Cryptocurrency thefts, scams, and fraud could hit $4.3 billion in 2019, according to a report by cryptocurrency intelligence firm CipherTrace, which previously reported Q1 fraud at about $1.2 billion.
CipherTrace has now released its Q2 2019 Cryptocurrency Anti-Money Laundering (AML) Report, the latest comprehensive overview of major cryptocurrency thefts, scams, and fraud around the world.
Thefts continue unabated
Although digital exchanges, wallets, and other cryptocurrency custody services are strengthening their defenses, hackers continue to innovate and outpace even current state of the art cyber security, the report said. Even Binance, the world’s No. 1 cryptocurrency exchange, lost tens of millions in cryptocurrency assets to a breach perpetrated by sophisticated hackers who used a lethal cocktail of phishing, viruses, and other attack vectors.
In total, cybercriminals looted $125 million in Bitcoin, Ethereum, and other digital assets from exchanges in Q2 2019. However, CipherTrace based this number on the price of the assets at the time they were stolen. Given recent price movement of Bitcoin and other tokens, which have tripled in value during Q2 2019, the actual value of the stolen currency is likely much greater. Additional exit scams, thefts, and dark market takedowns still under investigation could push the total losses much higher.
2019 could be the year of the exit scam
The report identifies a concerning trend that may overshadow cryptocurrency losses from cyberattacks: the exit scam.
While hacks brought in $227 million during the first half of 2019, several alleged exit scams under investigation have netted fraudsters $3.1 billion dollars, and $874 million in cryptocurrency has been misappropriated.
This report also covers a shocking new update from Canadian courts regarding the implosion in Q1 of QuadrigaCX — which had been Canada’s largest exchange. The “Fifth Report of the Monitor” confirms CipherTrace’s suspicion of ongoing fraud and theft of funds that cost exchange users nearly $200 million in lost cryptocurrency assets over the years.
The end of Q2 also saw the bizarre saga of an unconfirmed exit scam involving PlusToken, a South Korean exchange and alleged investment pyramid scheme. This culminated at the end of June with Chinese police arresting six Chinese nationals, dubbed the Plus Token 6, on the South Pacific island of Vanuatu. The scam may have cost millions of unsuspecting cryptocurrencty investors as much as $2.9 billion in lost funds.
CipherTrace has not confirmed all of the details of this alleged exit scam, including who actually pocketed the billions.
Meanwhile, darknet marketplace Wall Street Market’s attempted exit scam resulted in the seizure of over $11 million worth of cryptocurrency assets by European authorities. Wall Street Market was one of three darknet markets seized this quarter. Also, new research by CipherTrace reveals that despite the proliferation of privacy coins, Bitcoin is still king in dark markets and cybercrime.
Global regulatory activity
Given the growth in fraud and the number of countries offering haven for cybercriminals, regulatory bodies have increased their oversight of virtual assets. In a major example, the Financial Action Task Force (FATF) rocked the crypto economy with a new “travel rule” — which the G20 announced its full support for in June in Osaka — that requires transactions between exchanges to include personal information about the sender and receiver of funds, similar to international bank wire and SWIFT transfers of fiat funds.
Cryptocurrency regulation is now viewed as imperative across the globe, and politicians are increasing concerned about blockchain’s potential for financial disruption. In particular, Facebook’s decision to enter the cryptocurrency world with Libra has ignited a fury of debate in global capitals regarding the risks and rewards of these new financial tools.