Escalating Crypto Scams Opt for Alternatives, Deserting Bitcoin

TRM Labs has tracked an astounding $9.04 billion that were lost through various fraudulent schemes in 2022, with the lion's share attributed to Ponzi and/or pyramid schemes.

As per the annual FBI Internet Crime Report, investment fraud involving cryptocurrencies surged nearly 200% - escalating from $907 million in 2021 to $2.57 billion in 2022.

At the same time, cybercriminals are progressively distancing themselves from Bitcoin, switching to alternative cryptocurrencies. The proportion of BTC in unlawful transactions has plummeted from 97% in 2016 to 19% in 2022. A notable surge has been observed in the use of cryptocurrencies on Ethereum, BNB Smart Chain, and Tron networks.

This is particularly applicable to Tether, as there was a 240% surge (year-over-year) in incidents of USDT being utilized by parties linked to the financing of terrorism in 2022.

Yet, tradFi transactions, especially cash and the covert Hawala banking system, continue to be the main instruments for illicit activities.

Exit scams occur when project founders suddenly cease development and vanish with user assets. One notable instance of such a scam was the Baller Ape Club NFT project, which sold an NFT collection featuring monkey illustrations. This collection bore a striking resemblance to the famed Bored Ape Yacht Club.

After gathering approximately $2.6 million from investors, the project's creators executed a rug pull: they shuttered the project, erased its website, and absconded with the investors' funds.

This is a type of malevolent software that encrypts a victim's files or data, rendering them inaccessible. Following the successful seizure of the files, the attacker demands a ransom, typically in the form of cryptocurrency, in return for the decryption key.

Over the last few years, LockBit and Conti have emerged as the most consequential ransomware syndicates. Since its inception, LockBit has amassed at least $100 million in payments, including $44 million just in 2022.

The promotion of a cryptocurrency or any other digital asset without revealing that the promoter has been monetarily compensated by the issuer is considered illegal according to the US federal securities laws. Over the last five years, multiple celebrities have faced penalties from the Securities and Exchange Commission (SEC) due to the violation of advertising laws while promoting Initial Coin Offerings (ICOs).

For instance, in October 2022, the SEC accused Kim Kardashian of endorsing a cryptocurrency on social media without disclosing that she was paid $250,000 for the promotion. Consequently, Kardashian was obligated to pay a penalty amounting to $1.26 million.

Malicious smart contracts operate by extracting cryptocurrency and NFTs directly from a user's wallet once the user unknowingly signs a harmful transaction. They are often incorporated into phishing websites that mimic the appearance of legitimate pages associated with renowned projects.

One might end up on such a fraudulent site through an email or a message from a scammer who is impersonating someone else. This is another method by which grifters steal sensitive user data.

In 2022, email fraud resulted in reported losses amounting to $2.7 billion, according to the Internet Crime Complaint Center.

Market manipulation can encompass a variety of schemes devised to artificially influence the price of a token. One such scheme is the Pump&Dump. This involves a coordinated, gradual purchase of a cryptocurrency or token to artificially escalate its price, thereby creating the illusion of an upward trend. Upon reaching a certain price point, all tokens are suddenly sold off by the manipulators, securing a profit.

This results in significant losses for those investors who were lured in by the prospect of making a profit. Researchers from the Blockchain Technology Center at University College London (UCL) found that the annual volumes of the Pump&Dump schemes amount to $120 billion in cryptocurrency.