How do I report a Bitcoin fraud?

Summary

• With the popularity and profitability of cryptocurrencies, investors are being targeted via various ways.
• The scammers use the technique of cold calling the victims as well as using social media platforms to target the bitcoin holders.
• At present, the hackers are focusing on online crypto wallets rather than phishing at cryptocurrency exchanges.

Cryptocurrencies are decentralised virtual currencies based on blockchain technology, which can be exchanged online without being controlled by a bank, treasury or country. Currently, there are more than 4,000 cryptocurrencies that exist globally, of which Bitcoin is the most popular one. Other top cryptocurrencies include Ethereum, Litecoin, and Cardano etc.

Holding a position among the top profitable cryptocurrencies, bitcoins have attracted genuine investors as well as black marketers and criminals. It is used on the dark web for illegal transactions such as drug dealings, financial frauds etc. In recent years, many scams have penetrated the cryptocurrency ecosystem. The cases of fund embezzlement and fraud have doubled since 2020 as the prices of Bitcoins and other cryptocurrencies have risen unexpectedly during the pandemic. The National Reporting Center for Cyber crime received around 7,014 complaints till March 2021 as compared to 3,608 complaints in 2019-20. The Action Fraud Report highlighted around £113 million was lost to crypto-currency fraud in 2020.

Also read: Crackdown on cryptos: Which countries have voted for and against crypto trading

The scammers use the technique of cold calling the victims as well as using social media platforms to target the bitcoin holders by creating fake accounts or fake websites that appear to be legitimate. The victims are convinced and open online trading accounts on the fake bitcoin exchanges and give away their personal details, like driving license and credit card details, and make an initial minimum investment.

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The scammers then convince the victims to keep investing in order to reap higher profits, and after a point such websites are either deactivated or the victims cannot contact the fraudsters anymore. Some fraudsters even hack the popular twitter accounts of companies and individuals, examples famous personalities like Elon Musk and Bill Gates, and companies like Apple and Uber. The hackers use tweets to ask the followers of these accounts to send money to a specific blockchain address. In addition to Twitter, bitcoin scams have also affected other platforms like YouTube, with scams like fake cryptocurrency giveaway videos.

Also read: What does FCA’s ban on Binance mean?

Apart from social media scams, the hackers also engage in exchange and wallet hacks. The focus of the hackers has shifted from cryptocurrency exchanges to the online crypto wallets. The crypto wallet companies have an extensive investor database, which is targeted by the hackers to steal their personal details. In June 2020, one such case occurred in a France-based crypto wallet company where a million customer email addresses were compromised. In 2019, Poloniex, which is a cryptocurrency exchange, was also affected by a similar type of data breach.

Social engineering scams are also very popular nowadays, targeting the victims via psychological manipulation, and deceiving them to acquire their personal information. A very popular social engineering scam that is used by hackers is known as phishing. Fake emails are sent to the victims, which are directly linked with the fraudulent websites that are created for the purpose of soliciting the private key information of the victim. In the cryptocurrency ecosystem, online wallets are the major target of phishing scams, as the hackers get access to the crypto wallet private keys which helps them in getting control of the victim’s cryptocurrency wallets.

Blackmailing emails are also a popular social engineering scam. Such emails threaten the victims and use bitcoins for the purpose of extortion. Generally, the victim receives an email stating that their computer has been hacked and is being operated with a remote desktop protocol (RDP), and recording everything that the victim is doing. The emails may also have a list of adult websites that the victim has visited, and may threaten to expose them publicly. These kinds of emails give an option to the victim to either share their private keys or send bitcoins or else their personal information will be leaked publicly.

Also read: 5,000% in 14 months! Can ethereum reach $50,000?

Initial coin offering (ICO) scams have also been very popular in the cryptocurrency market. The scammers create fraudulent websites which are linked directly with the compromised wallets. Sometimes the fake websites appear to be legitimate and other times the ICO may be at fault itself. A famous example for an IPO scam is Centra Tech, which was an offering promoted by various celebrities like Floyd Mayweather and DJ Khaled. The founders as well as promoters of such fake IPOs are penalised by law.

A recent type of scam that has affected the cryptocurrency market is called DeFi rug pulls. DeFi stands for Decentralized Finance, and its aim to eliminate the gatekeepers for financial transactions, but these DeFi platforms have been affected by a practice called rug pulling which is used by the scammers to steal the funds of investors. Smart contracts, which hold the funds for a fixed period, are the main target of scammers for rug pulling. When such contracts expire or reach a threshold limit, the developers steal the bitcoins with the help of programming functions. One such scam took place recently in 2020, in which the developers involved in the scam stole Wrapped Bitcoin (WBTC), ether, worth $750,000, and also stole some other cryptocurrencies from a DeFi platform called Compounder Finance.

Some other scams related to bitcoins include malware and ransomware, impersonation, meeting in person for conducting the exchange which leads to robbery, fake emails from strangers for money transfers, Ponzi and pyramid schemes, pump and dumps, and scam coins which may exist among altcoins (alternative coins).

The key to protect yourself from cryptocurrency scams is to not assume that every investment opportunity presented to you is genuine, as the criminals can make the scam look absolutely legitimate. If you feel that you are being pressured to invest or the investment opportunity appears too good to be true, then you should stay in control and avoid any investments without a thorough research. The warning signs for a scam may including companies cold calling out of the blue and repeatedly trying to keep you on the line, companies telling you not to disclose the investment opportunity to anyone else, companies giving you limited time offers and rushing you into investing etc.

Also read: Who should invest in cryptocurrencies?

In the UK, all firms conducting financial activities are authorised and regulated by the Financial Conduct Authority. It is important to check if the company you are investing in is registered with the FCA, or is in the FCA warning list, to know if it’s a scam. In such a case, the victim has access to the Financial Ombudsman Service and FSCS protection. The victim can report the firm or the scam by contacting the FCA consumer helpline number (0800 111 6768) or by filling up the reporting form on the FCA website.

If the products are not regulated by the FCA, then the victim can report the scam to the Action Fraud (0300 123 2040), which is the national fraud crime reporting centre of UK. It uses its intelligence to collect all the information related to the scam, and then forwards it to the National Fraud Intelligence Bureau, where the information is analysed by the police.