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The rise of cryptocurrency crime and what it means for regulation

While cryptocurrencies continue rising in popularity among retail investors, so too has the rise in crypto-related fraud.


Opinions expressed by Digital Journal contributors are their own.

While cryptocurrencies continue rising in popularity among retail investors, so too has the rise in crypto-related fraud continued to rise at an even faster pace.  

According to data by Pinsent Masons, 2021 is the fourth consecutive year that reports of cryptocurrency fraud have seen an increase of more than 100% year on year. In the UK, the figure rose from 3,983 cases to 8,614, while the numbers in the US are even more staggering; with 82,135 reports of fraud related to popular digital currencies such as Bitcoin, Shiba Inu and Ethereum, among others, representing a 24,000% increase from 2016-2017. 

Headlines have been dominated by case after case of high-level fraud and theft from all corners of the globe. There was the high-profile case of Ruja Ignatova, the infamous ‘Cryptoqueen’ who disappeared without a trace after scamming investors out of billions of euros with her ‘OneCoin’, which she had dubbed the ‘Bitcoin killer’.  

Last autumn, the creator of SushiSwap — another token hyped by investors and media alike — also disappeared with more than $13 million. More recently, a coin name after (but unaffiliated with) the popular Netflix show Squid Game left investors more than $3 million out of pocket. 

The simple explanation for the rising reports of fraud and theft is the increasing number of regular non-institutional investors, known as retail investors, who are jumping onto the bandwagon after several years of hearing and reading about ‘get rich quick’ schemes.  

Additionally, the economic fallout from the pandemic gave many people a greater appetite for high-risk but high-yield investments. As a result, the past year has seen the price of cryptocurrencies soar to record highs, with Bitcoin up 291 per cent from last year. This has opened the doors to criminals looking to exploit inexperienced investors who are most vulnerable to being scammed. 

Aside from theft and fraud, cryptos are also being used in more far reaching and malicious cybercrimes, including money laundering, ransomware attacks and, in some cases, terror funding. Such is the scale, that in September this year, the US Treasury issued sanctions against an exchange for the first time for facilitating ransomware payments. While we mostly read about the private side of investing in crypto, we are largely unaware of the scale of cyber-attacks that threaten to bring our infrastructures to their knees, estimated to have cost industry around $10 billion in 2020. 

So what is it about crypto that makes it appealing to criminals? Firstly, the anonymity provided by blockchain. While every transaction on the ledger is publicly available and traceable to anyone around the world, the identity of those behind the transactions remains hidden. Coupled with the speed at which transactions can be made (within minutes) and the ease with which vast sums of money can be moved across international borders, it’s little wonder why the technology is so popular in both the mainstream economy and criminal underworld.  

As digital currencies continue to rise in popularity and become more established in the public’s psyche, we can expect fraud and cybercrime to become increasingly common, and governments are taking note. The US. Department of Justice recently created the National Cryptocurrency Enforcement Team (NCET) to investigate crypto related crimes and the UK has a dedicated team known as the Cryptoassets Taskforce, but is policing and regulation to ensure relevant investor protection and market integrity the way forward? 

There are valid reasons to be concerned about the rise of cryptocurrencies. But the promise of a secure and cost-efficient financial system that can operate without the need of intermediaries will always outweigh these concerns in my view. Those of us who champion this promise must accept the risks that come with it.  

However, this does not mean that we should accept as normal the scale of the fraud which is currently taking place in the crypto sphere. If we care for the future of finance, we should want to mend its ills.  

Financial institutions, governments and regulators all face an uphill battle to harness the potential of this new technology while ensuring it stays safe. We have not yet discovered how best to do this, and we can expect high levels of crypto crime to continue until we do, but it is worth pressing ahead. In the long-term, the rewards of getting it right will far outweigh the costs involved in the process.  

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