Cryptocurrency has brought about significant changes in the world of online transactions and financial accessibility. However, along with its benefits, it has also given rise to new types of financial crime. The evolution of crypto scams has been rapid, with scammers using sophisticated technology and multi-layered attacks. In this article, we will explore this evolution, analyze its impact, and discuss ways to prevent such scams in the future.
Historical Overview: Tracing the Origins of Crypto Scams
In the early days of Bitcoin, there were reports of crypto scams that took advantage of the limited understanding of early adopters. However, with the maturation of the crypto space, there has been an increase in awareness and education on how to avoid such scams.
This has led to a safer and more secure environment for crypto investors and traders. As the industry continues to evolve, it is important to remain vigilant and stay informed to ensure the longevity and success of the crypto ecosystem.
Ponzi Schemes Rise in 2019
In 2019, the rise of cryptocurrency attracted a lot of attention from scammers. Although the revenue generated from cryptocurrency-based scams dropped significantly to US$1.7 billion in 2018, scammers managed to more than triple their revenue in 2019. They extorted US$4.3 billion worth of cryptocurrency from millions of unsuspecting victims. It is important to note that the majority of scam revenue, 92% of the total, came from Ponzi schemes.
But for those new or unfamiliar to crypto scams, what exactly is a ponzi scheme? Ponzi schemes are scams where people are promised high returns on their investments with little to no risk involved.
These schemes trick new investors by using their money to pay off earlier investors, making it appear legitimate and attracting even more investors. But since Ponzi schemes depend on a constant stream of money to keep going, when the money stops coming in, the whole scheme collapses.
2020 – The Rise of Investment Scams
The year 2020 brought incredible growth for the crypto space, as the widespread adoption of digital assets fueled its upward trajectory. Amid the challenges of the Covid-19 pandemic, the crypto market saw unprecedented growth rates.
In addition, thanks to greater awareness around Ponzi schemes like Plus Token, total cryptocurrency scam revenue dropped by an impressive 75% from 2019 to 2020, a testament to the power of knowledge and awareness. While a new type of scam emerged in the form of investment scams, the overall trend is one of progress and hope for the future of cryptocurrency.
But What Are Investment Scams?
Investment scams are a common occurrence where scammers deceive investors into investing their money, usually in cryptocurrencies, with promises of high returns. However, once the scammer receives the money, they disappear, leaving the investors high and dry. One such example is Mirror Trading International (MTI), which executed the largest investment scam of the year.
According to a report by the Commodity Futures Trading Commission, MTI, a crypto trading platform based in South Africa, conned thousands of innocent investors of over US$1.7 billion worth of cryptocurrencies. Other notable scams on the list include J-enco.com at US$300 million and PGIGlobal.trade at around US$200 million. Other scams include MMMOffice.global, Forsage.io, MiningCity.com, PranceGoldHoldings.com, QubitTech.ai, JubileeAce.com, and TorqueBot.net.
The Shift to Sophistication: How Crypto Scams Have Evolved
By 2021, crypto scams started becoming more elaborate and sophisticated. Of course amateur scammers still used ponzi schemes and investment schemes but the year also gave way to the rug pull.
Cryptocurrency-related crimes reached a new record high in 2021. According to the Chainalysis Crime Report for 2022, the revenue generated from crypto scams increased by 82%, amounting to a total of US$7.8 billion. It is important to note that “rug pulls,” a relatively new type of cryptocurrency scam, accounted for over US$2.8 billion of this total.
But what exactly is a rug pull?
Some fraudsters use the guise of a legitimate cryptocurrency project to trick people into investing large sums of money by promising huge returns on investments. However, the situation changes when the people behind the project suddenly decide to siphon off all the funds. This type of scam is known as a “rug pull”, which means that the fraudsters pull the rug out from under the investors.
Cryptocurrency rug pull scams caused over US$2.8 billion in losses in 2021, according to Chainalysis. Decentralised finance (DeFi), a type of crypto-based finance, was one of the sectors most affected by rug-pulling, along with NFTs (non-fungible tokens).
As if the rise of the rug pull was not enough in 2021, 2022 came around and presented the crypto world with new forms of crypto scams.
In 2022, we saw an increase in scams targeting personal information and payment card details through fake websites in the Web3 movement. Malware distributed through infected hardware wallets also became a problem for private users.
