What Is Cryptocurrency Crime And How Does It Affect Trading?

Cryptocurrency crime is as sinister and upsetting as most financial crimes. The crimes committed range from ordinary cryptocurrency theft to money laundering and market-to-market fraud. Investors and consumers are prone to phishing and scams, where they are asked to send cryptocurrency to a specific location for ransom. Like all financial […]

digital crime by anonymous hacker

Cryptocurrency crime is as sinister and upsetting as most financial crimes. The crimes committed range from ordinary cryptocurrency theft to money laundering and market-to-market fraud. Investors and consumers are prone to phishing and scams, where they are asked to send cryptocurrency to a specific location for ransom. As with all financial crimes, buyers should be aware and educate themselves about potential crimes.

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Steal cryptocurrency

Crimes related to cryptocurrencies are on the rise. During the pandemic, more people were exposed to cryptocurrency trading as lockdowns occurred. Thieves use two different tactics to attempt to steal your cryptocurrency. Either they are trying to break into your cryptocurrency wallet and steal your cryptocurrency directly, or they are trying to trick you into sending them your cryptocurrency. According to Chainalysis, in 2021, cryptocurrency criminals stole a record 3.2 billion cryptocurrencies. The volume of stolen cryptocurrencies has increased by 500% year over year. Most thefts were committed through scams instead of directly stealing cryptocurrency by breaking into cryptocurrency wallets.

Steal from your wallet

Some cryptocurrency thefts happen when a thief steals directly from your cryptocurrency wallet. A cryptocurrency wallet is a safe place where you store your cryptocurrency, using a numerical address to determine how much cryptocurrency you have in your account. Each cryptocurrency you own will have a different address. Most consumers hold a custodial wallet in an exchange where they have a private key that controls the cryptocurrency. These custodial wallets differ from bank accounts in that there is no financial claim transaction that guarantees the amount of money held in the account. For example, if you have a bank account with an FDIC-insured bank (almost all banks in the United States), your deposits are guaranteed up to a certain dollar amount (usually $250,000). So, if you are trading crypto using a digital wallet, you are exposed to these issues.

Unfortunately, there have been issues where some exchanges have been hacked and funds have been stolen from client accounts. In December 2021, BitMart announced that the company had been hacked and revealed that approximately US$150 million had been stolen from cryptocurrency wallets. One strategy a consumer can use to avoid this scenario is to move their cryptocurrency from a software wallet to a hardware wallet. This device may be disconnected from the Internet.

Theft using scams

Cyber ​​scams are everywhere. One of the most common is phishing via email and SMS. These are scams where you receive an email that asks you to open some form of attachment or link. These emails look like real emails from your employer, your bank or even your friends and family. Many employers will provide their employees with training on cybersecurity scams and how to avoid a scam. You can view the email address where the phishing email came from and check if anything is misspelled. If there is a call to action asking you to click on a link or open an attachment, you should think twice before continuing.

Once you click on the link, you may be giving thieves access to your computer. They might be able to track the password you use for your digital wallet and steal your cryptocurrency directly. Alternatively, some scams ask you to send money to avoid a penalty. In the United States, there are several types of tax scams, in which people are asked to send money immediately to avoid a penalty. You might even get an email from a relative (a scam) asking you to send money to help them get out of jail. If something goes wrong, stop, reflect, and evaluate your actions before continuing.

Some scams may appear to be legitimate investment opportunities, but they are not, such as fraudulent trading platforms that require you to deposit cryptocurrency. Specific scams are set up to encourage you to open a cryptocurrency account which can then trick victims into installing hacking software on their hardware, allowing scammers to access a cryptocurrency or bank account .

money laundering

Money laundering is another crime related to cryptocurrencies. “Bad actors,” a term used to describe perpetrators of fintech scams, will use cryptocurrency, which is hard to track, to fund illegal businesses. Organizations that sell illegal drugs or firearms require their contacts to purchase these items using cryptocurrency. Money laundering has made it more difficult for cryptocurrencies to be legitimate. When retail customers think of a product that could be used for nefarious activities, the comment sours their opinion.

Market to Market Cryptocurrency Values

As major investment firms increase their exposure to cryptocurrencies, they have added trading desks. Some of the cryptocurrencies bought and sold are for long periods of time. The value of these cryptocurrencies may vary. Trading desks can use models to create values ​​similar to those used to price Collateralized Loan Obligations (CLOs) before the financial crisis. When it comes to these values, any fraudulent activity can create problems for the companies that run these trading desks.

The essential

The bottom line is that fraud, scams, and theft are part of the crypto trading world. Thieves attempt to gain access to your computer to steal cryptocurrency from your account. Currently, no watchdog provides insurance like the FDIC on funds held in a cryptocurrency account. Hundreds of phishing scams are used to convince you to hand over your cryptocurrency directly to a thief. Cryptocurrencies have been linked to money laundering, where bad actors attempt to wash off their illegitimate funds for cryptocurrency and then use them for legitimate purchases. In summary, as cryptocurrency becomes more mainstream, there will be a need for greater protection for the retail consumer to ensure that they can trust cryptocurrency as a sovereign currency.

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