For the crypto market, 2022 has seen both definite lows and uncertain surges. Last month, an analysis from TIME predicted that things might not change anytime soon — stating that some experts say “Crypto prices could fall even further before any sustained recovery.”
Part of President Biden’s executive order (EO) on cryptocurrency-focused heavily on protections, both for enterprises and consumers that wish to take part in the hot digitized financial market — which is still very much in its infancy.
The cryptocurrency market’s infancy is precisely why the protections are needed. Biden’s EO notes that “around 16% of adult Americans – approximately 40 million people – have invested in, traded or used cryptocurrencies.” There’s room for innovation, of course, but also plenty of potential for scams, threats and bad actors.
Cryptocurrency’s threat landscape
A new report by digital trust and safety company, Sift, paints an eerie picture of just how pervasive crypto scams are, revealing that 43% of those who engaged in the crypto market have encountered scams. Startlingly, it also found that 22% of those who encountered a scam did, in fact, lose money because of it.
Sift’s report also notes that victims of crypto scams tend to skew younger, and that social media sites are the most prevalent locations for scams to occur.
“Fraudsters don’t discriminate based on age, they follow the flow of money. With that said, our research found that there was a direct correlation between a person’s age and their likelihood of encountering crypto scams,” said Jane Lee, trust and safety architect at Sift. “Fifty-nine percent of Gen Zers and 51% of millennials have encountered crypto scams. The percentages decrease with each older generation.”
Lee noted that Gen Z and millennials also tend to be duped by these scams, most often because of their social media-savvy, connected lifestyles. Lee pointed to the FTC’s 2021 loss report, which found that social media sites like Facebook and Instagram are typically where a considerable percentage of crypto scams start — specifically, 23% on Facebook and 13% on Instagram.
Sift’s report underscores the FTC’s findings and reveals that 30% of Gen Zers and 25% of millennials who encountered such scams also say they’ve lost money to them.
The FTC report cites just how much of a breeding ground social media platforms are for these scams: “Cryptocurrency was indicated as the method of payment in 64% of 2021 investment-related fraud reports that indicated social media as the method of contact.”
What do these scammers offer that’s so convincing it wins over typically tech-savvy generations? How do they entice users into giving up their money? Oftentimes through a method known as “pig butchering,” Lee explained.
“Pig butchering scams are run by crypto scammers who lurk dating apps for their targets. The scam works by “plumping up” targets for their potential profit through love bombing (i.e., romantic gestures, constant attention, and the promise of getting rich by investing in cryptocurrency),” she said.
These bad actors will typically falsify information, reference lavish vacations, share photos engaged in their luxurious lifestyle and promise expensive gifts. They typically attempt to move conversations from apps or social media platforms to encrypted messaging tools like WhatsApp to maintain anonymity. From there, according to Lee, they use psychological tactics to make their victim feel insecure or that they owe something. Then, what may have been flirtatious, friendly conversation quickly turns into financial influence.
“They’ll tout how much they’ve made investing in crypto and offer to coach their target so they can earn a little extra cash. This is a successful scheme because so many people want to invest in crypto, but don’t know how to start,” Lee said. “The fraudster then instructs their target to create an account on a legitimate crypto platform. Then, they’re sent a link to a fake crypto trading exchange that is entirely controlled by the scammer, who claims it’s better for trading than other platforms. This phony third-party trading site is simple in design but mimics a real crypto trading platform, showing accurate real-time values of cryptocurrencies and a responsive customer service live chat.”
Earlier this year, a woman in Texas fell victim to the pig butchering ploy described above — she lost $8 million.
Losing hundreds of thousands or millions to this type of scam isn’t an isolated incident. It’s happening more and more nationwide. Sift’s Q2 Digital Trust & Safety Index emphasizes that cybercriminals are continuing to prey on consumers’ lack of cryptocurrency knowledge to make a profit.
Where the enterprise comes in
Crypto and blockchain are of considerable focus for professionals eyeing Web3 and the metaverse — so understanding the ways in which consumers are being burned by the technologies and pivoting to ensure safe and secure interactions will build back trust.
“It’s up to the crypto industry to increase their fraud defenses to protect against the rise of cybercriminals targeting the industry,” Lee said.
The crypto space shows no signs of slowing down either. A Bitstamp report found that 80% of institutional investors believe crypto will overtake traditional investment vehicles. Additionally, for now, investors remain optimistic with 60% stating they have a high level of trust in crypto.
Lee recommends that enterprise and consumers follow the age-old advice: “If it looks too good to be true, then it probably is.”
Read the full report from Sift.
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