Although cryptocurrencies are revolutionizing traditional financial systems, they are also used for scams such as Ponzi schemes, ransomware and high-yield investments.
Take the well-known example of PlusToken. This Ponzi pyramid allowed its creators to steal several billion in crypto (BTC, ETH, LTC, EOS, DASH, XRP, DOGE and USDT) until its collapse in June 2019. Created in 2018, this pyramid scheme promised very attractive daily payouts to investors thanks to a fake crypto arbitrage trading platform. At the end of November 2020, these funds were seized by the Chinese authorities and ringleaders received prison sentences of up to 11 years and fines ranging from $18,000 to $900,000.
During the first half of 2020, many advance-fee scams promising a significant share of a large sum of money in crypto in return for a small up-front payment were propagated on social networks such as Youtube or Twitter. Cryptocurrencies are also the preferred method of payment for ransomware because they are more difficult to trace. The purpose of ransomware is to encrypt the data of a person or an entity and to ask for a “ransom” to unblock them.
Scorechain, a company specializing in risk management for cryptocurrencies and digital assets, conducted an analysis of the funds received by scammers in 2020.
The results of this analysis demonstrate that:
912 “scam” entities identified on Scorechain Blockchain Analytics Platforms received 51,640.67 BTCs in 2020. In 2019, the number of scams was 624, which received 886,868.20 BTCs during the year. Compared to the year 2019, there were more scams in 2020. On the other hand, the volume involved was much lower than in 2019, which was huge because of PlusToken.
Scammers were more active in February, March, April, May and August 2020, receiving more than 5,000 BTCs each month. For the February to May period, this trend can be explained by the coronavirus crisis that escalated during this period. For example, the democratization of teleworking has made companies more vulnerable to cyber-attacks, allowing scammers to more easily harvest cryptos thanks to ransomwares. Other scammers also took advantage of the pandemic to steal funds from investors by posing as health organizations, for example.
In April 2020, scams were the mostprofitable. Scammers received 6,053 BTCs, which amounted to approximately 46,718,951 euros in April 2020 (worth 290,544,000 euros at the end of February 2021).
The 15 scammers that received the most funds, accounted for 88.85% of the total amount of funds received by all scammers;
The 2 most profitable scams received almost ¾ of the total funds (71.44%). These 2 scams are :
BTCGlobal: 29,905.66 BTCs. BTCGlobal was a Ponzi pyramid scheme created by a fake investment company of the same name. At least 27,500 people lost millions of dollars, some reports even estimate the amount at $50 million.
Scam reported by Circl: 6,983.99 BTCs. This entity refers to a classic case of ransomware. Scammers block access to data on a server by encryption and demand ransom from victims to make the data accessible via remote software.
The year 2020 has been marked by many cryptocurrency scams. It is important to remain aware of these scams including Ponzi schemes, promises of high yields, ransomware etc… which result in many victims. This trend is also enhanced in the context of the pandemic and the increase of various cryptocurrencies’ prices, which attract more and more new investors who can easily lose money because of this kind of scam.
Scorechain Blockchain Analytics can help companies manage these risky funds. The Scorechain solution allows, for example, to red-flag scams, track funds and configure risk indicators to minimize risk.
Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a European leader in crypto compliance since 2015, the Luxembourgish company serves worldwide customers in 33 different countries with more than 150 licenses established, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets customers onboarding, audit and law firms and some LEAs.
Scorechain solution supports Bitcoin analytics with Lightning Network, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger and Tezos. The software is able to de-anonymize the Blockchain data and connect with sanction lists in order to provide a risk scoring on digital assets transactions, addresses and entities. The risk assessment methodology applied by Scorechain has been verified and can be fully customizable to fit all jurisdictions. 300+ risk-AML scenarios are provided to its customers with a wide range of risk indicators so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.