Inside the Mind of a Scammer

Crypto is reaching greater heights every day, with millions of new adopters joining the ecosystem in the last two months alone. However, as crypto enters the mass market, fraudsters are finding new methods and opportunities to scam users, who are often unaware that their stolen funds cannot be retrieved. While crypto going mainstream may be a huge milestone for the ecosystem, this soaring popularity means that exchanges and digital wallets are also fighting a rising battle against scammers, who threaten the survival of their businesses daily. With crypto-related fraud on the rise, it is imperative for user-facing platforms to be aware of the most common types of crypto fraud, as well as partner with fraud experts in order to protect the wider crypto community.

Users aren’t the only victims…

Nearly all cryptocurrency scam revenue in 2020 went to smaller-scale investment scams, with the number of victims rising by 48% from the previous year.[efn_note]Chainalysis Crypto Crime Report 2021[/efn_note] This vast increase is largely due to the COVID19 crisis, during which many people are seeking additional sources of revenue to supplement or replace their income. In such times, an ad promising a 10% return in exchange for a Bitcoin deposit is, understandably, hard to resist. Once the scammer has received the crypto from the unknowing victim, they will often use an exchange to trade that crypto for cash. Unfortunately, crypto transactions are irretrievable, but victims are still likely to take pains to retrieve it, because though Bitcoin has become a household name, its workings are not well understood by the general public. 

Today, crypto fraudsters lean heavily towards social engineering scams, using psychological manipulation and deceit to gain control of vital information relating to user accounts. One of the most widely known examples is the Airbnb Bitcoin scam of 2018, when users were asked to pay for their accomodation in BTC by a group posing as the holiday rental company. Airbnb doesn’t accept cryptocurrency as payment, but scammers used the fact that most people wouldn’t know that to their advantage. The scammer’s logic is, if it’s a platform people trust, then it’s a platform ripe for the scamming. 

Many in the elderly population will be unfamiliar with the workings of tech, and are therefore at a particular disadvantage when it comes to scammers posing as tech support companies. The victim might get a phone call from “Microsoft” claiming that their computer has been infected and needs to be accessed remotely in order to be fixed (after providing the scammer with a service fee, of course). This unsuspecting individual has likely never heard of cryptocurrency,  let alone understand that they’ve just paid a scammer in Bitcoin and parted with their funds for good.

Though it may seem like the victim is the only loser here, this is far from the case. Scammers will usually provide their victims with the link of a turnkey or wallet, from which they can transfer the crypto to the fraudster directly. Once the turnkey/wallet has been utilized for a scam in this way, the victim will likely blame the merchant directly, whose reputation is at risk of being permanently tarnished. In addition, persistent fraudulent activity will often lead to a threat of closure from the platform’s acquiring banks due to Mastercard and Visa High-Risk programs. 

When it comes to chargeback fraud (also known as friendly fraud), users can purchase crypto using their credit card, receive their crypto, and then file for a chargeback. The cardholder’s intentions could range from regretting their purchase to forgetting they made that purchase in the first place. Unfortunately, chargeback fraud is particularly detrimental to exchanges and wallets, who will experience a direct and immediate financial impact as a result. Chargeback scams are immediately deducted from the merchant, and as opposed to the ecommerce industry, the sum lost will be close to 100% of the product value. 

What makes crypto so attractive to scammers?

If someone acquires 100 iPhones fraudulently, they would need to be liquidated in order for the scammer to access their revenue. Since cryptocurrency is already liquid, scammers can turn it into fiat immediately, or use it for other criminal activities on the dark web. It’s also easier for the crypto scammer to replicate their success. To sell 100 iPhones, you would need to find 100 different addresses to send them to. With crypto, the scammer can easily generate 100 different wallet addresses and circumvent the effort usually involved in selling stolen goods.

Above all, scammers rely on the fact that most people don’t understand the inner workings of crypto before they buy it. For example, scammers might present victims with a fake “trading portfolio”  on a fictitious website, where users believe their funds will be invested in cryptocurrency. Sadly, these victims will only realize they’ve been scammed when attempting to withdraw their “earnings” from their fake portfolio. If these users had understood the importance of holding their own private key, they would likely not have been subject to such a scam. 

As all these victims will discover, once a purchase of crypto is made, the original funds used are irreversible, and banks cannot reimburse the stolen money.

What preventative measures can be taken?

Partnering with a company that is well-versed in defeating fraud can save crypto platforms from falling prey to fraudsters. Simplex takes all the risk associated with buying crypto on itself, and it is the company’s mission to make the purchasing process accessible and secure worldwide. Advanced machine learning AI algorithms and a zero chargeback guarantee mean Simplex is able to intervene and prevent scams from occurring in real-time. Additionally, Simplex pioneers the use of blockchain intelligence to track funds from scammers’ original wallets, which will prevent multiple new fraudulent addresses being made, and stolen funds becoming untraceable. Known for its innovative stance, Simplex has never experienced any financial or reputational losses due to hacks or scams in its 7 years of operation. 

Trust isn’t always a dangerous game

The recent rise in crypto-related fraud could prevent the ecosystem from reaching its full, world-altering potential. Exchanges and wallets must protect their users by entrusting experts in the fraud field to provide fraudless environments in which mass, global crypto adoption will thrive.

– Netanel Kabala, Simplex Co-Founder & CAO