

Beyond the worth, nonetheless, the coronavirus has additionally introduced a number of different essential, albeit much less ‘visible’, adjustments to the cryptocurrency trade.

“Fraudsters are leveraging increased fear and uncertainty during the COVID-19.”

Perhaps the most pressing–and the most problematic–of those adjustments is the emergence of quite a lot of COVID-19 associated scams.

Indeed, earlier this week, the United States’ Federal Bureau of Investigations warned that fraudsters are on the verge of unleashing an enormous wave of cryptocurrency scams associated to the coronavirus.

“Fraudsters are leveraging increased fear and uncertainty during the COVID-19 pandemic to steal your money and launder it through the complex cryptocurrency ecosystem,” an announcement from the FBI mentioned, including that the supposed victims of the scams are “people of all ages, including the elderly.”

The announcement additionally mentioned that “many traditional financial crimes and money laundering schemes are now orchestrated via cryptocurrency,” particularly mentioning a number of sorts of scams that it anticipates to change into more and more common in the wake of the coronavirus, together with “work from home scams”, “blackmail attempts”, and “investment scams”.

A “perfect storm” for crypto scammers

Why are these scams so prevalent at this explicit second in time? In a means, the outbreak of the coronavirus has created a type of “perfect storm” for scammers: a world-wide sense of concern and nervousness (inflicting panic-buying and investing), a wave of altruism (inspiring charitable actions), and billions of {dollars} in stimulus bundle money (cha-ching).

Indeed, “while governments are rapidly deploying massive amounts of capital to mitigate the health and economic impacts of the novel coronavirus, bad actors are taking advantage of the resulting lack of oversight and a sense of urgency,” mentioned John Jefferies, Chief Financial Analyst at cybersecurity agency CipherTrace, in an e-mail to Finance Magnates.

John Jefferies, Chief Financial Analyst at CipherTrace.

Therefore, “in the rush to fund these programs, there will inevitably be misallocated funds, creating a ripe environment for corruption and money laundering.”

For instance, “some established dark market vendors have transitioned from selling their traditional illicit products to masks and drugs such as chloroquine that claim to cure the COVID-19,” Jefferies defined.

“Additionally, scammers and fraudsters are benefiting from fear created by the health crisis selling non-existent treatments such as vaccines and life-saving drugs to unaware consumers. According to the FTC, bad actors have made off with almost $13 million from such coronavirus-related scams in the United States alone.”

Other fraudsters are profiting from corona-related altruism

Additionally, there are a selection of fraudsters posing as charitable organizations which can be allegedly amassing cash for people and communities affected by the coronavirus. For instance, Chester Wisniewski, safety researcher at Sophos, tweeted a phishing e-mail impersonating the World Health Organization (WHO) in mid-March.

Some scams are additionally soliciting their “customers” into “paying for non-existent treatments or equipment” associated to the coronavirus, or to put money into firms that produce medical tools that may very well be used to deal with coronavirus.

CoinDesk posted one such instance of this final sort of rip-off earlier this week: “our company is a major producer and global supplier of COVID-19 safety and treatment products,” the e-mail says, inviting the reader to both buy the provides at a reduced worth or to behave as an affiliate with a 25 % gross sales fee.

“We are just looking for a good opportunity to market our product and at the same time save the lives of people across the world,” the e-mail reads.

Ponzi schemes and different giant scams are making off with much less capital–however not for the purpose you might assume

Despite the surge in corona-related scams, nonetheless, the virus appears to have had a little bit of a silver lining (in the case of fraud, at the least): analysis from blockchain analytics agency Chainalysis printed earlier this month confirmed that “Covid-19 has wiped out 33% of cryptocurrency scammers’ revenue” (albeit, nonetheless, this is “not the whole story.”)

Indeed, “data shows that cryptocurrency scams overall are making less than ever since early March, when the Covid-19 crisis intensified in the western world,” the report defined.

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According to Chainalysis, the causes for the losses should do with the undeniable fact that giant ponzi schemes and funding scams misplaced fairly a little bit of their efficiency when the virus started to unfold by means of the western hemisphere.

“Ponzi schemes and investment scams take in much more than all other cryptocurrency scam types,” the report mentioned. “Together, they received 95% of all funds sent to cryptocurrency scams in 2019.”

