Are there really so many blockchain scams?
Mr. Chen, an engineer, met a new friend on a legitimate social platform and they hit it off immediately. After a few weeks of chatting and building trust, the new friend revealed that they also invested in addition to their job and had been receiving stable and generous returns.
As a novice in cryptocurrency, Mr. Chen, with the recommendation of his new friend, downloaded a WEB3 wallet. Upholding the spirit of “don’t trust strangers,” he initially only invested a small amount of a few thousand dollars. After a few days, he saw interest being credited to his account, and after testing, he found that the cryptocurrency in his wallet could be transferred in and out normally. Mr. Chen started to relax a little and gradually increased the amount of his investments.
Not long after, the website launched a limited-time promotional activity, and Mr. Chen authorized his wallet and added more funds. However, he soon discovered that a large amount of money had disappeared from his wallet, and the promised high returns did not materialize. The customer service explained that this was because Mr. Chen did not meet the requirements of the activity, which resulted in his assets being frozen, and he needed to invest another amount to unlock them. At this point, he realized that he had fallen into a fraud trap and had already lost millions of New Taiwan Dollars…
With the popularity of cryptocurrency and blockchain technology, fraud cases in Taiwan have been rapidly increasing. According to recent statistics from Taiwan’s Ministry of the Interior’s Police Administration, there were 37,823 fraud cases in 2023, with 11,405 of them related to cryptocurrency. These cryptocurrency scams are not only large in scale but also becoming more sophisticated, posing a huge challenge to law enforcement agencies and the general public.
However, Chen Meihui, a blockchain financial crime investigator at XREX, says that the number of fraud cases in Taiwan is likely more than three times the current reported figure.
Blockchain scams are increasing, and both newcomers and experienced users can be deceived! Many people may think that the story of Mr. Chen, the engineer mentioned earlier, is foolish. “As long as you are careful, you won’t be deceived,” “Only newcomers will be deceived,” “It’s safe as long as the annual interest rate is not high.” These are all common misconceptions. Furthermore, fraud groups have different scripts and methods for newcomers and experienced users, so even if users are cautious, they may still fall into a fraud trap.
“‘Earn 20% annual interest rate easily’ is an advertisement slogan that is obviously a scam. High-level fraud schemes would not use it,” says Chen Meihui. “This belongs to the lower-end scams.”
This is because engineers and middle-class users with more assets usually expect stable and conservative investment projects. Those who want to earn 20% are likely to have little money in their pockets, making it harder for fraud groups to obtain a large amount of assets from them.
Especially for scams targeting the middle class and intermediate players in the cryptocurrency market, they can be quite difficult to prevent. Chen Meihui opens a blockchain browser and searches for the victims’ wallet addresses while saying, “Many engineers or users initially have high vigilance.”
Chen Meihui opens the transaction records of some victims’ wallets and finds that the transfer and deposit histories are surprisingly similar: the scammers first give the victims a cryptocurrency as bait while demonstrating the security of the platform. They then guide the victims to download a specific wallet application and ask for a certain fee (Gas fee) to complete the registration. They then instruct the victims to link their wallets and transfer a large amount of funds to an address controlled by the scammers. However, at the moment of linking the wallet, once the user signs a smart contract, they unknowingly give the scammers control over the stablecoin USDT in their wallet.
From the records on the blockchain, it can be observed that the initial amounts transferred by the victims are not large, and there are also multiple withdrawals and tests to check the security of the wallet. However, the fraud groups are very patient and continue to deposit high returns into the wallet, gradually making the victims lower their guard and start transferring large amounts of assets into the wallet.
When the victims start to sense that something is not right, the fraud groups (customer service personnel) will pacify them and then use excuses like “add more money to unlock collateral” or “pay to expedite the process” to squeeze out the victims’ last savings.
What should you do when you realize you have been scammed?
According to police statistics, there were more than 10,000 cryptocurrency-related fraud cases in Taiwan in 2023, but this is just the tip of the iceberg. Chen Meihui revealed that the real number could be more than three times the reported figure because “there are so many unreported victims.”
Chen Meihui explains that the anonymity of cryptocurrencies leads many people to believe that they cannot recover their losses even if they report the scam, or they are afraid of being stigmatized or feeling ashamed, so they are reluctant to report to the police. This psychological barrier makes it difficult for many fraud cases to come to light and increases the difficulty of law enforcement.
The 4 steps after being scammed
Faced with cryptocurrency scams and significant financial losses, most people may not know what they can do or which agency to seek assistance from. Chen Meihui suggests, “If you discover that you have been scammed, first organize your financial loss records and then make a police report.”
Victims can take the following actions:
1. Contact the 165 Anti-Fraud Consultation Hotline of the Ministry of the Interior’s Police Administration.
2. Prepare all relevant information (including complete transaction data with hash value information, scam platform URLs, wallet addresses, and screenshots of conversations). The more complete the information, the better.
3. Go to the nearest police station in your place of residence to make a report and provide a statement.
4. Wait for the police to contact you (you can use the case number to track the progress on the Police Administration’s case inquiry website).
In most exchange application interfaces, a series of codes that look like gibberish can be found in the transaction history of “withdrawal” or “outflow.” These are usually displayed as “transaction ID” or “TXID.”
Chen Meihui points out that most victims often don’t know “at which point they were scammed” or even realize that they were scammed. They may think that their wallet was hacked, resulting in asset losses, leading the investigation in the wrong direction or requiring additional time to re-record statements. Therefore, it is best to save all conversation and transaction records by taking screenshots. Provide a detailed description of the situation when making a police report to expedite the process.
As digitization penetrates every corner of people’s lives, the changing methods of scams make it difficult to guard against them. Blockchain, the cryptocurrency market, and cryptocurrencies are just the outer shell. The core is capturing the mentality of people wanting to get rich quickly. The next scam topic could be AI, so only through education and a perpetually vigilant mindset can more people escape the traps of fraud.