CRYPTOCURRENCY SCAMS — 2019
Scams are everywhere online, and cryptocurrency exchanges are no different. Although exchanges, wallets, and other cryptocurrency custody services are strengthening their defenses with the help of cybersecurity innovations but the innovations by hackers have outpaced these exchanges. These scams are not confined to robberies from the exchanges. Cryptocurrencies startups have lured their customers with various kinds of Ponzi schemes, fake promises of magnanimous returns, exit scams, phishing schemes, impersonations, and pump and dump schemes. This is the reason why experts recommend investors to do a strict due diligence and confirm that the projects are blockchain-powered, which means they track detailed transaction data. Also, check that they have solid business plans that solve real problems and there are real people with substantial work experience to succeed in the project. Investors have to take care of themselves at least till the time the regulatory landscapes in countries across the world become concrete and strict penalties are declared against the scammers.
Scammers often announce fake ICOs, or initial coin offerings, as a way to steal substantial funds. Companies raise millions of dollars from their ICO financing rounds and run away once the funding rounds are completed. Impostor websites that resemble original valid startup companies are prevalent to deceive investors. Even if the site looks identical to the one you think you’re visiting, you may find yourself directed to another platform for payment. Fake apps are made available for download through Google Play and the Apple App Store. Social media platforms like twitter are rampantly controlled by impersonating bots to display social media activity. Fake accounts are created to display fancy returns on investments in a project. Investors will often be led to believe that their first investment has successfully made a profit. The fraudster will then contact the victim to urge them to invest more money or introduce friends and family, but eventually, the returns stop, the customer’s account is closed, and the scammer disappears with no further contact. If someone on these platforms asks for even a small amount of your cryptocurrency, it’s likely you can never get it back. Sometimes big names get involved. For instance, the kingpin behind GainBitcoin and other alleged scams in India convinced a number of Bollywood celebrities to promote his book, “Cryptocurrency for Beginners.” 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. Many initial coin offerings have turned out to be scams, with organizers engaging in cunning plots, even renting fake offices and creating fancy-looking marketing materials.
CipherTrace recently published a Q2 2019 Cryptocurrency Anti-Money Laundering (AML) Report in which it mentions in the first half of this year, cryptocurrency cybercrimes have touched $4.26 billion through cryptocurrency theft, scams, and fraud campaigns. This number includes an alleged scam with a cryptocurrency wallet provider and exchange PlusToken which has lost approximately $2.9 billion. This indicates a recent surge in criminal activity because the number is far higher than the yearly total for 2018, which was $1.7 billion. The number of such scams reported more than tripled last year to 1,834, from 530 in 2017–18. Cybercrime against exchanges amounted to $125 million in Q2 compared to $356 million in Q1, according to the same report. While hacks brought in $227 million during the first half of 2019, several alleged exit scams under investigation have netted fraudsters $3.1 billion dollars, and $874 million in cryptocurrency has been misappropriated.
The founders of scam cryptocurrency OneCoin defrauded investors of $3.8 billion by convincing people their nonexistent cryptocurrency was real.
2019 had its own share of scams all occurring before Q2. Here is a list of some of them:
- Investors in South Korea, mostly senior citizens, were defrauded of $18.7 million after they were promised that the M-token they were purchasing would grow 600% in value. 56,000 people were scammed.
- Kevin Hobbs and Lisa Chang are facing civil asset forfeiture in British Columbia based on the allegation that they defrauded their investors of $30 million. After launching the FUEL token, they told their investors that their cryptocurrency would grow substantially in value.
- Several Taiwanese men have been accused of defrauding 1,000 investors of $51 million. Investors were promised 335% returns, but they received nothing. Those responsible are facing several years in prison. In response to this Ponzi scheme, the Taiwanese government has introduced amendments to the Money Laundering Control Act and the Terrorism Financing Prevention Act.
- Amit Lakhanpal is one of four men who has been accused of stealing $71.6 million as part of an ICO scam. To attract investors, it is said that he and his partners inflated the price of his cryptocurrency and claimed that the royal family of Dubai supported his project.
- As a result of a massive investigation and sting operation, police in Europe uncovered a criminal organization spanning the Czech Republic and Bulgaria that was engaged in the illegal operation of binary options and crypto trading platforms. Users of these crypto platforms were promised high returns on their investments but were defrauded of $114 million.
- An unconfirmed exit scam by South Korean exchange and pyramid scheme Plus Token is included in the estimates. Investors are suspected to have lost as much as $2.9 billion. The details around the exit scam have yet to be established, however.
- Japanese cryptocurrency exchange BITpoint, was hacked in July. It lost a grand total of $30 million in July. The company lost $28 million in customer funds from the platform inside Japan and another $2 million from outside.
- In May, Binance, world’s leading cryptocurrency exchange, lost $40 million in Bitcoins. To help customers recover the funds, Binance breated a self-insurance fund called SAFU which collects 10% of all the trading fees that happen on the platform.
- Same Israeli brothers resposible for Bitfinex theft in 2016 stole more than $10 million using Typosquatting. ‘Typosquatting’ is when user when users think they’re logging on to the official site but instead are directed to fake sites meant to mirror cryptocurrency exchanges and wallets.
- Six people were arrested in UK and Netherlands after another Typosquatting scam was recovered where $27 million were stolen from 4000 accounts spread across 12 countries.
- GateHub suffered a $10 million XRP theft where around 18,000 accounts were compromised. The exchange has recovered 0.5 million XRP compared to 23 million which were lost in this scam.
- Bitrue, a cryptocurrency exchange based out of Singapore, lost $4.2 million divided between 9.3 million in XRP and 2.5 million in ADA.