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Despite criticisms, concerns and an increasing number of scams, cryptocurrency adoption has continued to grow strongly. The number of cryptocurrency users has grown from 30.89 million users in 2017 to 994.30 million users in April 2023. Sadly, ignorance regarding crypto is still prevalent.
The fact is, a large number of cryptocurrency users tend to know very little about how cryptocurrency works and protecting their digital assets. Cryptocurrency payments are still largely unregulated which makes them especially attractive for fraudsters. There is no central authority to prevent suspicious crypto transactions and help victims of financial fraud recover their cryptocurrency assets lost to hacks and scams.
Rise & Rise of Crypto Scams
Numerous cases of fraud have been exposed in the crypto industry with each being bigger than the previous one. Some notable examples include:
- FTX: FTX, once a leading digital currency exchange platform facilitating cryptocurrency transactions, faced a major setback in 2022. On November 8, the platform unexpectedly disabled the option for customers to withdraw their funds, leaving hundreds of thousands of users unable to access their money. The company was unable to bridge the $8 billion shortfall found in its balance sheets, leading to its subsequent bankruptcy filing.
- Bitconnect: Bitconnect was a cryptocurrency investment scheme that promised high daily returns through a lending program and trading bot. The project collapsed in 2018, revealing it as a Ponzi scheme, causing an estimated $4 billion in financial losses for participants and leading to legal actions against its operators.
- OneCoin: OneCoin was a fraudulent cryptocurrency scheme led by “Crypto Queen” Ruja Ignatova. It promised massive returns to investors, but lacked transparency and a legitimate blockchain. Operating as a pyramid scheme, it amassed an estimated $4 billion before collapsing in 2017, leaving investors empty-handed and Ignatova on the run.
Losses from crypto scams blew up from $907 million in 2021 to an astonishing $2.57 billion in 2022. Many victims of cryptocurrency scams have been forced to take on massive debt to cover losses from fraudulent investments. While victims of conventional fraud can approach various government and non-government agencies to recover financial losses, victims of cryptocurrency scams often have no recourse.
Who Can Help Recover Cryptocurrency Lost to Scams?
Crypto recovery has become a significant new scam type preying on victims of cryptocurrency scams. In many cases, investment scammers themselves ‘double dip’ on their victims by approaching them under the guise of ‘recovery agents’ or ‘hackers’ only to scam them again. In other cases, ‘chargeback’ firms hook victims onto costly retainers after giving false hopes that they can recover lost crypto despite knowing that chances are slim to none.
Crypto recovery scams are successful because there are very few genuine organisations that assist the average crypto scam victim in recouping their losses. Crypto recovery is a long and arduous process that is made tricky by the anonymous and irreversible nature of blockchain transactions. The following types of organisations all play a hand in successful cryptocurrency recovery:
- Private blockchain investigators
- Legal counsel
- Law enforcement (domestic and international)
- Cryptocurrency exchanges
- Banks
As victims have to pursue a legal process with several parties involved, follow-ups and patience are essential. Crypto has successfully been recovered only in a handful of cases as local authorities lack training, resources and ability to investigate cross-border criminals and recover cryptocurrency from private offshore wallets. It is often a challenge to persuade the appropriate authorities to accept and investigate a crypto case.
Private firms such as CYBERA and Crypto-Helpline have successfully helped victims recover lost cryptocurrency and are therefore able to help more victims through proven means thanks to their legal expertise and law enforcement connections. However, the process is long, expensive and there is no guarantee that the funds may be available in the scammers’ wallets by the time the exchange is ordered by a court to refund the assets.
What to Look For in a Cryptocurrency Recovery Agency
Nicholas Smart, Director of Blockchain Intelligence at Crystal Blockhain shared the following points to keep in mind while looking to hire a cryptocurrency recovery agency:
- Experience and skill of the investigation staff – ex-Police Officers and specifically ones with Fraud or Cyber Investigation experience. A traffic cop would probably be poorly suited unless there is some evidence of training and experience, for example.
- Links and testimonials with reputable law firms – ideally as a referee
- Membership of specialist industry groups, such as the Crypto Defenders Alliance (CDA)
- Ideally, some evidence that they have relationships with Exchanges (could be court proceedings where they are a witness)
- Definitely ask for a sample report and evidence that they have been used in court (and which court), and in terms of the sample report, you should expect to see:
- Clear, articulate findings up front
- Factual and accurate wording
- Appropriate and well presented diagrams
- Avoidance of assumption or opinion
The Sad Truth: Success Rates are Still Low
Cryptocurrency recovery is made extremely tough due to the fact that crypto trades can be traced but cannot be reversed. Transactions have to be manually traced using specialised tools, which takes time and training. Cryptocurrency fraud is a new field for law enforcement and therefore they do not yet possess knowledge about blockchain analysis tools. Hence, it falls in the hands of private investigators who do know how to use the tools to help scam victims trace transactions made to scammers’ wallets.
After hiring a private investigator to produce a report of the transactions, the victim then has to file a police report. This step itself is difficult in many countries as law enforcement authorities simply refuse to investigate cases of crypto fraud citing the legal ambiguity of crypto.
If the police accept the case, the victim must then hire a lawyer to convince the court to produce an order directing the crypto exchange to return the funds. There are several inexperienced lawyers who accept cases in spite of not being aware of the correct legal process for crypto recovery and end up wasting the time and money of their clients.
Presenting court orders to crypto exchanges is also tricky as most of them only communicate digitally and may not even have a real physical address. Many smaller exchanges are known to ignore communications completely.
If the exchange does respond, it may be possible that there are no funds left in the scammer’s wallet as they have already withdrawn all the assets from the account.
Considering that there are several hurdles in the legal process of crypto recovery, it is unsurprising that success rates are low. The victim – who has already lost money – may have to pay upfront fees and wait for months before knowing whether their funds are even recoverable. Regretfully, this makes cryptocurrency recovery a bit of a gamble except in cases where the investigators and lawyers take fees only once the money is recovered. However, this is rare.
How to Avoid Cryptocurrency Recovery Scams
There are some telltale signs of a cryptocurrency recovery scam:
- They guarantee to recover your money
- They claim to hack into scammers’ wallets
- They claim to represent a government agency such as the FBI
- They communicate anonymously through Telegram or WhatsApp
There is an understandable desperation to recover the money lost to crypto scams as the victims often sink all their savings and even take loans to invest on scam platforms. However, it is important to not fall into the hands of scammers again as desperation is what they prey on.
Keep the points mentioned in this article in mind if you are planning to hire a crypto recovery agency as choosing the wrong people to work with can cost you dearly.