More than US$326 million worth of Ethereum tokens could have been stolen from a blockchain bridge (connects two blockchains so cryptocurrency can be exchanged between them) over the weekend, according to the latest news.
It comes as no surprise. Crypto crime has been on the rise, particularly since the outbreak of the epidemic. What are the methods used to commit these crimes? And what can you do to stay one step ahead of the scammers?
Scams vs direct theft
Criminals can get their hands on cryptocurrencies in one of two ways — by stealing it directly or by tricking individuals into giving it to them.
Cryptocrime is a rapidly rising industry. Criminals have profited from the advent of the cryptocurrency economy and decentralized finance (or DeFi), as well as record cryptocurrency values in 2021.
The majority of people get their coins from a cryptocurrency exchange. This entails creating a bank account and depositing money before converting it to a cryptocurrency of your choice.
A “custodial wallet” is a place where you can keep your cryptocurrency. It’s assigned to the customer’s account, but the exchange owns the private keys that control the bitcoin. To put it another way, the exchange holds the bitcoin on behalf of the customer.
An exchange, like a bank, will only keep enough bitcoin in “hot” wallets (those that are connected to the internet) to allow customer transactions. The rest is kept in “cold” wallets for safety reasons (not connected to the internet).
Transferring your cryptocurrency from the exchange to a software wallet (a secure application installed on a computer or smartphone) or a hardware wallet is one option to protect yourself from exchange theft or insolvency. A hardware wallet is a hardware device that can be disconnected from the computer and internet.
You will then have complete control over the cryptocurrency. However, keep in mind that if you lose your private keys, you will also lose your cryptocurrency.
Types of scams
In the crypto space, the following forms of scams are widespread, where the target does not personally know the scammer.
Email phishing — The scammer sends out unsolicited emails asking for personal login information that can be exploited to steal crypto. In exchange for a deposit, they may also give “prizes” or “rewards.”
Investment scams — A website that mimics a legitimate investment trading platform is created by the scammer. It could be a forged replica of a legitimate firm, or it could be wholly false. They may even use social media channels to promote false ads with celebrity endorsements. Victims may be able to “trade” on the bogus site after making crypto deposits, but they won’t be able to withdraw their supposed earnings. Demanding more payments for fees or taxes, for example, is a delaying tactic.
Romance scams — On a dating app or website, the scammer creates a bogus profile and matches with victims. They may then solicit funds to assist them in a personal problem. Alternatively, they may claim to be trading crypto and persuade the victim to invest, leading to the above-mentioned investment fraud.
In the world of crypto-crime, there are practical legal issues to consider. While reporting scams can help regulators and law enforcement gather information and data, it is doubtful that cash would be recovered.
It’s also possible to take civil legal action, although it’s tough to pinpoint the perpetrators.
It’s easier to prevent than it is to treat. The best method to avoid getting conned is to make sure you know who you’re dealing with, that you’re working with a trustworthy exchange, and that all of the channels you use are legitimate.
If something seems too good to be true, it almost always is.