How to Investigate Cryptocurrency Scams in the New Economy

Quick Overview

Summary

Cryptocurrency scams have increased alongside the growth of digital currencies, making investigation and fund recovery challenging. Understanding blockchain and exercising caution with investments is essential. While the transparency of blockchain enables transaction tracing, identifying scammers and recovering assets requires quick action and detailed documentation. Victims should report scams to authorities and may consult specialized firms for assistance.

Key Points

• Cryptocurrencies operate on decentralized blockchains, making transaction history visible.
• Scammers use fake apps, social media promotions, and impersonate recovery services.
• Red flags include guaranteed returns and pressure to recruit others.
• Attribution data helps link transactions to scammers and conversion points.
• Victims should keep records and report incidents to authorities immediately.

FAQ

What are common tactics used by cryptocurrency scammers?

They often use fake trading apps, social media promotions, and impersonate recovery companies to exploit victims.

How can victims attempt to recover stolen cryptocurrency funds?

Victims should collect all related records, report to relevant authorities, and may consult specialized firms for blockchain analysis and recovery efforts.

In the 20s, along with the rapid uptake of disruptive, digital cryptocurrencies like Bitcoin, our society is also seeing an increasing number of scams. Knowing how to investigate cryptocurrency scams will support you in this turbulent terrain that is full of both opportunity and risk.

As more people invest in cryptocurrencies (or ‘crypto’ as they’re also known), scammers snatch at the opportunity to exploit investors who are earnestly trying to make some money in the brave new economy.

Because cryptocurrencies are complex and the technology to date has developed very quickly, it can be difficult to investigate and recover lost or stolen funds.

However, there is hope. By being informed as well as armed with the best information and knowledge of who can help, people can safeguard themselves against being scammed and potentially recover stolen cryptocurrency.

Understanding the Landscape

The first step in investigating a cryptocurrency scam is understanding how cryptocurrencies work and why they are attractive targets for scams. 

Cryptocurrencies are digital or virtual currencies secured by cryptography, making them nearly impossible to counterfeit. They operate on a decentralised network using technology called blockchain, a distributed ledger enforced by a disparate network of computers.

Navigating the Landscape

It’s one thing to have almost secure digital currencies in terms of the practice of counterfeiting, but how are they exchanged and transferred? And how are they still vulnerable to being used for scamming?

Cryptocurrencies operate on a virtual set of books or ledgers called blockchain. Because blockchain technology is administered by a network of computers in various locations, this means it is essentially decentralised. 

Blockchain technology also enables anyone to view and verify the transactions within it. It holds a visible record of every instance where cryptocurrencies were sent or received. 

But scammers get around this by creating fake trading apps to steal your money. They copy images and logos and show you fake growth of your funds. Meanwhile, they have taken your money and are moving it around on the blockchain, attempting to blur and complicate their digital footprints as they go. 

This can make knowing how to investigate cryptocurrency scams tricky, but it’s far from impossible.

Decentralisation

For people who are concerned about large entities (government or corporate) having too much power and access to data, decentralisation can be a truly beautiful thing. 

From a fraud investigation point of view, the blockchain, a decentralised digital infrastructure, actually makes tracing lost or stolen crypto a lot easier than tracing traditional money transfers. 

Because of the transparency and accessibility of the decentralised blockchain ledger, it is relatively simple to obtain the transaction data on what has happened to the scammed assets.  

What is more difficult, but crucial to the process of tracing stolen crypto is accessing specific information about the wallets it is being moved to on the blockchain; where geographically it is withdrawn as fiat currency (traditional money); and who the entities are that are moving and withdrawing the funds.

This is done by accessing what is called attribution data.  

Attribution data can link transactions to fraudulent entities and disingenuous schemes, as well as to fiat off-ramps where the scammers will either convert the stolen currency into other cryptocurrencies or into fiat money. 

What Does a Cryptocurrency Fraud Investigation Examine?

A cryptocurrency fraud investigation brings blockchain activity together with evidence from outside the blockchain. The objective is not simply to find another wallet address. It is to establish what happened, follow the assets and identify leads that an exchange, lawyer or law enforcement agency may be able to act upon.

Investigators usually begin with transaction hashes, wallet addresses, dates, amounts and the cryptocurrencies involved. Blockchain analysis can then map transfers across wallets and identify activity involving exchanges, bridges, token swaps or other services. Patterns may show that funds were split, combined or moved towards a possible cash-out point.

The blockchain trail is only one part of the investigation. Emails, phone numbers, social media profiles, fake platforms, website records, receipts and communications can help connect transactions with the people or organisations involved. When investigating suspected cryptocurrency crime, evidence must be preserved carefully, with confirmed findings separated from investigative leads.

How Do Investigators Examine a Cryptocurrency Entity?