Additionally, scam tokens, especially on the BSC blockchain network, were prevalent. Scammers listed their tokens on PancakeSwap, promoted them on small portals, and withdrew the money immediately through Tornado Cash. This posed a challenge for controlling mixers, which is an integral part of this type of scamming.
Analysing Modern Crypto Scam Tactics: AI, Social Engineering, and Beyond
Social engineering tricks people into giving away sensitive information or access to secure systems. It’s often done through phishing emails or impersonating authority figures. Nowadays, social engineering has gone a step further with the help of artificial intelligence (AI). AI attackers can create personalised scams, make fake personas that seem real, and even have convincing conversations with chatbots.
Cybercriminals have found new ways to scam people using artificial intelligence (AI). Instead of sending generic phishing emails, attackers now use AI to create personalised and convincing scams that seem tailored to your interests and vulnerabilities. These scams can include references to recent online purchases or use your nickname, making them more unsettling.
AI is also being used to create fake videos and audio recordings that impersonate authority figures or loved ones. For example, you might receive an urgent video call from your “bank” requesting action, but it’s actually a convincing deepfake. Attackers are also using AI-powered chatbots that engage in natural-sounding conversations to extract information and build trust.
In 2022, cybercriminals targeted HR departments using AI-powered chatbots and emails that posed as job applicants to steal sensitive company data. In another example, attackers used deepfakes of executives to manipulate stock prices. These are just a few examples of the growing threat landscape of AI-powered social engineering.
It’s important to be aware of these types of scams as they can be convincing and personalized. Cybercriminals are using AI to make their scams seem more legitimate, so it’s essential to stay vigilant and cautious when receiving unexpected emails or calls. Remember that legitimate companies will never ask for sensitive information over email or phone.
Social Engineering – The New Phishing Scam
Phishing emails might seem outdated nowadays. Cybercriminals are using AI to expand social engineering attacks to people’s favorite social media platforms, messaging apps, and even seemingly harmless online quizzes. With more than half of the world’s population being active on social media, exercising caution is crucial to protect personal information and privacy.
Hackers are exploiting AI to target people in echo chambers, where they are exposed only to information that confirms their pre-existing beliefs. This makes them vulnerable to scams disguised as content aligned with their views and fake news.
Imagine seeing an ad for a product endorsed by an influencer you trust while scrolling through your social media feed. However, this influencer might be a cleverly crafted AI-generated persona promoting a fake product or luring you to a malicious website.
A recent study by Proofpoint found that 83% of social media users have encountered AI-generated content they couldn’t distinguish from real human-made content. This highlights the growing challenge of discerning truth from AI-powered manipulation.
AI can analyse your data to craft messages that tap into your deepest desires, fears, and biases. This can include receiving a personalised message claiming you won a lottery you never entered, or a notification about a “security breach” related to a specific online account you use. These tactics exploit our natural tendency to trust information relevant to us, making us more likely to click on malicious links or reveal sensitive information.
AI is also enabling complex attacks, such as spear phishing, where attackers target specific individuals within an organization. Such attacks can be incredibly dangerous as AI can mimic the writing style of high-level executives and request confidential information.
Furthermore, AI fuels business email compromise (BEC) scams, where attackers impersonate executives to trick employees into transferring funds. These attacks are sophisticated and combine social engineering with AI, making them incredibly dangerous.
Impact on Investors: Personal Stories and Financial Consequences
The human cost of crypto scams is significant. Individuals, often those saving for retirement or seeking financial independence, lose their hard-earned money, facing emotional distress and financial hardship.
For example, The Guardian published an article in 2023 about a senior manager at a prominent UK investment firm who was duped out of his £300,000 life savings by cryptocurrency scammers.
Matthew Thomas admits that he was “blinded by a combination of greed, curiosity, and stubbornness” when he fell for a six-month long elaborate scam. He has shared his experience in an effort to prevent others from falling victim to similar frauds. These revelations come as new marketing regulations for crypto firms have come into effect, aimed at providing better protection for consumers in the UK.
A friend of Thomas introduced him to a cryptocurrency trading app in January. By July, he had lost over £300,000, including £60,000 borrowed from his mortgage and £20,000 secured through a work loan. The fraudsters gradually extracted more money from him by pulling various levers.
Thomas, who is in his 40s, was told that the trading app utilized an AI-based strategy to make profits from buying and selling cryptocurrencies across different exchanges by identifying price differences. The app had supposedly developed bots that scoured the markets to take advantage of these discrepancies.
