Tatsat Chronicle Magazine

Investor Alert: Look Out for Cryptic Crypto Traders

While India’s crypto stand remains cryptic, the world has moved on to making crypto billionaires and criminals
March 3, 2022
crypto trading

Last week, the Supreme Court asked the Centre to make its stand clear on whether cryptocurrency trade involving Bitcoin and other such currencies is legal in India or not. The statement came a week after the statement of RBI deputy governor T Rabi Sankar, who called cryptocurrencies to have no intrinsic value and “could even be worse than Ponzi schemes”, advocating a ban. These views, doubts and comments have become more frequent after the Centre’s sudden announcement in the budget to tax these currencies, without formally formulating any policy or letting key people know, leave aside decoding it for the common man.

Quite the reverse of these powerful yet confused sections is the youth, who are not only backing and investing in these currencies but also leaving no stone unturned to declare them legitimate – even if it takes hacking respectable social media accounts.

While India’s crypto stand remains cryptic, the world has moved on to making crypto billionaires and criminals. The latest to surface amidst the ongoing Russia-Ukraine crisis and Ukraine accepting crypto donations are crypto scams disguised as ‘Help Ukraine’. These cryptocurrency-based crimes hit a new all-time high last year with illicit addresses taking away $14 billion over the course of the year, up from $7.8 billion in 2020. The continued threat of ransomware is arising out of activity originating from high-risk countries such as Russia, Iran and North Korea, says a new report by blockchain research company Chainalysis.

From Glare to Scare

Reports to the FTC’s Consumer Sentinel say that scammers generally cash in on the buzz around cryptocurrency and trap people into sham investment opportunities. Since October 2020, reports of such scams have risen steeply with about 7,000 people reporting losses of more than $80 million on these scams. The risks can come from anywhere and everywhere. Research by cyber exposure company Tenable has found that scammers leverage compromised YouTube accounts to promote fake cryptocurrency giveaways for Bitcoin, Ethereum, XRP, Shiba Inu and other cryptocurrencies. Tenable has calculated that, across a subset of YouTube Live scams encountered in October 2021 alone, scammers stole at least $8.9 million.

The rise of these crimes is equally astonishing as the journey of cryptocurrency has been since 2009. Taking a recent account, from 2017, more than $33 billion worth of cryptocurrency has been laundered with most of the total moving to cryptocurrency exchanges. In 2021, cybercriminals laundered $8.6 billion in cryptocurrencies, up by 30 per cent from 2020, says the Chainalysis report. The study reveals that sales on dark web or ransomware attacks profits are always derived in cryptocurrency rather than fiat currency (a government-issued currency not backed by a commodity like gold), contributing significantly to the spike.

At least 17 per cent of the $8.6 billion laundered went to decentralised finance (DeFi) applications, Chainalysis said. DeFi is an alternative finance ecosystem where consumers transfer, trade, borrow and lend cryptocurrency, independently of traditional financial institutions and the regulatory structures that have been built around banking. The report adds, “Wallet addresses associated with theft sent just under half of their stolen funds, or more than $750 million worth of crypto in total, to DeFi’s.”

Then come the scammers, who stole over $14 billion worth of cryptocurrency from victims in 2021 —up by 79 per cent from $7.8 billion in 2020. As of early 2022, Chainalysis said illicit addresses already hold over $10 billion worth of cryptocurrencies, with the majority of this held by wallets associated with cryptocurrency theft.

In another report in December, Chainalysis revealed that at least 36 per cent of the victims lost over $2.8 billion (approximately ₹280 crore) to ‘rug pull’ cases – malicious manoeuvres, where crypto developers abandon a project and run away with investors’ funds. In total, crypto scams rose by 81 percent this year from 2020 led by rug pulls, Chainalysis said in a blog post.

In a rug pull, developers create new crypto tokens and promote them to investors to pump up their value and boost overall liquidity. They then drain the funding pool and send the token’s value crashing to zero before disappearing with the money.

The Chainalysis report warns that these scams are the biggest threat to cryptocurrency and could undermine its widespread use and adoption.

