$9 Million Lost Each Day In Cryptocurrency Scams

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$9 Million Lost Each Day In Cryptocurrency Scams

While you would believe that open-source, decentralized, anonymous cryptocurrencies are secure since they are not controlled by a single authority and operate in a transparent way, the fact is that they are frequent targets for scams such as digital theft, phishing, fraud, and hacking. (For additional information, read Beware of These Five Bitcoin Scams.)

According to a recent Bitcoin.com News report, criminals stole $1.36 billion in cryptocurrencies during the first two months of 2018.

Fraud accounted for 30 percent of all virtual currency schemes. It was followed by hacking attempts (22%), theft and exit scams (17% each), and phishing (13%). (13 percent).

The most recent robbery happened in late January at cryptocurrency exchange Coincheck Inc, when hackers stole about $500 million in virtual tokens.

Simultaneously, Bitconnect, a bitcoin loan scheme, ceased down and disappeared, resulting in an exit fraud with an estimated loss of $250 million.

In February, BitGrail, an Italian cryptocurrency exchange, disclosed a hacking attempt that resulted in the loss of approximately $195 million in virtual tokens belonging to consumers.

Decentralized, Anonymous Ecosystem Appeals to Thieves

Because of the bitcoin market’s anonymity, not all small-scale frauds may come to light. It is also impossible to correctly estimate the magnitude of each fraud due to the ever-changing nature of numerous cryptocurrencies and their associated procedures such as initial coin offers (ICO).

For example, the SEC suspended the AriseBank ICO in January for suspected fraud, as it tried to solicit cash from regular investors in the pretense of participating in the world’s first “decentralized bank.” However, the ICO, which was supposed to generate $1 billion, turned out to be a $600 million hoax.

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Even if the top three frauds are regarded as anomalies, the other lesser scams total $542 million. Counting the first 59 days of 2018, the average per-day loss due to such small-ticket frauds is roughly $9.1 million per day. If the current trend continues, the total sum lost to such scams will be over $3.25 billion by the end of the year, which would exceed the yearly GDP of several small countries!

The virtual currency world is becoming significantly more difficult as a growing number of new cryptocurrencies are established each day, as well as the expansion of connected services such as trading, exchanges, and transfer services. Its anonymous and decentralized characteristics may be beneficial to many, but it is often abused by swindlers at the cost of the general user. (For further information, see Steve Wozniak: Bitcoin Scammer Stole My Cryptocurrency.)

While it may be impossible to completely eliminate frauds, a balanced strategy incorporating appropriate rules and security frameworks might help manage the problem. (See also, Bitcoin Blackmail Scam on the Rise: Be Wary.)

Investing in cryptocurrencies and Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and neither Investopedia nor the author suggest that you do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site. The author owns no cryptocurrencies as of the day this post was published.

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