There has been a high amount of attention and rise in the users and traders of cryptocurrency leading to the rise in the number of scams of various kinds in the cryptocurrency market. Before moving forward, it is important to understand how cryptocurrency transactions occur. Transactions involving cryptocurrencies are stored in blocks that are linked together in a chain. Once the block has been added to the end of the chain, it can’t be removed or undone.
Cryptocurrency transactions are irreversible and if one sends cryptocurrency to any third party, it cannot be reversed or stopped. When one is contacted directly with regards to cryptocurrency or investment opportunities regarding crypto it is to be treated with extreme caution. When receiving such emails keep an eye out for the URL of the related website as they use the URL of legitimate crypto exchange websites and just swap the letters or numbers deceivingly.
It is to be understood that there are no crypto scam laws or regulations all around the world and it currently works in a grey area, that is why there are scams occurring in the space on a high level, which further reduces trust and increases volatility in the market. There is no monetary authority with a system of firm checks and balances incorporated. Further, they are supplied like stocks on various crypto exchanges without constituting to be ‘listed securities’.
The Fifth Anti-Money Laundering Directive (AMLD-5) has been introduced to prevent money laundering and terrorism financing through crypto currency. The directives treat exchanges and wallet services like financial institutions and that requires them to perform strong customer due diligence practices like KYC (Know your Customer), etc. They are must adhere to the money laundering and terrorism rules set by the Financial Action Task Force (FATF)
The AMLD 5 directives focus on ensuring that there is no anonymous trading that occurs, as such trading leads to funding of money laundering or terrorism. Further, they are trying to educate the users and exchanges on the types of scams that occur, so as to avoid them from occurring in the future.
Further, the AMLD 5 provisions also cover custodial wallets. It is mentioned that all the exchanges require custodial services and that no exchange is outside the control of the provisions, whose actions and activities would be considered criminalized if they do so. It is logical to capture such information as all exchanges will have to interact with each other and operate under the crypto scam laws. It is important to obtain information that would allow one to associate virtual currency addresses to the identity of the owner of such virtual currency.
What are the types of Crypto Scams to beware of?
- Technical Support and Impersonation Scams: Fraudsters set up sham customer support phone lines for various famous companies like Coinbase, Binance, etc and spam the internet and phone lines of unsuspecting victims that are seeking assistance with their cryptocurrency wallets. They speak in a very smart and clean manner, gaining the trust of the victim to give their personal information, their crypto wallet address, that will be used to cheat them of their own cryptocurrency.
- Giveaway Scams- The power of social media is being used to perpetuate giveaway scams to a high magnitude. Such scammers prepare posters with names of various famous crypto exchanges or companies and promote giveaways with a hyperlink to a fraudulent website. Such websites will download a malware or virus in one’s PC/laptop and then get access to various personal information, like wallet address and steal the crypto currency in the wallet.
- Investment Scam- Such scams are just like Ponzi or Pyramid schemes, where one will offer extremely high returns on investing money with them. They require a constant flow of money, which once stopped will lead to huge losses.
Recommendations:
- It is important to follow government directives and regulations from confirmed official websites, and not believe any random strangers or impersonators asking for personal information, or coming with ‘investment opportunities’.
- Never share passwords and private keys of cryptocurrency wallets with anyone, if required store them offline in a safe space.
- Always double check URL’s for giveaways or other crypto related sites as scammers use such phishing scams by swapping letters of legitimate websites with fake ones. (For example, coinbase.com can be, cionbase.com) It is important to keep an eye out for the same.
- It is better to use multi-factor authentication for a crypto wallet to be more secure against attackers.
It is highly important to keep ourselves aware of changes within the sphere with regards to development of technology, so as to better understand the use and functions of cryptocurrency and decentralized space on a whole.