Experts behind the study called the criminals behind these rug pulls to be a problem for both crypto believers and crypto regulators. “It’ll be difficult for DeFi’s growth to continue if potential new users don’t feel they can trust new projects, so it’s important that trusted information sources in cryptocurrency — whether they’re influencers, media outlets, or project participants — help new users understand how to spot shady projects to avoid,” says the Chainalysis report.

Despite the scary figures, as a percentage of cryptocurrency transaction volumes, the share of fraudulent transactions shrank to a record low of 0.15 percent in 2021. Across all cryptocurrencies tracked by Chainalysis, the total transaction volume grew to $15.8 trillion in 2021, a six-fold increase from 2020.

Rising Crypto Scams in India

In India, despite market fluctuations and an unclear legal status, cryptocurrencies continue to mesmerise investors. Every year, the number of crypto users and traders keeps increasing, with many oblivious of the risks involved. Considering these scams are led by highly skilled scammers, the frauds often become extreme with devastating impact, disadvantage, vulnerability, inequality, mental and physical trauma, and lost opportunities.

In 2021, Indians visited fraudulent cryptocurrency websites over 9.6 million times. The most visited of these websites were coinpayu.com, adbtc.top, hackertyper.net, dualmine.com and coingain.app, which together got about 4.6 million visits from Indians, say reports.

Indian crypto enthusiasts are also being duped by conmen and hackers. In December last year, Minister of State For Finance Pankaj Chaudhary, in a written reply to the Parliament, said “eight cases concerning cryptocurrency-related fraud are under investigation by the Directorate of Enforcement.” The frauds included ₹2000-crore GainBitcoin Ponzi scheme scam, ₹1,200-crore Morris coin fraud and Karnataka Bitcoin scam 2021. In February 2022, the police made seven more arrests in a ₹40 crore cryptocurrency fraud reported in Nagpur, Maharashtra.

Exposed in 2022, the Morris coin fraud allegedly duped over 900 investors of ₹1,200 crore by a website offering a fake cryptocurrency, Morris coin. The investors had invested in the ‘initial offering’ of the fake cryptocurrency, which was said to be listed on the Coimbatore-based cryptocurrency exchange, Franc Exchange. They were promised a daily return of ₹270 for 300 days, which was subject to a minimum deposit of ₹15,000. Later, it was found that the digital currency was not registered with any exchange, making it impossible to trade. The Kerala Police acted on the case with the ED joining later and carrying out searches in 11 cities in Tamil Nadu, Kerala and Karnataka, and Delhi. It was discovered that three Bengaluru-based companies were behind the scam.

How to Avoid Crypto Scams?

In an interview, blockchain and emerging tech evangelist Sharat Chandra, advises the investors to watch out for crypto products that promise enviable returns, calling these products “big red flags.” Shashi Jha, who heads Legal and Compliance at WazirX, advises evading tactics and promises made by scammers, who use imposter scams, clone websites, fake mobile apps, and romance scams.

If you are keen to invest in cryptos, read more about the stocks and identify the right ones. Websites such as Coinmarketcap, Coingecko and Messari are platforms where data about all crypto projects are available free of cost. Go for reliable products and avoid those with very low market capitalisation. The next step is to look at the core team behind the project, spend time on its official website and study its social media handles – all in all, do due diligence before investing. The mantra is to evade claims of huge returns in the shortest time possible and buzzwords like guaranteed and free, never send money, trade, or invest based on the advice of someone meeting on the internet, and never talk about the financial situations with strangers, says Jha. Then there are dedicated tips to evade rug pull scams.

Experts also suggest following two-factor authentication, using hardware wallets, spreading your crypto assets, using password manager, and updating personal devices as other tips.

Even if you did the transaction with caution, there is still a risk of hacking the digital wallet, where you keep your Bitcoin or NFT (non-fungible tokens). Legal experts said that in most instances of fraud in India, the scams were usually confidence tricks where victims were manipulated in purchasing crypto assets by misrepresenting their value.

Jyoti Verma

The writer is a media professional based in Delhi. She has been writing on diverse subjects, including sustainable businesses, environment and climate change, health and education and others.