Cryptocurrency crime is as vicious and disturbing as most financial crimes. The crimes committed range from theft of ordinary cryptocurrency to money laundering and market-to-market fraud. Investors and consumers are vulnerable to phishing and scams, where they are required to send cryptocurrency to a specific site for ransom. Like all finance […]
Cryptocurrency crime is as vicious and disturbing as most financial crimes. The crimes committed range from theft of ordinary cryptocurrency to money laundering and market-to-market fraud. Investors and consumers are vulnerable to phishing and scams, where they are required to send cryptocurrency to a specific site for ransom. As with all financial crime, buyers need to be aware of and educate about potential crimes.
Cryptocurrency-related crimes are on the rise. During the pandemic, more people were exposed to cryptocurrency trading as lockdowns took place. Thieves use two different tactics to try to steal your cryptocurrency. Either they are trying to break into your crypto wallet and directly steal your cryptocurrency, or they are trying to trick you into sending them your cryptocurrency. According to Chainalysis, in 2021, crypto criminals stole a record 3.2 billion cryptocurrency. The amount of cryptocurrencies stolen has increased by 500% year-over-year. Most of the thefts were committed through scams rather than stealing cryptocurrencies directly by breaking into cryptocurrency wallets.
Steal from your wallet
Some cryptocurrency thefts happen when a thief steals directly from your cryptocurrency wallet. A cryptocurrency wallet is a safe place where you store your cryptocurrency, using a digital address to determine how much cryptocurrency is in your account. Each cryptocurrency will have a different address. Most consumers keep an exchange wallet where they have a private key that controls the cryptocurrency. These custody wallets differ from bank accounts in that there is no financial claim transaction that guarantees the amount of funds held in the account. For example, if you have a bank account with a bank that is insured by the FDIC (almost all banks in the US), your deposits are guaranteed up to a certain dollar amount (usually $250,000). So, if you are trading cryptocurrencies with a digital wallet, you are prone to these issues.
Unfortunately, there were issues as some exchanges were hacked and funds were stolen from customer accounts. In December 2021, BitMart announced that the company had been hacked and revealed that nearly $150 million had been stolen from cryptocurrency wallets. One strategy a consumer can use to avoid this scenario is to move their cryptocurrency from a software wallet to a hardware wallet. This device may not be connected to the Internet.
Stealing using tricks
Online scams are everywhere. One of the most common is email and SMS phishing. These are scams where you receive an email asking you to open some form of attachment or link. These emails look like real emails from your employer, your bank, or even your friends and family. Many employers will provide their employees with training on cybersecurity frauds and how to avoid fraud. You can view the email address the phishing message came from and check if anything is misspelled. If there is a call to action that asks you to click on a link or open an attachment, you should think carefully before proceeding.
By simply clicking on the link, you may give thieves access to your computer. They may be able to trace the password you use to your digital wallet and directly steal your cryptocurrency. Alternatively, some scams ask you to send money to avoid a penalty. In the United States, there are several types of tax fraud, where people are required to send money immediately to avoid a penalty. You may receive an email from one of your relatives (scam) asking you to send money to help them get out of prison. If something goes wrong, stop, think, and evaluate your actions before proceeding.
Some scams may seem like legitimate investment opportunities, but they are not, such as fraudulent trading platforms that require you to deposit cryptocurrency. Specific scams are set up to encourage you to open a cryptocurrency account which can then trick victims into installing hacking software on their devices, allowing the scammers to gain access to a cryptocurrency or bank account.
Money laundering is another crime related to cryptocurrency. Bad doers, a term used to describe perpetrators of fintech fraud, use cryptocurrency, which is difficult to trace, to fund illegal businesses. Organizations that sell illegal drugs or firearms ask their contacts to purchase these items using cryptocurrency. Money laundering has made it difficult for cryptocurrencies to be legitimate. When retail customers think of a product that can be used for nefarious activities, the comment spoils their opinion.
From the market to the cryptocurrency market
As major investment firms increase their exposure to cryptocurrencies, they have added trading desks. Some of the cryptocurrencies that are bought and sold are for long periods of time. The value of these cryptocurrencies may vary. Dealing desks can use models to create values similar to those used in pricing CLOs prior to the financial crisis. When it comes to these values, any fraudulent activity can create problems for the companies that operate these trading desks.
The bottom line is that fraud, fraud and theft are part of the cryptocurrency trading world. Thieves are trying to get into your computer to steal cryptocurrency from your account. At the moment, there is no oversight body that provides insurance like the FDIC on funds held in a cryptocurrency account. Hundreds of phishing scams are used to convince you to hand your cryptocurrency directly to a thief. Cryptocurrencies have been linked to money laundering, in which bad actors attempt to launder their illicit money in exchange for cryptocurrency and then use it for legitimate purchases. In short, as cryptocurrency becomes more popular, more protections for individual consumers will be required to ensure that they can trust cryptocurrency as a sovereign currency.