Losses from cryptocurrency thefts, hacks, and frauds netted $1.4 billion in the first five months of 2020, swelled by a Chinese-based crypto Ponzi scheme called Wotoken, according to a report from blockchain forensics company CipherTrace.
The figure suggests that 2020 could record the second-highest value in losses linked to cryptocurrency crimes. In 2019, crypto crimes proceeds surged to $4.52 billion, up 160 percent from 2018’s total of $1.74 billion.
Cryptocurrency user and investor losses increased due to the abundance of cross-border transactions, which accounted for 74 percent of the bitcoins moved in exchange-to-exchange trades. Out of this figure, analysis further revealed that users of Bitcoin ATMs in the US sent 88 percent of their transacted funds to offshore, high-risk exchanges.
According to CipherTrace’s report, the majority of the funds were linked to investment scams and Ponzi schemes. Although both scam categories represented a majority of the funds cryptocurrency scammers obtained, they didn’t account for the full losses. Apart from them, they also used blackmailing, fake cryptocurrency mixers, phishing, and fake token sales.
Other highlights show that Finnish exchanges maintained its top ranking as the most preferred destination for criminally-sourced BTC funds. Nearly 12 percent of all dirty crypto money went through the platforms based in the Nordic country with P2P exchange Localbitcoins receiving 99% of these criminal funds.
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Chinese scams remain the main drivers for the surge
Similar to the infamous $3 billion PlusToken scam, which swelled the criminals’ crypto gains in 2019, CipherTrace’s report attributed the sharp rise in 2020 metrics to the mega-size crypto Ponzi Wotoken in China. It is estimated that the scammers stole a total of 46,000 Bitcoin, 2.039 million ETH, 292,000 Litecoin, 56,000 Bcash and 684,000 EOS from 715,000 investors, which they then proceeded to sell on the open market rather than attempting to use OTC orders.
In total, the scheme netted the Wotoken fraudsters more than 7.7 billion yuan (roughly $1.09 billion USD) worth of crypto in its little over a year of operation. While other major scams are still dumping their crypto, there is little hope for investors of such projects to get their money back.
“Though the total value collected by criminals from crypto crimes is among the highest recorded, the global average of direct criminal funds received by exchanges dropped 47% in 2019. This suggests that many criminals are finding it harder to offload their illicit funds directly to cryptocurrency exchanges, indicating effective implementation of AML measures around the world,” the report further explains.
The latest change in correlation has come amid a health crisis triggered by the coronavirus pandemic, the report showed. Per the security firm, scammers have been taking advantage of the explosion of scams related to the coronavirus outbreak. By presenting themselves as members of popular health and charity organizations, they trick victims into sending them bitcoins.
The Ciphertrace’s newest report follows the firm’s latest research which revealed that major US banks unknowingly process every year roughly $2 billion in crypto transactions that go undetected. The firm claims that these funds stem from money service businesses that deal with cryptocurrencies like exchanges and brokerage services.
CipherTrace, which is backed by venture firms such as Mike Novogratz’s Galaxy Digital, also works with a bank’s existing monitoring tools to enhance anti-money laundering (AML) processes like tracing the source of on-chain funds and matching user IDs to problematic wallet addresses.