According to Chainalysis, a blockchain analysis firm, it’s their mission to fight cryptocurrency fraud. They are further improving their abilities by creating connections from on-chain data to real-world data. This integration gives them the power to catch and hold scammers accountable like never before. It connects the dark, anonymous world of cryptocurrency to the real, identifiable world of fiat currency. Chainalysis leverages data from multiple sources. This gives law enforcement and financial institutions the authority to take meaningful action against illegal activity and protect consumers from abuse.
Zelle Data Exposes Crypto Scammer
On August 20, 2024, Chainalysis successfully identified a scammer by tracing information provided to a victim through Zelle, a popular peer-to-peer payment platform. Fraudsters’ tactics are getting more advanced every day. This identification occurred during a social engineering scam that played on basic human psychology to swindle victims. The scammer eventually got away with nearly $89,000 that came from a U.S.-based centralized cryptocurrency exchange.
The victim’s initial transfer only occurred after one week. Yet by that time, Chainalysis had already tracked down the scammer. This most recent delay is a reminder that proactive monitoring and rapid response are key to preventing further loss. Chainalysis was able to identify the scammer before the entirety of the funds could be comfortably transferred. This is a true testament of the power of their analytical tools to mitigate future impact of scams in real-time.
The Power of Email Addresses
Chainalysis's investigation revealed a disturbing trend: the repeated use of the same email addresses across multiple scams. In one case, they found that one email address was linked to an astonishing 91 unique scams. This result illustrates how quickly and effectively scammers can operate. They are able to run hundreds of these scams at once, all while appearing to be one real, trustworthy online figure.
While a single email address associating with multiple scams is bad, that’s the good news here. That absolutely highlights the need for more vigorous due diligence and more robust information sharing between platforms. By identifying and flagging these recurring email addresses, law enforcement and financial institutions can proactively prevent future scams and protect potential victims. This kind of information sharing allows for a more aligned and effective response to the rapidly evolving world of online scams.
Connecting Crypto Addresses to Scam Websites
Additionally, Chainalysis tracked down a crypto address that has a long track record of engaging with fiat payment processors. This address served as the point of receipt for a network of 65 distinct fraud websites. This relationship highlights the intersection of physical and digital financial worlds within the broader area of fraud. It’s no wonder that scammers are increasing their use of cryptocurrency to carry out their scams. They exploit the anonymity and global nature of digital assets to obfuscate their conduct.
The connection between the criipto address and thousands of scam websites is an example of the impact and complexity of new crypto scams. This allows Chainalysis to find key links to take out the infrastructure behind these scams. This, in turn, creates challenges for fraudsters. This disruption can involve working with hosting providers, domain registrars, and other service providers to shut down scam websites and prevent further victimization.
Evolving Scam Tactics
According to Chainalysis’s research, cryptocurrency scammers are using new tactics. Many scammers in recent years have honed their craft on running massive, sophisticated Ponzi schemes. That’s changing. Fraudsters are taking greater advantage of complex financial ecosystems as crypto payments and P2P payment apps go more mainstream.
Cryptocurrency and P2P payments have experienced significant growth. This rapid growth has created new vulnerabilities for scammers to exploit weaknesses in the federal financial system. These systems offer convenience and equitable access. Their decentralized nature and lack of regulatory oversight means they are more prone to fraud. Fraudsters are masters at identifying and leveraging gaps in our systems. Thus, it’s urgent for law enforcement and financial institutions alike to change their tactics in order to effectively counter these threats.
Ponzi Schemes and Payment Services
In their report, Chainalysis was able to track down one scammer who was personally managing a Ponzi scheme that generated over $42 million. This user had been operating through a crypto address that history indicated had engaged before with non-crypto payment services. This case is a prime example of how the newer payment and monetary methods, often associated with cryptocurrency, can be combined with classic Ponzi scheme tactics.
The scammer is sending this address, which is linked to various recognizable traditional payment services! This perfect storm highlights the very real, critical need for an all-government strategy to combat fraud. Law enforcement and financial institutions must be able to track transactions across both traditional and digital financial systems to effectively identify and disrupt these schemes. This will only happen through thoughtful, intentional coordination and information exchange among all stakeholders of the financial ecosystem.
Increased Popularity of Risky Services
For more than a decade now, we’ve been tracking these trends at Chainalysis, and every year we see more and more cryptocurrency users gravitating to new types of services. These are badly needed to cover blacklisted jurisdictions, gambling services, decentralized exchanges, and no-KYC exchanges. Not all activity on these platforms is illegal. Scammers have been using them more and more, which poses a disturbing opportunity for fraud and money laundering.
The tremendous usage of these services highlights the complications surrounding the regulation and oversight of the cryptocurrency space. These sanctioned jurisdictions and decentralized exchanges are usually less regulated and harder to police. This regulatory vacuum renders them attractive to those seeking to escape detection from law enforcement. This poses a huge challenge for law enforcement and financial institutions trying to fight bad activity.
Exploiting Fragmented Financial Systems
Chainalysis discovered that the trend of using cryptocurrency payments is increasing. Simultaneously, consumer-facing, peer-to-peer (P2P) systems such as PayPal, Venmo, Zelle, Revolut and Wise are going more mainstream. This trend comes with a number of positive aspects, particularly making services more convenient and accessible. It also creates new opportunities for bad actors to exploit our patchwork financial infrastructure. Fraudsters are masters at using the gaps created by the lack of interoperability between these systems to hide the trail and bypass detection.
The rapid growth of cryptocurrency and P2P payment systems requires regulators, industry, and law enforcement to take a more concerted and cooperative approach to fighting fraud. Financial institutions, law enforcement agencies, and technology providers need to work together. When combined, they can provide powerful solutions to monitor transactions on various platforms and stop potentially suspicious activity before it occurs. From cybersecurity to consumer best practices, this strategic partnership is key to protecting everyday consumers and upholding the integrity of our financial system.
Multiple Scam Websites, One Operator
Chainalysis uncovered two non-Twitter public-key-to-wallet-address-converter scam addresses operated by the same scammer. Those addresses were associated with an email address that has a long track record of operating over 50 different scam sites. This finding points to the scale and multiplexity with which scammers can work, perpetrating dozens—if not hundreds or thousands—of schemes from a single, tethered source of control.
Pinpointing one operator running hundreds of websites, mostly scammy online schools, shows the scale of the problem. We’ll never outsmart the fraudsters unless we take a proactive, intelligence-driven strategy for fighting fraud. By identifying these operators and their networks of fraudulent websites, law enforcement and financial institutions can disrupt their operations and prevent further victimization. This will take advanced analytical capabilities and a commitment to collaborative data sharing among various entities.
