Cryptocurrency has moved from a niche project to an innovative new financial asset, promising decentralized and secure financial transactions as well as the potential for impressive returns on investment.
This has gained the attention of the wider public, businesses and institutional investors. However, cryptocurrencies have also attracted hackers, scammers and other illicit actors, which individuals should be aware of to protect themselves in this fast-moving digital landscape.
Key Facts
- Billions of Dollars are Stolen a Year: Scammers took a record $55 billion worth of bitcoin in 2021, at the height of the bull-run. Illicit cryptocurrency transaction volume hit an all-time high of $20.1 billion in 2022.
- Common Bitcoin Scams: Scammers employ various tactics, including blackmail, sextortion, ransomware, social media scams, investment scams, giveaway scams, darknet markets, and even terrorism-related activities. These scams target both individuals and businesses.
- Protecting Against Crypto Scams: To defend against crypto scams, users should stay informed about the latest scam tactics, avoid offers that seem too good to be true, be cautious of unsolicited offers, secure their wallets and passwords, install anti-malware software, conduct thorough research before investing, and report scams promptly to authorities.
Illicit cryptocurrency transaction volume hit an all-time high of $20.1 billion in 2022, up from $18 billion in 2021, according to a report by blockchain data platform Chainalysis. Looked at another way, that was just 0.24% of cryptocurrency transaction volume, down from a high of 1.9% in 2019 — but that is still an unacceptably high level of contamination in currencies offering immutability and new ways of sending money.
That 0.24% is also much more significant to the crypto holders who lost their entire wallet contents.
As bitcoin (BTC) continues to dominate crypto market share, it accounted for 89.9% of reported scams since 2018.
Types of Bitcoin Scams
Blackmail tops the list of frequently used cryptocurrency scams, according to Coin Kickoff research. Coin Kickoff conducted a study of more than 250,000 abuse reports from Chainabuse and scraped all incoming transactions for each reported address from Blockchain.com to find the most commonly reported scams. These are:
- Blackmail: Scammers contact victims and threaten that they will release data or embarrassing information unless they are paid a certain amount in crypto.
- Sextortion: Often preying on young people, a scammer tricks their victim into sharing sexual imagery of themselves and then blackmails them for payment.
- Ransomware: Cybercriminals install malware on the victim’s device and use it to lock their data or systems, demanding payment in crypto to release the data.
- Social media scams: Scams posted on social media platforms range from fake or hacked accounts promoting illegitimate deals to direct messages containing infected links.
- Investment scams: Fraudsters entice investors with deceptive promises of high returns on their crypto investments, absconding with the funds.
- Giveaway scam: Scammers impersonate well-known figures or organizations on social media or online platforms and claim to be giving away free crypto or a prize. Scammers exploit victims’ interest in the giveaway to gain their trust, steal their data or install malware.
- Darknet market: Darknet markets are online platforms on the dark web where illegal goods and services, including drugs, stolen data, and hacking tools, are bought and sold using cryptocurrencies.
- Terrorism: Terrorists are known to steal digital currencies to fund or support their activities.
- Trading scams: Scammers promise to provide trading services or tools that guarantee sizeable profits. Victims deposit money into accounts and scammers disappear with the funds.
- Theft: Scammers steal digital assets from a user’s digital wallet or exchange account through hacking or exploiting security vulnerabilities.
Other types of scams include impersonation, phishing, extortion, advance fee fraud and Ponzi schemes. Once cryptocurrencies are stolen, it is difficult to recover them owing to their decentralized and pseudonymous nature.
The likelihood of being targeted by a crypto scam fluctuates over time as scammers and security experts compete to stay ahead of each other, Coin Kickoff notes.
How Many Scams Have Occurred?
There have been 85,534 reported bitcoin blackmail scams since 2018 and 61,298 sextortion scams, the data shows. In 2023, blackmail scams have become less common than ransomware or sextortion.
Ransomware scams have totaled 61,018 but they were trending ahead in the first half of 2023, with 3,376 reported.
Social media scams totalled 9,971, highlighting the risks of relying on social media platforms for information about cryptocurrencies.
“Do your homework,” suggests Dr. Marc Tomljanovich, Lombardo College of Business. “I strongly suggest that investors step away from social media to get these information sources and only come back once they feel well informed.”
Some 1,134 investment scams were reported last year, and a total of 3,365 since 2018. Investment scams are down as potential investors wise-up to the risks, but giveaway scams have increased to become among the top five most prevalent.
There were 1,100 terrorism-related scams, which have increased as transactions involving companies that have been targeted by US sanctions soared. Volumes associated with sanctioned entities skyrocketed by more than 100,000-fold in 2022 and accounted for 44% of illicit activity, according to Chainalysis.
How Much Money Have Scammers Stolen?
It is unsurprising that the value of bitcoin stolen by scammers peaked in 2021, when the bitcoin price soared to a record high approaching $69,000 and mainstream interest in cryptocurrency trading increased. Scammers took a record $55 billion worth of bitcoin in 2021, a rise of 198% from $18.4 billion in 2020 and far higher than the $2.8 billion taken in 2018. The boom in decentralized (DeFi) transactions and DeFi-related crime was also likely a driver.
The value of stolen bitcoin then dropped to $23 billion in 2022 and $7 billion in the first half of 2023, Coin Kickoff’s data shows, as crypto investment has tapered. At the same time, law enforcement agencies have begun to catch up with the rapid advances made in crypto technology.
Similarly, Chainalysis found that illicit transaction volumes fell in 2022 across conventional forms of crypto-related crime, except for stolen funds, which increased by 7% from 2021. The crypto market downturn is likely one reason for this, as crypto scams typically generate less revenue during bear markets when there are typically fewer participants and those still in the market are more pessimistic and less prone to believing scammers’ unrealistic promises of high returns.
In general, when users place less money in crypto assets, the amount of crypto crime tends to decline.
The number of reported scammers jumped from 3,410 in 2018 to a peak of 24,501 in 2020. That halved from 23,799 in 2021 to 12,354 in 2022, however at 5,684 in the first half, this year’s numbers are on track to almost reach last year’s level, according to Coin Kickoff.
How to Defend Against Bitcoin Scams
Crypto scammers prey on users who let down their guard. By understanding the different types of scams you may encounter, you can take steps to better protect yourself and your digital assets.
Keep in mind these precautions:
- Stay informed about the latest scam tactics.
- Beware of “guaranteed returns” and offers that seem too good to be true.
- Be cautious of links and attachments in emails, messages, or social media to avoid phishing attacks.
- Ignore unsolicited offers, especially those promising free giveaways or investment opportunities.
- Resist high-pressure sales techniques.
- Secure your private crypto wallet keys, create strong passwords, use two-factor authentication and update them regularly.
- Install anti-malware software on all your devices and keep all security software updated.
- Conduct thorough research before investing in any crypto project.
- Act quickly if you believe you’ve been scammed, reporting it to relevant authorities.
Bitcoin and cryptocurrencies offer unique opportunities for users and investors, but they also present risks owing to the prevalence of scams. It is important to stay informed and vigilant to protect your investments and personal information.
By always conducting thorough research and exercising caution, you can reduce the risk of falling victim to the most common bitcoin scams.