While criminals use different techniques to steal, they all bank on lack of control and regulations in the crypto sector. Pseudonymity has also contributed to growth in the use of cryptos for crime payments.
Crypto is a relatively new investment front that has made its name by minting new millionaires within a short span. The recent bull run saw the value of some digital tokens grow thousandfold. But the investment in crypto space has not been all roses. Some people have lost money to Defi, ICO, and Bitcoin scams.
The increasing popularity of cryptocurrencies has tagged increasing cases of crypto-related crimes across the globe. It is therefore imperative that traders take caution when investing in crypto.
In this article we will explore how the rate of crypto-related crimes has changed over the last few years with a special focus on three developed countries: the UK, USA, and Australia. We shall analyze crypto crime increase rate, how they operate and how to eschew them.
Rising Curve of Crypto-Related Crimes
In 2016, reported crypto-related crimes in the US and UK were 1044 (Australia had not started recording these crimes). However, the number rose to an astonishing 159,413 in 2020. Most of these crimes were bitcoin-related because it is the most popular cryptocurrency.
Crypto Crime in the United Kingdom
|Year||Bitcoin||Ethereum||Other Cryptocurrencies||Total reported crime|
According to Cryptohead research, Crypto-related crime increased 111% from 2016 to 2017. Between 2017 to 2018, 5000 more cases were reported representing the highest percentage growth at 355%. The following year, the crime growth rate was lowest at 6% before increasing 24% in 2020.
Out of the 8801 crypto crimes reported in 2020, 8131 were bitcoin-related. The total number of crypto-related crimes in the UK by 2020 was 24 847, with a bitcoin-related crime totaling 23492 and comprising the bulk of these cases. It is instructive to note the gradual increase of Ethereum related crimes from a single case in 2016 to over 250 reports in 2020.
The good news was that authorities had seized crypto assets associated with money laundering. In June, Metro Police seized £114 million in crypto assets – the biggest cryptocurrency seizure in the country.
State of Crypto Crime in the United States
In 2016, crypto-related crimes were fewer in the United States than in the UK. But over the years, the cases increased significantly, and by 2020, they were more than four times cases reported in the United Kingdom. The country recorded the highest percentage growth of crypto crimes in 2017, with the cases jumping 510%. Similarly, crypto crimes increased by more than 61 000 cases between 2019 and 2020, representing the biggest increase. Like in the UK, bitcoin crimes form the bulk of the cases in the US, amounting to 102891 out of the total 110990 cases reported.
Australia Crypto Crime Rates
While cases in Australia are not well-curated, 5011 crypto crimes had been reported by 2018. In 2020 a total of 9689 cases were reported. The crypto crime rate in Australia is almost half of that in the UK but far much less than the total cases in the US.
Common Crypto Crimes
Crypto crimes have increased over the past few years. The most common crimes used to siphon money out of crypto investor pockets include ICO scams, crypto theft, and pump and dump schemes.
Initial Coin Offering Scams
An Initial Coin Offering (ICO) is offered to investors before a cryptocurrency hits the market. Some of these ICOs feature details copied from legitimate coin sites to appear promising. As an investor, you should do your due diligence to ensure the crypto detail is authentic and not lifted from other sites. Also, if the prospects are too good to be true, it is probably a scam.
Biggest ICOs Scams
Bitconnncet is by far the biggest ICO scam. It lured investors with a promise of 540% returns. The Ponzi scheme sank with $2.6 billion before investors realized it was a scam.
This project used a unique way to milk money out of unsuspecting investors. Investors received a return on investment using another coin named iFan instead of cash. When the scammers vanished in thin air, the investors had pumped in $660 million in the Vietnamese cryptocurrency.
ACChain was created in Shenzhen, China, and exhibited great growth potential. It went on to raise $60 million. But things took a different turn when a picture of the headquarters, which was an empty room, leaked. As you would expect, the creators vanished into thin air.
This was quite an interesting case. The founder Yassin Hnakir pulled a public stunt, posting a picture of himself on a beach captioned “over and out” on social media. Although what appeared like a daring scam was a publicity stunt, it eroded investor confidence resulting in lawsuits.
PlexCoin was a deal too good to be true right from the beginning. The scammers promised investors a tantalizing 1354% ROI after ICO. However, the SEC quickly shut down the ICO scam and ordered them to pay back $15 million.
Pump and Dump Schemes
Pump and dump is not new; they existed before the advent of cryptos. Investors collude to inflate value by pumping money into an asset with low capitalization. Then they convince private investors to put money in the instrument with a growing value and sell their stake at a profit. As a result, the asset’s value plummets to its real value. It then becomes tough for investors to make a profit or recoup their investment.
You can identify a pump and dump scheme by looking at crypto that has experienced a mysterious massive increase in value without clear reasons. If you can’t understand the reason for skyrocketing prices, it is prudent to stay out.
Cryptos are susceptible to old-school theft. Despite the high security of the crypto wallets, they are not completely secure. Hackers can access your wallet and steal coins. In other cases, the scammers create phony crypto exchanges to defraud users once they make a deposit.
The solution to this problem is doing your due diligence and verifying the crypto exchange’s legitimacy. You should also put an addition measured by storing your crypto coins in an offline hardware wallet with a unique and safe password that you can change regularly.
Common Crypto Scams Funnels
The internet is awash with investment experts offering tips on making profit from the crypto space. While some of these tips are genuine, many are fake but crafted to look appealing and genuine. In most cases, these websites promise great returns when you put some money into a certain account. The ultimate aim is to steal and disappear with your investment. You should eschew insecure websites, especially when redirected to another site for payment processing.
Scammers have long used emails for phishing. Crypto scammers are also using this highly effective communication channel to defraud crypto investors. Therefore, it is crucial to verify the legitimacy of emails you receive.
Social Media Bots
Most people have social media accounts that offer great investment opportunities. Scammers use bots to post fake articles about crypto investment opportunities on these platforms, usually accompanied by celebrity endorsement. The articles direct gullible investors to accounts where they are supposed to invest some money to get massive quick returns. You should remain vigilant when using social media.
A Rise in DeFi Scam Cases
Defi is a blockchain-based platform that uses algorithms to offer crypto-dominated lending outside conventional banking systems. As per a report from CipherTrace, crime in the Defi space is at an all-time high in 2021. By the end of April, Defi-related crime accounted for 56% of the $432 million lost by investors through crypto-related crimes. Some of the biggest Defi attacks in 2021 include TurtleDex, DODO DEX, and PAID Network. According to CNBC, Defi prospects have resulted in a total loss of $12 billion in 2021.
While criminals use different techniques to steal, they all bank on lack of control and regulations in the crypto sector. Pseudonymity has also contributed to growth in the use of cryptos for crime payments. The good news is that governments have put measures to deal with these crimes. China has arrested about 1000 people who use crypto for money laundering. But investors have the most prominent role in stopping crypto crimes by avoiding get-rich-quick schemes.
Michael is a cryptocurrency trader and blockchain enthusiast and the founder of CryptoPredictions.com, a website that provides daily, weekly and yearly cryptocurrency price forecasts. Michael is also a regulator contributor at popular finance magazines that include BitcoinMagazine, FX Empire, Equities, DailyForex and TalkMarkets. If he doesn't trade or investigate practical use cases of cryptos, he goes for a run or swim.