Another story published by the Washinton Post tells the story of a former police officer who fell for a $66 million crypto scam. PJ Jenkins a retired policeman from Atlantic City was conned out of $15,000, when an attractive woman used a liquidity mining scam and pig butchering to rob him.
Crypto was the last thing on Jenkins’ mind when he first met Alice on Hinge in September 2022. They began messaging on WhatsApp once they matched.
They communicated every day for weeks, discussing life, family and everyday affairs. Alice provided a sympathetic ear and seemed eager to get to know Jenkins.
Alice mentioned “liquidity mining” to Jenkins as a way to make money by lending idle crypto investments.
Alice explained to him how the mining of Ethereum cryptocurrency works. She compared it to mining in a mountain, where there is an abundance of ETH to be mined. She clarified that it’s not the same as buying and selling, but rather an operation that has only positive outcomes.
Alice said he could buy a $26 mining certificate to start earning steady crypto returns, similar to savings accounts of decades ago.
Alice recommended that Jenkins use Coinbase Wallet, which is an app developed by one of the largest cryptocurrency trading platforms in the United States. She also directed him to a website called “CB-ETH.cc,” which seemed to be affiliated with Coinbase and was designed to handle liquidity mining.
Jenkins, a retired security director, was initially skeptical of liquidity mining, but a Google search convinced him it was legitimate. He invested $4,000 in Tether and put it into the CB-ETH liquidity mining website, hoping to make $60 a day.
He tested the account and added to it steadily. If he reached $15,000, Alice promised him 15% monthly returns to help him hit his $2,000 earnings target. He even encouraged his family members to invest in it too.
Legal Landscape: Regulation and Law Enforcement Challenges
The decentralised nature of cryptocurrency and the global reach of online interactions pose significant challenges for law enforcement and regulatory bodies. Cross-border cooperation and the development of effective legal frameworks are crucial in combating these evolving threats.
Future Trends: Predicting the Next Wave of Crypto Scams
Let’s examine some of the growing crypto scams this year and learn how to safeguard your crypto wallet.
Investment Schemes
Given the widespread use of social media today, it’s not uncommon to receive messages from people who claim to be investment managers. This is especially true for those interested in cryptocurrencies, as enthusiasts often share relevant content on their profiles.
However, it’s important to be cautious of individuals who make unrealistic promises regarding returns on investment in exchange for sending them crypto. It’s advisable to thoroughly research any investment opportunity and seek advice from reputable sources before making any decisions.
It can be difficult at times to distinguish between a genuine offer and a fraudulent one because scammers often have a well-rehearsed speech and a legitimate-looking website that appears to confirm their authenticity. However, it’s important to be cautious if they urge you to send cryptocurrency immediately and refuse to provide the required transfer documentation.
Blackmail
Blackmail is a common crypto scam that is still prevalent in 2024. Scammers send messages to their targets, claiming to have private photos and videos of them. They demand a certain amount of crypto in exchange for keeping these files private. This is a believable tactic that instills fear in victims, causing them to comply without questioning the scammer’s claims.
It’s important to note that these scammers do not possess any images or videos of you. They may attempt to describe the background of the files, but they could easily gather information about you through social media, such as your home’s interiors. The best course of action is to ignore these messages and not engage with the scammer. Additionally, it’s essential to report them to the authorities to prevent them from targeting other potential victims.
Romance scams
In today’s world, many people have fallen victim to romance scams, which are a common social engineering tactic that can happen to anyone on any social network platform. These scams are not limited to dating apps only and can happen in any online space. Scammers often approach their targets directly through messages and spend months building relationships with them without revealing their true intentions. They then ask for payment in cryptocurrency or present an investment opportunity with a promised high return. Unfortunately, many people fall for these scams, and the consequences can be devastating.
To avoid falling victim to online scams, stop communicating with unknown individuals if you feel unsure of their identity or intentions. Be cautious when sharing personal information and avoid anyone asking for money or investments. Stay vigilant and protect yourself from fraudulent schemes on the internet.
Fake giveaways
Crypto giveaways are popular but scammers can pose as real businesses and steal crypto. They lure victims on social media platforms with promises of more crypto than they send. Scammers create a sense of urgency and ask victims to send crypto before sending more back.
