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Covid-19 Effect on Growing Number of Crypto Related Scams

Jun 11, 2020

According to a report from blockchain forensics company CipherTrace losses from cryptocurrency crimes netted 1.4 billion USD in the first five months of 2020. This could be the second-highest value in losses linked to cryptocurrency crimes compering to 2019 when crypto crimes proceeds surged to 4.52 billion USD, up 160 percent from 2018’s total of 1.74 billion USD. As a result, 2019 and 2020 are showing exponential increase in thefts over 2018, when 1.7 billion USD was stolen through the year. CipherTrace’s Q2 report from 2019 shows that 4.26 billion USD had been taken in the first six months of the year and most of the stolen funds in 2019 were taken in connection with China based Ponzi scheme called PlusToken that made off with some 3 billion USD in crypto coins.

Criminals this year has taken lot less than in 2019, both trends have more than few similarities. In particular, most of stolen funds in 2020 can be associated to Wotoken, which– similar to PlusToken, is becoming another large Ponzi scheme with more than 1 billion USD in capture. While Plustoken and Wotoken are some of the most noticeable cases, there are other examples, including the infamous OneCoin scam, which made off with 4 billion USD in few years’ time.

It is found that Ponzi schemes continue to proliferate the cryptocurrency space because they are effective and fraudsters are likely to apply techniques that they have been using for long time, and most of criminals appeal to people’s greed, because schemes like OneCoin, Plustoken and Wotoken promise big returns. High returns also were a main bait in Bitconnect –another scam that was shut down in 2018. As an example could be mentioned another scheme were anonymous group of ‘entrepreneurs’ run the scam bot iCenter, which is a Ponzi scheme for cryptocurrencies such as Bitcoin and Litecoin, which promises investors 1.2% daily returns and some of investors iCenter’s Facebook posts promised returns over 2.5% according to invested amount.

Ponzi schemes also play on peoples’ altruism. If somebody has found promising life-changing way that would quickly multiply your investment and savings – it would be just normal to share this amazing tool on social media with family and friends. Schemes like this also uses celebrity names in order to attract new “clients” and usually celebrities don’t know they are involved. For example, the criminals behind iCenter featured a fake crypto ad were celebrities like Dwayne’ ‘The Rock’ Johnson, Justin Timberlake and Christopher Walken promote iCenter.

Greed and altruism are not the only human emotions that cryptocurrency scams are playing on. Fear is another way to accomplish mischievous intentions. With coronavirus quarantines going into their third and fourth months, it is clear that 2020 has been one of the most hardship-filled year in this century and existential fear across the globe seems to be reaching a fever pitch. Coronavirus pandemic in particular has made its impact in cybercrimes, especially as government attention are funneled to defuse negative effect of coronavirus and monitoring of cybercrimes is not as important as it used to be. In these circumstances potential victims are vulnerable because people are looking for medical attention and medical equipment or additional ways to make some extra money.

With the coronavirus still taking a significant part of daily life across the world, and fear and anxiety continue, crypto related cybercrimes could continue to generate throughout the world. Given the fact that 1.4 billion USD was lost to crypto crimes during the first five months of 2020, in the middle of the year it is hard to tell exact number netted by criminals could exceed 2019 statistic. Due to the implementation of effective AML controls, the amount of criminal funds directly received by exchanges dropped by 47% in 2019.

Remining of 2020 could bring more regulatory attention to various aspects of the crypto industry. The percentage of funds sent to high-risk exchanges from US Bitcoin ATMs (BATMs) has seen exponential growth, doubling every year since 2017. Considering that, BATMs could become a greater point of regulatory focus and enforcement. Additional regulatory requirements in crypto industry could reduce frauds in a long run. However, investors, especially new investors, looking for high returns in blockchains and cryptocurrencies should note that they are complicated systems that are new even to those who are offering them, and could be dangerous investment, particularly in combination with world-wide pandemic.

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