In blockchain analysis, an entity is not always one person or company. It may be a group of wallet addresses associated with an exchange, hosted wallet, payment service or suspected scam operation.

To investigate a cryptocurrency entity, investigators assess transaction behaviour, address relationships, attribution information and supporting evidence. A transfer passing through a wallet does not, by itself, prove who controls it. Reliable attribution requires the available evidence to be examined together.

If funds reach an identifiable exchange or service, the investigation may reveal where account information could be held. However, private investigators cannot compel a platform to disclose records or freeze funds. Those actions generally require cooperation from the platform or appropriate legal and law enforcement processes.

A professional cryptocurrency fraud tracing investigation may provide an evidence-based transaction trail and actionable leads, but it cannot guarantee that an offender will be identified or that funds will be recovered.

Can a Cryptocurrency Entity Be Identified From a Wallet Address?

A wallet address alone does not normally identify its controller. Investigators combine blockchain activity, attribution data and other evidence. Identity information may require formal disclosure by a platform or lawful authority.

Identifying Cryptocurrency Scams

Cryptocurrency scams are a shapeshifting beast, presenting everything from fake Initial Coin Offerings (ICOs) to Ponzi schemes masked as mining pools. 

It is a vital aspect of knowing how to investigate cryptocurrency scams to look for red flags. These include projects that promise guaranteed returns, new cryptocurrencies, and any pressure to recruit others into a scheme. 

Another tactic scammers use is flooding social media with promotions and fake news articles. They often use manipulated images and footage of famous people supposedly endorsing their scheme. Psychologically, this dark practice attempts to exploit the natural fear of missing out (FOMO) that many people have.

And then comes the double dip. 

The very same scammers who tricked you into giving them your hard-earned money, will likely contact you again after you’ve realised it’s a scam. This time, under a different company name, they will try to trick you into believing they can recover your loss. If it wasn’t enough that they stole from you in the first instance, now they are trying to squeeze the last of your money from you. Needless to say, it pays to be very vigilant at all times.

Take Precautionary Measures

Before investing in any cryptocurrency project, conduct thorough research. Leave no stone unturned in verifying the project’s legitimacy. This means rigorously checking the credentials of all individuals involved and being highly sceptical of any investment that promises quick and/or large returns. 

It is also absolutely vital that you keep your digital assets in a secure wallet. 

And if any individual and entity makes you an unsolicited offer, subject them to the same degree of scrutiny you would to someone coming to the front door of your home and asking you to sign over savings to them. 

So, You’ve Invested in a Scam

If you suspect you’ve fallen victim to a cryptocurrency scam, it’s important to act quickly. Start by collecting all available information related to the scam, including transaction records, communication with the scammers, and any other relevant information. Report the scam to relevant authorities in your country, such as the financial regulator, cybercrime units or national fraud reporting centres.

Recovering funds lost to cryptocurrency scams can be difficult but not impossible, especially if you don’t waste valuable time. You must quickly collect all available information related to the scam, including:

• Transaction records
• Communication with the scammers
• Any other relevant information

Don’t get mad, get organised!

Next, crypto scam victims have the option of approaching a firm that is a specialist in knowing how to investigate cryptocurrency scams.

At Cybertrace, we are known for this expertise. We help cryptocurrency scam victims by using special blockchain analysis tools created by Chainalysis. These help us trace where stolen funds have been moved or converted into different cryptocurrencies or fiat currencies.

In the bigger scheme of things, Chainalysis has identified more than 65,000 unique entities on the blockchain, 1 billion addresses clustered and has helped recovered $11 billion in stolen funds. Indeed, Cybertace has friends in high places!

It’s important to know too, that in some instances, depending on the jurisdiction and the complexity of the same, legal action can be taken to freeze and recover assets. 

In any case, having records that are as clear as possible, of all communications and transactions with, and to, the scamming entity will aid in the process of funds recovery and the pursuit of justice.

Cybertrace is Skilled at Knowing How to Investigate Cryptocurrency Scams

Cybertrace is experienced and highly skilled at breaking open crypto currency scams. Engaging us can significantly increase your chances of navigating the situation effectively. 

Cybertrace has

• Mastery of advanced technologies for analysing blockchain
• Overall forensic capabilities in addressing cybercrime
• A network of international crime-fighting contacts

Because of this, we stand at the forefront of investigating digital currency fraud.

Contacting Cybertrace is straightforward and will get the process of tracing your stolen funds moving as quickly as possible.

We are contactable via our website, via email, or by phone. Use our contact form which is specifically designed for fast reporting of cryptocurrency scams. 

This form guides you through providing all the necessary information we need to start the investigation. 

Whether you’re at the initial stages of an investment and you feel suspicious, or have fallen victim to a scam, our approachable team is ready to offer the support and guidance you need to move towards resolution.