After two months, Tho Vu was infatuated. The 33-year-old customer
service agent, living in Maryland, had met “Ze Zhao” through a dating
app, and says she quickly began exchanging messages with him all day on
WhatsApp. He seemed like someone she could rely on—he called her “little
princess” and sent her reminders to drink enough water. By October
2021, despite never having met in person, they were talking about where
to buy a house, how many kids to have, even how he hoped she’d do a home
birth. “I want to take you with me when I do anything,” he said, in
messages seen by TIME. “You are as important [to me] as my mother.”
To fund their life
together, Zhao pushed Vu to invest in Bitcoin. Vu was impressed by the
cryptocurrency’s massive price gains. She was also reassured by Zhao’s
suggestion that she buy her Bitcoin through Coinbase, an established
U.S. cryptocurrency exchange, before transferring it to Zhao’s favored
site. “Every time we did the trades he would repeat why we were doing
it,” says Vu now. “It was always, ‘babe, we’re doing this for our
future’.
Only
when Vu tried to withdraw her gains did she realise that Zhao was a
fiction—and so was that trading site. She’d been sending those tokens
straight to a team of professional crooks. It was a so-called pig-butchering scam—also
known as a crypto-romance—in which criminals spend weeks or months
gaining victims’ trust. Vu says she lost about $306,000, including her
investment and additional payments she was told were fees and taxes by
the fake exchange. “That was one of the most traumatic events in my
life,” says Vu. “Not only had I lost all my savings, but this future
that I thought would be a new adventure—it was all a lie.”
Tracking crypto
Cryptocurrency
scams, like the one that Vu fell for, are driving an online crime boom
right now. Romance scams, investment scams, digital wallet hacks,
pyramid schemes, ransomware attacks, and even digital art thefts—the
methods may be different, but wherever you find a cybercrime victim,
odds are good that crypto was involved.
According to a report from the research firm Chainalysis,
which tracks the movement of cryptocurrency across the internet, $14
billion worth of cryptocurrencies was sent to “illicit” wallet addresses
last year, triple the amount for 2017. Those digital wallets may have
been used for fraud, terrorism, or payments for child abuse material.
There are so many crypto-romance victims that they have formed an
advocacy group, the Global Anti-Scam Organization (GASO), which counts
Vu as a member. Last year alone, GASO’s fraud reports added up to $73
million in losses.
And
when it comes to things like ransomware attacks, the damages add up
quickly. In February, the Chicago financial firm Jump Trading sunk $320 million
into bailing out its Wormhole crypto platform after a massive hack.
Meanwhile, the rush of everyday investors into crypto has created a
wealth of new targets.
The challenges of recovering money in crypto scams
Many
people assume that cryptocurrency is so popular with criminals because
tokens move anonymously. In practice, major digital currencies such as
Bitcoin and Ether are actually very trackable. Every transaction is
permanently recorded on a public blockchain—essentially a decentralized
database. Although real names aren’t attached, criminals become
vulnerable when they try to cash out their crypto into dollars, euros,
or another traditional fiat currency.
That’s
because swapping crypto for fiat money requires an exchange such as
Coinbase or Binance. These exchanges are regulated in many countries,
including the U.S., and are required to collect information about their
users. A warrant or court order could compel those exchanges to reveal
those wallets’ owners.
“I think there is a false
sense of security among crypto-criminals about the difficulty of being
traced,” says Ben Hamilton, a forensic investigator who tracks down
financial crooks for the risk management firm Kroll.
Indeed, the U.S. Department of Justice recently charged two people
with laundering $4.5 billion worth of Bitcoin from a 2016 Bitfinex
hack, having traced the coins through a complex web of transaction
records. Investigators such as Chainalysis are monitoring the wallet addresses holding stolen funds from the Wormhole hack, meaning the culprits may struggle to cash out.
The
bigger problem is actually recovering the money. With fiat currency,
international transfers often don’t actually move any funds—banks can
simply adjust their records of who owns what, so transactions can be
blocked or reversed.
Blockchain transfers, on
the other hand, are automated and almost impossible to tamper with.
Tokens can be transferred across borders without any outside permission,
and all transfers are totally irrevocable: if a scammer tricks a victim
into sending them crypto, or gains control of someone’s wallet and
sends their money elsewhere, there is no central institution to reverse
the transfer. “My scammer just kept pushing me to buy Bitcoin,” says Vu.
“With cryptocurrency he could be anywhere in the world and still get
the money. With banking, it has an institution, it has a location.”
Authorities—generally
restricted by regional and national borders—struggle to keep up. Jan
Santiago, deputy director of GASO, says police forces will often refuse
to follow crimes outside their geographic area, and many barely
understand what cryptocurrency is. “You have to go to the FBI level, but
everyone’s going to the FBI, and the FBI is overwhelmed,” he says. (An
FBI spokesperson declined to comment.)
That points to a need
for international cooperation, says Mark Turner, a managing director in
Kroll’s financial regulation unit. Turner argues that nations must agree
on international standards for managing the flow of illicit crypto.
Governments could regulate crypto wallets as they do bank accounts,
allowing exchanges to blacklist specific wallets based on their
compliance status, while banks could block transfers to and from
questionable exchanges.
Avoiding crypto scams
In
the meantime, crypto users will have to protect—and educate—themselves.
“The naivety and ignorance of many people diving head-first in the
crypto world is the biggest attraction to these scammers,” says one
moderator of Reddit’s CryptoScams message board, which has seen an
“exponential” rise in traffic over the past year. Con artists exploit
the lack of safeguards in crypto infrastructure, often coaching victims
through the process of giving away the so-called seed phrases that
unlock their wallets. Many popular wallet services and crypto art
marketplaces also do not offer multi-factor authentication, a common way
of making digital accounts more secure.
Another
CryptoScams moderator, Luis Garcia, says a “culture of instant
gratification” and feverish hype around new crypto projects leads to
“irrational decisions.” He advises crypto users to never give out their
seed phrases to anyone, and to never Google search the name of a
legitimate service instead of typing in its URL directly (scammers
sometimes buy ads at the top of search results for popular crypto sites
in order to to lure you onto a dangerous fake site).