The global cryptocurrency market has become a force to reckon with, boasting a valuation of over $3 trillion at its peak in 2024. Its promise of high returns, decentralization, and digital accessibility has captivated millions worldwide. Yet, its rapid rise has also highlighted a glaring issue: the lack of effective regulation. With decentralized systems designed to bypass traditional oversight, crypto has become a breeding ground for fraudsters.
Recent statistics reveal the gravity of this problem. The FBI reported a significant increase in cryptocurrency-related fraud in the United States. Losses from these scams surged by 45% in 2023, reaching over $5.6 billion. India has been reported as the fifth highest globally in terms of crypto-related complaints, with a total of 840 cases filed and losses exceeding $44 million.
Such staggering numbers underscore why crypto fraud is not just a tech problem but a global economic threat.
The current crypto craze: Why it attracts fraudsters
Cryptocurrency’s meteoric rise is fueled by several factors that also make it a magnet for fraudsters:
- High ROI and Volatility: The allure of quick riches draws millions to invest, but this same volatility creates opportunities for fraud. Bitcoin, for instance, hit an all-time high of $95,000 in 2024, tempting both genuine investors and scammers alike.
- Anonymity: Transactions on the blockchain are pseudonymous, making it easier for bad actors to operate without leaving a trace.
- Digital Nature: Crypto exists entirely online, making it accessible—and exploitable—by anyone with an internet connection.
- Complexity: The technical nature of crypto often leaves investors vulnerable to scams like pig butchering, a social engineering tactic where less-informed individuals end up placing their trust on "experts" before being duped.
- Decentralization: With no central authority, fraudulent activities often go unreported or unresolved, giving scammers a free hand.
Most common types of crypto frauds
1. Account creation fraud
Fraudsters create fake accounts on crypto exchanges to exploit signup bonuses, referral programs, or onboarding rewards. These accounts are often linked to stolen identities or fabricated credentials.
Once they initiate transactions using these accounts, they either execute chargeback fraud—claiming unauthorized transactions—or disappear with the rewards.
Fake accounts also provide a foundation for larger-scale fraud operations. Fraudsters create crypto accounts with fake identities and sell them for profit. These accounts often slip through undetected—until the damage is done.
These stem from inadequate or weak KYC protocols during onboarding resulting in an influx of bad users on to a platform. The lack of regulation and uncertainty in crypto discourages companies from investing in strong identity verification. Adding friction during onboarding is seen as a risk, leading many to prioritize seamless access over security.
Related read: Why you should ‘Know Your Customers’ better: The world of KYCs
2. Pig butchering
This scam combines social engineering and emotional manipulation. Fraudsters establish trust by befriending victims online, often on dating apps or social media platforms. Over time, they guide victims toward "investment opportunities" in fraudulent crypto schemes.
We talked to Himadri Roy, Co-founder, Echovane and ex-AVP Product, CoinDCX for his take on the main tactics deployed by fraudsters.
"Fraudsters target users, not exchanges, using three common tactics.
First, they create fake apps or websites, take investments without holding real assets, and show fake profits—only to disappear or claim a 30% TDS deduction when users try to withdraw.
Second, they impersonate company founders on WhatsApp or Telegram, pushing users to invest in dubious tokens, often combining this with the fake platform scam.
Third, they use classic impersonation tactics to gain access to crypto wallets, just as they do with bank fraud. The methods may vary, but the goal remains the same—exploit trust and vanish with the money."
3. Hacking and cryptojacking
Hackers exploit vulnerabilities in crypto wallets or platforms to steal funds. In cryptojacking, attackers infect devices with malware that secretly mines cryptocurrencies, consuming the victim's resources without their knowledge.
4. Pump and dump Schemes
Fraudsters create artificial hype around a lesser-known cryptocurrency by spreading false information or making exaggerated claims about its value. As unsuspecting investors rush to buy, the fraudsters sell their holdings at a high price.
Once they exit, the value of the currency crashes, leaving other investors with significant losses.
Cryptocurrency: A haven for money laundering
Cryptocurrency has also become a preferred tool for money laundering due to its anonymity and global reach. Here’s how it works:
- Placement: Illicit funds are converted into cryptocurrency, often through unregulated or "privacy-focused" exchanges. This step helps obscure the origin of the money.
- Layering: Funds are moved across multiple wallets, mixed with other transactions, or passed through services like crypto mixers or tumblers. These platforms blend transactions, making it nearly impossible to trace the original source.
- Integration: Laundered funds are reintroduced into the legitimate economy, often by purchasing goods, services, or other cryptocurrencies. This process makes the money appear legitimate.
For example, ransomware groups often demand payment in Bitcoin. The funds are then sent to mixers, distributed across hundreds of wallets, and eventually converted into fiat currency via offshore exchanges. In 2024, the U.S. Department of Justice revealed that over $1 billion from ransomware attacks had been laundered through crypto platforms.
Crypto companies frequently face losses due to fake accounts created to exploit promotions, bonuses, or engage in chargeback fraud.
Related read: The three stages of money laundering
Bureau: Protecting your crypto platform from fraudsters
Fraud thrives in gaps, and crypto’s lack of strict regulations makes it a prime target. Bureau helps crypto platforms close these gaps—starting at onboarding and extending throughout the user lifecycle.
1. Strengthening KYC with an Identity Risk Score
Traditional KYC checks often fail in crypto due to weak identity verification standards. Bureau enhances this process by assigning an Identity Risk Score, which evaluates multiple risk signals in real-time. This helps crypto platforms detect synthetic identities and identity mismatches before they become a problem.
2. Leveraging Alternative Data for a holistic risk view
Fraudsters can fabricate documents, but they can’t easily fake an entire digital footprint. Bureau analyzes alternative data sources—device history, behavioral patterns, transaction consistency, and online presence—to assess the legitimacy of a user. This layered approach goes beyond basic KYC, offering deeper insights into potential fraud risks.
3. Detecting account takeovers in real time
Stolen credentials and phishing scams are rampant in crypto. Bureau’s Device Intelligence and Behavioral Biometrics monitor key risk indicators such as:
- Device fingerprinting: Identifies unauthorized logins from unrecognized or suspicious devices.
- Behavioral biometrics: Flags anomalies in typing speed, navigation patterns, and transaction behaviors to detect fraudulent access attempts.
With Bureau, crypto platforms gain the ability to stop fraud before it happens, ensuring secure, compliant, and frictionless transactions for legitimate users.
