Cryptocurrency Scams Account for 30% of Cases, Resulting in Annual Losses of NT$5.3 Billion
According to recent statistics from Taiwan’s Ministry of the Interior’s Criminal Investigation Bureau, the number of cryptocurrency-related fraud cases has been steadily increasing in recent years. In 2023 alone, there were 37,823 fraud cases reported, of which 11,405 were related to cryptocurrencies, accounting for nearly 30% of the total. The financial losses amounted to NT$5.345 billion.
With the popularity and widespread use of cryptocurrencies, related fraud cases have also seen a sharp increase worldwide, and Taiwan is no exception. Since the price of Bitcoin has skyrocketed to $70,000 from its inception, it has attracted the attention of many investors and provided an opportunity for fraud groups to deceive people through cryptocurrency scams, leading to a significant increase in cases of “fake investments and real fraud.”
Decrypting the Most Common Scam Techniques
Although there are various methods used in cryptocurrency scams, Hung Cheng-chi, the Chief Analyst at the Criminal Investigation Bureau’s Financial Research and Analysis Division, shared that the most common method in Taiwan is through online platforms and social media. Scammers use various means to gain control of users’ cryptocurrency wallets, resulting in financial losses for the victims.
The criminals first use channels such as Facebook, Instagram, YouTube, Google, or text messages to advertise fake investments or engage in fake relationships on dating apps.
They claim to guarantee profits and lure victims to contact them via Line, inviting them to join Line communities and offering free investment tutorials.
Once the victims are hooked, the criminals provide them with fake investment websites or apps to register and introduce them to cryptocurrency exchanges, prompting the victims to purchase cryptocurrencies. They then request the victims to send the cryptocurrencies to the wallet address of the fake investment website or app.
The criminals may use smart contracts or malicious links to gain control of the victims’ cryptocurrencies, while the profits shown on the investment website or app are fake. In order to entice victims to invest more, the initial operation of the website or app appears normal and even allows for withdrawals. However, these withdrawal funds are likely from other victims, which can result in the users’ bank accounts being flagged.
When the victims have invested a certain amount of money and want to withdraw their profits, the fraud groups may start delaying the process by requesting additional payments for account verification or transaction taxes. They use various excuses to trick victims into giving them cash at the last moment, and they may even close the website or cut off contact directly.
Investigation Process and Challenges
The anonymity and transnational nature of cryptocurrencies make it extremely difficult to track and locate fraudsters. Additionally, due to the complex legal and technical issues involved, the prosecution work of the police and prosecution agencies is particularly challenging.
Hung Cheng-chi stated that the investigation process of cryptocurrency fraud cases is full of challenges, as “blockchain fraud cases are constantly transitioning between physical, virtual, and cross-border territories, making them more complicated than traditional fraud cases.”
Challenge 1: Difficulty in Verifying the Identity of Individual Cryptocurrency Exchanges
When the police apprehend the withdrawal drivers in investment fraud cases or notify the account applicants of the warning, the suspects often claim to be ordinary “individual cryptocurrency exchanges” rather than part of a fraud group. They may even provide fake conversation records and transaction records to the police, portraying themselves as ordinary businessmen or well-intentioned third parties who are unaware of the fraud crimes, in order to evade legal prosecution.
If the police cannot find actual evidence of contact between the withdrawal drivers and the fraud group, the transactions between the cryptocurrency exchange drivers and the victims may appear similar to ordinary private cryptocurrency transactions. If the exchange drivers insist on their innocence and emphasize that they are merely victims of exploitation, the entire transaction story may seem flawless, posing a major challenge for the police in their investigation.
Challenge 2: Limited Cooperation from Overseas Exchanges
When users discover that their personal assets have been defrauded, they can only seek assistance from the police and domestic exchanges to freeze their accounts. However, many users use overseas exchanges, and the Financial Supervisory Commission of Taiwan has not yet established a joint defense mechanism for virtual currency or fraud funds. As a result, cooperation between overseas exchanges and Taiwanese law enforcement is limited, and many exchanges are unwilling to cooperate with Taiwanese authorities, making them tools for money laundering by fraud groups.
Furthermore, when fraud funds flow to overseas exchanges, although the police can apply for emergency freezes from the exchanges, if they want to extend or detain the funds, they still need to apply for seizure orders from the court. If the application to freeze the wallet account is made by a non-Taiwanese, the application must be made to the court of the applicant’s nationality, making the investigation process more complex and time-consuming.
Challenge 3: High Anonymity of Personal Wallets
While exchanges are subject to government regulation and often require users to undergo Know Your Customer (KYC) procedures, many personal wallet software on the internet does not enforce KYC. As a result, these wallets offer high anonymity, fast account opening, low cost, and no retrieval window. However, because these wallets cannot convert cryptocurrencies into fiat currencies, they are usually used by fraud groups as second or third-layer intermediate wallets.
Challenge 4: Difficulty in Searching for Cold and Hot Wallets
Since most cryptocurrencies are stored in USB or card-shaped cold wallets or in hot wallet apps on mobile phones, executing search operations on the spot poses additional difficulties. In addition to spending time educating the on-site personnel, finding the small cold wallets within a short period of time is not easy. The hot wallets in mobile phones are often deleted, so the on-site personnel have to check the App Store for download records and request them to be reinstalled.
Tips for Avoiding Scams as a Beginner
Lastly, Hung Cheng-chi suggests using legitimate investment platforms, such as the list of companies that have completed anti-money laundering compliance as regularly announced by the Financial Supervisory Commission’s Banking Bureau. These are more suitable for beginners entering the Web3 world.
In addition, the Anti-Scam Center publishes reports of reported scam websites every week on the 165 website and its Facebook page. People can check whether the website platform they are investing in has been reported. However, even if a website has not been announced, it does not mean it is absolutely safe. It is best to verify carefully before investing to avoid being scammed.
Finally, Hung Cheng-chi also reminds investors to be cautious of investment advertisements or investment information sent by internet users claiming “high returns and low risks” or “guaranteed profits.” These are all scams, and investors should remain vigilant to avoid being easily deceived.
Other Common Scam Techniques
Currently, the most common types of scams in the blockchain world, in addition to traditional types such as online dating, stock market investment gurus, or phishing links, include some scams targeting more advanced players in the cryptocurrency industry. For newcomers who are not yet cautious, it is easy to unknowingly hand over their wallet authorization due to their unfamiliarity with blockchain technology.
The most common types of scams in the blockchain field can be divided into the following categories:
Phishing Attacks: Scammers use fake cryptocurrency trading platforms or wallet services to deceive users into revealing their private keys or personal information.
Token Sniping Scams: Developers present themselves as normal token issuers and attract investors. They then suddenly withdraw liquidity or sell tokens, causing the value of the tokens to plummet and resulting in losses for investors.
Rug Pulls: Developers disappear suddenly after raising a large amount of funds, causing the project and its token value to drop to zero.
Smart Contract Vulnerabilities: Scammers exploit undisclosed vulnerabilities in smart contracts to steal funds.