However, the undeniable fact that these giant schemes are raking in much less money is doubtless not as a result of the virus has made crypto holders wiser and extra skeptical; in spite of everything, Chainalysis discovered that “until this past week, the number of individual transfers to Ponzi schemes and investment scams remained consistent, suggesting they reached the same number of victims.”

“However, the weekly total value received by those scams fell, suggesting those victims were sending less value per transfer,” the report mentioned.

Cryptocurrency is merely value much less at this explicit second in time

In different phrases, individuals concerned in crypto buying and selling and investing are doubtless spending much less on schemes: this may very well be as a result of they both have much less capital than common (as a result of the market crash), or as a result of they’re too spooked from the crash to be sending out as a lot cash as they usually would; nonetheless, Chainalysis believes that also one other clarification is extra doubtless.

In truth, “digging deeper, we find that the loss of value is caused almost entirely by cryptocurrency price drops,” Chainalsysis mentioned. “Most of these scams have received the same or more value per day in their native coins since the crisis intensified in early March.”

In different phrases, the similar variety of rip-off victims are sending the similar decimal quantities of cryptocurrencies–however their cash are merely value much less.

“We believe scammers are still receiving those same payments from roughly the same number of victims per month. The payments are just worth less now due to cryptocurrency price drops,” the report defined.

Crypto scammers are feeling the similar pains that the remainder of the trade is enduring

Therefore, it follows that fraudsters aren’t the solely ones feeling the sting of the financial disaster that the coronavirus has introduced on the complete world. A lot of reliable crypto firms have additionally reportedly needed to lay off their workers as a result of corona-related financial losses.

Indeed, citing a “100% user-generated” listing of firms on recruiting website Candor, NewsBTC reported earlier this week that “Bitcoin.com, crypto mining firm Bitfarms, and mining hardware manufacturer Bitfury are among the firms in this industry that have begun to lay off staff over the past few weeks.”

In addition, Factom, which was based in 2014, has allegedly gone into liquidation–this, regardless of hundreds of thousands of {dollars} value of funding over the previous 5 years and a grant from the U.S. Energy Department.

Additionally, the coronavirus has additionally put a little bit of a damper on fundraising efforts in the crypto and fintech house extra broadly. Specifically, multinational skilled companies agency PricewaterhouseCoopers prompt that “the global headwinds caused by the coronavirus and other related events are having an impact on many industries globally, including the crypto industry,” in a report earlier this month.

“We believe that the crypto industry is not immune to these conditions and the number and value of fundraising and M&A deals may be impacted as a consequence in 2020.”

Fraud-prevention fintech options may ‘save the day’, if they’re used successfully

However, adjustments in different components of the international monetary panorama may imply that we are going to emerge from the coronavirus quarantine with much less situations of fraud than earlier than.

Monica Eaton-Cardone, proprietor, co-founder and COO of Chargebacks911.

Earlier this week, Finance Magnates reported that a number of fintech companies had been accredited to facilitate the distribution of loans by the United States Small Business Administration (SBA), and that the undeniable fact that the US authorities was partnering with these fintech companies was a major milestone by way of recognition for the trade.

However, it’s additionally true that along with the alternative for SBA mortgage facilitation, fintech companies have a possibility to fulfill the wants of the monetary trade in different methods–together with an elevated want for fraud prevention.

Indeed, “the increased threat of fraud must be addressed,” mentioned Brian Drozdowicz, Manager of Customer Acquisition & Growth Solutions at Bottomline Technologies, in an e-mail to Finance Magnates.

Brian Drozdowicz, supervisor of buyer acquisition and progress options at Bottomline Technologies.

“Industry experts are projecting a heightened level of fraudulent activity, and fintech-powered solutions…can help reduce fraud by including integrated risk and compliance capabilities that help streamline and secure the process for lenders and borrowers,” he mentioned. His personal firm additionally presents fraud-prevention companies.

Indeed, “FinTech has streamlined our ability to order goods online, reduced financial fraud, optimized the speed of home deliveries, and has been a literal safety net for millions of people,” mentioned Monica Eaton-Cardone, proprietor, co-founder and COO of Chargebacks911. “Without this technology, we wouldn’t be able to weather the storm nearly as well as we have.”

Hopefully, at the finish of this all, the crypto trade will be capable of say the similar factor.

What are your ideas on the means that the coronavirus has affected the evolution of fraud in the cryptosphere or another facet of the crypto trade? Let us know in the feedback under.

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