During times of financial distress and economic uncertainty, scammers tend to take advantage of the fear and desperation that many people have regarding their wealth. A report from blockchain forensics firm CipherTrace reveals 2020 as on track to become a record-breaking year for crypto-related crime.
The report details fraudulent activities in the first five months of the year that amount to a total of $1.36 billion in stolen funds. The majority of stolen funds are a result of fraud or misappropriation, with many scams using the COVID-19 pandemic as a means to draw in unsuspecting victims.
Last year was a particularly bad year for cryptocurrency-related crime, with $4.5 billion of funds lost to hacks, thefts, or fraudulent activity. Most notable was the high profile PlusToken scam that saw the organizers disappear with $5.7 billion in customer funds. An investigation by Chinese police eventually resulted in the arrests of 109 people associated with the scam.
This year has already seen its own similar version of the Plustoken scam with Wotoken. Although only coming to trial in May 2020, Wotoken was operating out of Mongolia for most of 2019, during which time it defrauded customers out of $1 billion.
Despite the operators now having been arrested and brought to trial, the stolen funds continue to move through common cryptocurrency money laundering passages. This case highlights the fact that even in the event of legal intervention, it’s often difficult to recover funds that are stored on anonymous wallets.
Mirror Trading International
Last month, the Texas State Securities Board shut down operations of a South African-based multi-level marketing scheme called Mirror Trading International (MTI). In a similar way to previous Ponzi schemes, MTI promised unrealistic returns on investments and used customers to market the scheme to new users.
More recently, the South African Financial Sector Conduct Authority (FCSA) has released a warning to South African citizens not to engage in the scheme as it doesn’t hold a license to operate financial services. MTI accepts investments in Bitcoin and promises customers returns of up to 10% per day using its automated high-speed bot-trading system. Authorities have been unable to find any evidence of such a trading system exists and its broker, FX Choice, has now shut down the companies account.
Spotting a Scam
Fortunately, most cryptocurrency scammers tend to use the same methods which have now become easy to spot. The most common way that a Ponzi scam stands out is the prevalence of everyday citizens trying to market the scam to friends and family. For the most part, these people are unaware that they are even marketing a scam but the end result is the same, with everybody losing money.
Another way to spot a scam easily is the promise of unrealistically large gains. Not even the best financial analysts in the world can promise guaranteed gains of 2-3% a month, let alone 10%. Remember the old adage – if it seems too good to be true, it probably is. Certain low-volume altcoins may offer gains of 10% on rare occasions but anyone promising consistent gains of that size on a monthly basis will certainly not be able to deliver.
At the end of the day, if you want to invest in cryptocurrency, it’s best to do the research yourself, choose a good project, and learn how to invest by yourself. Reputable investment firms in the cryptocurrency sector are rare and in the long run, it will pay off the learn how to do it yourself. Learning to manage your own cryptocurrency wallet and exchange security is an important aspect of creating a culture of financial responsibility in the sector.
Remember – not your keys, not your coins! The crypto sector remains largely unregulated, so giving your cryptocurrency to somebody else to manage is the same as giving cash to a random stranger. There is very little legal recourse available to you should that person disappear with your funds.