According to the US Federal Trade Commission, crypto scams have been responsible for one in every four dollars lost to scams since the beginning of 2021. As of June 2022, more than 46,000 individuals have reported losing over $1 billion in crypto to scams. This is despite the fact that there was a decline in revenue from crypto scams; reportedly dropping from $10.9 billion in the previous year to $5.9 billion in 2022.
While the total income from scams decreased, we have still seen some massive scams that have managed to cart away substantial amounts in the last few months. Scam incidents like Hyperverse, YieldNodes, and COTPS have proved that, even in the face of an overall market decline, there is a persistent appeal and profitability of fraudulent activities within the crypto space.
While overall scam revenue may fluctuate based on market conditions, the adaptability and creativity of scammers, coupled with the appeal of crypto investments, suggest that crypto scams are unlikely to disappear entirely.
The Incentives Are Just Too Attractive
The persistence of cryptocurrency-based scams is rooted in the industry’s inherent characteristics, including its speculative nature, relative anonymity, significant potential for gains, and the influence of prominent figures.
The crypto industry’s focus on alternative digital assets, coupled with the potential for significant gains during market uptrends, creates an environment ripe for exploitation by scammers. Scammers make this high level of liquidity in the space, and the inability to reverse or cancel transactions work to their benefit, especially when everything is decentralized.
For example, the popular view is that most crypto coins are a “quick and high returns” investment vehicle. Thus, the space is a ready-made ground for these scammers who use various investment tactics to hoodwink their victims into believing they will get rich from such investments, not knowing they’re losing all their money to scammers.
Most reported crypto fraud losses on social media are attributed to posts about deceptive investment opportunities, totalling around $575 million since 2021. Victims are often enticed by promises of substantial returns presented by seemingly successful individuals in the crypto space. Perpetrators employ tactics such as showcasing false crypto growth, conducting small “test” withdrawals, and then coercing victims into sending more crypto for fabricated fees, ultimately leaving them empty-handed.
It is a No Man, No Rules Land
The crypto space is currently the wild west of finance. The absence of regulation, more accurately described as a lack of transparent regulatory oversight, further turns the crypto space into a fertile ground for bad actors. Even well-intentioned businesses struggle to defend themselves against the onslaught of these bad actors due to the lack of clarity regarding what is considered legal or not.
Scammers take advantage of this and use various tactics to win the trust of their victims. From rug pulls to fake social media hype to impersonations, the promise of oversized and guaranteed returns is a sure bait to capture the attention of their victims. While investment scams dominate the sector, romance scams take the second spot. This deliberate targeting of an individual’s emotional vulnerabilities underscores the extent to which these malicious actors can go unrestrained.
Sleuthing and the Role of Crypto Twitter Detectives
Blockchain sleuths have gained strong support from industry leaders as the cryptocurrency sector seeks to clean up its act. Thanks to Crypto Twitter, a wave of online detectives, social media figures like ZachXBT, RugDoc, and CryptoCobain have gained a reputation for their vigilance in calling out fraudulent activities and sharing insights about questionable crypto projects. The prevailing belief is that these figures conduct thorough research and analysis to help the crypto community avoid scams.
Also, blockchain companies such as Chainanalysis offer solutions that can help law enforcement trace and investigate cryptocurrency transactions to ensure compliance with regulations and maintain the integrity of the blockchain ecosystem. Their services are valuable for enhancing the security of funds in the space, and their work goes a long way in guaranteeing confidence for the public to engage with crypto.
These developments signal an industry growing without the protection of the law. Still, the little successes of these attempts are primarily seen in addressing hacks and malicious activities against large institutions. For individual scams, the attempts mostly seem to be trying to pack spilt milk. Many individuals cannot afford the services of such companies, nor do they possess the means or patience to track scammers. By the time the deed is done, victims have little power or incentive to pursue justice. Corrective measures leave scars; they cannot restore things to how they were. So, the big question remains: how can we reduce the instances of crypto scams?
The Crypto Thesis Is Decentralization; Each Man Must Be for Himself.
The absolute idea and utopia of all cryptocurrencies is a financial world where each man can do with his money and funds as he wishes to —within the bounds of the law. However, this requires that the individual understands that the burden of securing their finances is their full responsibility. Thus, education is crucial in mitigating the scourge of crypto scams.
All stakeholders, including industry leaders and blockchain companies, have to invest in educational initiatives to raise awareness about the risks associated with cryptocurrency investments.
The government also has a role to play in this. The right regulations serve as guardrails for users and service providers; they do not stifle innovation at the expense of maintaining the status quo. This balance is what global financial regulations should seek to do.
A comprehensive approach that combines regulatory measures, industry vigilance, and public education is essential in the fight against crypto scams. By working together, stakeholders can create a safer and more secure environment for participants in the crypto space, fostering responsible engagement and protecting individuals from falling victim to fraudulent activities.
One Last Thing: You’re Your Crypto’s Guardian. Do Your Job Well.
In good faith and drawing inspiration from our discussion in the draft, I conclude with my top three essential tips to protect yourself from falling victim to a cryptocurrency scam. I’ve learned some of these the hard way, but so far, I consider myself a little lucky in my crypto journey. Here you go:
- Be cautious of anyone promising guaranteed profits or substantial returns. Legitimate cryptocurrency investments come with risks, and no one can assure you of making money, let alone significant gains.
- Beware of individuals or organizations demanding that you purchase cryptocurrency for any reason, whether it’s to resolve an issue or safeguard your assets. Such requests are often a sign of a scam.
- Never mix online dating with investment advice. If a newfound romantic interest attempts to guide you in cryptocurrency investments or requests you to send them cryptocurrency, exercise caution, as this is a common tactic used in scams.
Finally, every scam can be traced back to a motive of greed—the desire to acquire more than is necessary or needed, mostly by the scammers but also the victims. Dear readers, you can prevent yourself from falling victim to crypto scams, so always endeavour to do your own research about any investment and do not mix love and investment together—it is usually a recipe for disaster.
Remember, it is not your keys, it is not your crypto, it is you.
Disclaimer: This piece is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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