Cryptocurrency Scams Make Up 30% of All Fraud Cases, Resulting in Annual Losses of NT$5.3 Billion
According to recent statistics from Taiwan’s Ministry of the Interior’s National Police Agency, the number of cryptocurrency-related fraud cases has been steadily increasing in recent years. In 2023 alone, there were 37,823 fraud cases reported, of which 11,405 were related to cryptocurrencies, accounting for nearly 30% of the total. The financial losses amounted to a staggering NT$5.345 billion.
With the growing popularity and widespread use of cryptocurrencies, related fraud incidents have also surged worldwide, and Taiwan is no exception. Since the birth of Bitcoin, its price has skyrocketed to $70,000, attracting the attention of many investors. However, this has also provided an opportunity for fraudsters, who use cryptocurrencies as a cover for their “fake investment, real scam” schemes.
Decrypting the Most Common Fraud Techniques
Although there are various fraudulent techniques involving cryptocurrencies, Hong Chengqi, the Chief Analyst at the Financial Research and Analysis Division of the Criminal Investigation Bureau, shared that the most common method in Taiwan is through online platforms and social media. Subsequently, the fraudsters find ways to gain access to users’ cryptocurrency wallets, resulting in financial losses for the victims.
The perpetrators first use platforms such as Facebook, Instagram, YouTube, Google, or text messages to advertise fake investment opportunities or engage in fake relationships on dating apps. They guarantee profits, claim to have high returns, and entice victims to contact them through Line, a popular messaging app, and invite them to join a Line community to receive free investment tutorials.
Once the victim takes the bait, the fraudsters provide them with fake investment websites or apps and introduce cryptocurrency exchanges for the victims to purchase cryptocurrencies or tokens. They then request the victims to send the cryptocurrencies to the wallet address of the fake investment website or app.
The fraudsters may trick the victims into signing smart contracts or clicking on links embedded with malicious software, which allows the fraudsters to gain control over the victims’ cryptocurrencies. The profits and losses that the victims see on the investment website or app are all fake. To attract more funds from the victims, the initial operation of the website or app appears normal, and the victims can even withdraw profits. However, these withdrawal funds often come from other victims, leading to warnings from the users’ bank accounts.
When the victims want to withdraw their profits after investing a certain amount of money, the fraudsters may start to delay the process, citing reasons such as requiring a deposit for account verification or additional transaction taxes. They use various tactics to extract cash from the victims at the last minute, and in some cases, they may even shut down the website or cut off communication entirely.
Investigation Process and Challenges
The anonymity and transnational nature of cryptocurrencies make it extremely difficult to track and locate fraudsters. Additionally, due to the complex legal and technical issues involved, the work of law enforcement and prosecution agencies is particularly challenging.
Hong Chengqi stated that the investigation process of cryptocurrency fraud cases is full of challenges, as “blockchain fraud cases constantly switch between physical, virtual, and transnational boundaries, making it more complicated compared to traditional fraud cases.”
Challenge 1: Difficulty in Verifying the Identity of Individual Cryptocurrency Traders
When the police apprehend a suspect in a fake investment fraud case or need to notify the account applicant of a warning, the offenders often claim to be ordinary “individual cryptocurrency traders” rather than part of a fraud syndicate. They may even provide fake conversation records and transaction records to portray themselves as regular businessmen or innocent third parties, avoiding legal prosecution. If the police fail to find concrete evidence of contact between the suspect and the fraud syndicate, the transactions between the cryptocurrency trader and the victim may appear similar to regular private cryptocurrency transactions. If the cryptocurrency trader insists on their innocence and emphasizes being a victim themselves, the entire trading story may seem flawless, posing a major challenge for law enforcement.
Challenge 2: Limited Cooperation with Overseas Exchanges
When users discover that their personal assets have been scammed, they can only seek assistance from the police and domestic exchanges to freeze the accounts. However, many users use overseas exchanges, and Taiwan’s Financial Supervisory Commission has not yet established a joint defense mechanism for virtual assets or fraud funds. As a result, cooperation between overseas exchanges and Taiwanese law enforcement is limited, and many exchanges are unwilling to cooperate with Taiwanese authorities, making them tools for money laundering by fraud syndicates.
Additionally, when scam funds flow to overseas exchanges, although the police can apply for emergency freezing from the exchange, they still need to seek a detention order from the court to extend or withhold the funds. If the applicant is not a Taiwanese national, they must file the application with the court of the applicant’s nationality, making the investigative process more complicated and time-consuming.
Challenge 3: High Anonymity of Individual Wallets
While exchanges are subject to government regulation and often require users to undergo Know Your Customer (KYC) procedures, many personal wallet software on the internet do not implement KYC. Therefore, these wallets provide high anonymity, fast account creation, low cost, and no retrieval window. However, since these wallets cannot convert the cryptocurrencies in the accounts into fiat currencies, fraud syndicates typically use them as second or third-layer intermediary wallets.
Challenge 4: Difficulty in Searching for Cold and Hot Wallets
Since most cryptocurrencies are stored in USB or card-shaped cold wallets or in hot wallet apps on phones, executing search operations on the spot becomes more challenging. In addition to educating the on-site personnel, finding cold wallets within a short period is not easy due to their small size. Hot wallets on phones are often deleted, requiring on-site personnel to check the App Store for download records and request a reinstallation.
How can newcomers avoid scams?
Finally, Hong Chengqi suggests that when investing, one should use legitimate investment platforms, such as those announced regularly by Taiwan’s Financial Supervisory Commission’s Banking Bureau as having completed anti-money laundering compliance. These platforms are more suitable for beginners entering the Web3 world of cryptocurrencies.
Moreover, the Anti-Fraud Center publishes reports of reported fraudulent websites every week on its official website and Facebook page. Users can check whether the website or platform they are investing in has been reported. However, even if a website has not been announced, it does not guarantee absolute safety. It is still advisable to verify carefully before investing to avoid falling victim to scams.
Lastly, Hong Chengqi also reminds investors to be cautious when they see investment advertisements or receive investment information from strangers online that advertise “high returns with low risk” or “guaranteed profits.” These are often scams, and investors should remain vigilant to avoid being easily deceived.
What are other common fraud techniques?
Currently, the most common fraud techniques in the blockchain world, in addition to the traditional types of scams such as online dating scams, stock market investment scams, and phishing links, there are also scams targeting more advanced players in the cryptocurrency community. For newcomers who are not yet cautious enough, they can easily unknowingly hand over their entire wallet authorization due to their unfamiliarity with blockchain technology.
The common types of fraud in the blockchain field can be primarily categorized as follows:
Phishing Attacks: Fraudsters use counterfeit cryptocurrency trading platforms or wallet services to trick users into revealing their private keys or personal information.
Sniping Scams: Developers present themselves as legitimate token issuers and attract investors. They then suddenly withdraw liquidity or sell off the tokens, causing the tokens’ value to plummet and resulting in losses for investors.
Rug Pull: Developers disappear suddenly after raising a significant amount of funds, causing the project and its token value to become worthless.
Smart Contract Vulnerabilities: Fraudsters exploit undiscovered vulnerabilities in smart contracts to steal funds.