Cryptocurrency has been gaining traction since its launch in 2009, with the market expected to grow to $11 trillion and 420 million crypto users worldwide in 2023. Consequently, with the growing prominence of cryptocurrency, scams have increased, with scammers trying to access digital wallets through impersonation or fraudulent investment. This blog will discuss use cases of cryptocurrency, the prevalent fraudulent methods, and ways to combat them.
Cryptocurrency Use Cases
Although many are still apprehensive about investing in cryptocurrencies, the sector is expanding, and it is evident that 67% of millennials see Bitcoin as a haven asset. Moreover, this expansion is not confined only to a specific domain; instead, there’s a steady movement across the board among various industries and sectors.
Banking and Finance
JPMorgan Chase has joined the blockchain market with the JPM Coin, intended to enable real-time cross-border payments between its corporate clients. By eliminating the middleman in the primary services that banks offer, such as payments, clearance, and settlement systems, blockchain has the potential to upend the $5+ trillion banking sector.
Over the past three years, USAA (United Services Automobile Association) has invested over $150 million in Coinbase, facilitating customer interaction with the most significant bitcoin exchange. In addition, Barclays is a pioneer in blockchain technology, enabling its clients to carry out cryptocurrency transactions in a protected setting.
Travel and Mobility
According to a poll conducted by Travala.com this year, 22% of American travelers want to utilize cryptocurrencies to fund their next trip partially. In addition, recent data shows that 70% of almost $10 million reservations made on Travala.com used Bitcoin.
Retail and eCommerce
For various goods, Bitcoin is currently accepted as payment at several large businesses, including Walmart and Home Depot. eCommerce giant Amazon matches customers with vendors that could complete purchases in return for the digital currency. About 70.4% of cryptocurrency customers prefer to make retail transactions using cryptocurrency.
Cryptocurrency and Fraud
Cryptocurrency transactions are attractive to fraudsters because they are anonymous and not regulated by any institutions. Since the start of 2022, crypto investors have lost $4.3 billion to scammers, with $1.9 billion emptied between January and July — an increase of 37% over the same period in 2021.
The most common scheme crypto scammers employ is investment scams accounting for $575 million since 2021. This involves an individual posing as a seasoned investment manager enticing people to send their cryptocurrency to the fraudster with promises of huge gains. These scams take a variety of forms.
Fake initial coin offerings (ICOs) often involve creating a website and marketing materials that mimic those of a legitimate ICO to trick investors into believing that the ICO is fair and that the cryptocurrency tokens being offered have value.
The scammers behind fake ICOs may also create fake profiles on social media or forums to promote the fake ICO and give the appearance of a legitimate investment opportunity. When investors purchase fake tokens, they realize they have been scammed. The scammers will often disappear with the funds raised from the ICO, and the counterfeit tokens will have no value on any cryptocurrency exchange.
When fraudsters artificially inflate the price of a security through false and misleading positive statements to sell cheaply purchased security at a higher price, it is called a pump-and-dump scheme. The scammers behind such schemes often spread false or misleading information about protection through various channels, such as online forums, spam emails, or social media, to create the illusion of a successful company or a popular investment.
Once the security price has been artificially inflated, the scammers will sell their holdings at a higher price, “dumping” the security on the market and leaving investors with a security likely to decline in value.
Combating Cryptocurrency Frauds
More businesses are embracing cryptocurrency transactions as a reliable source of revenue as more investors plunge into cryptocurrency investing. However, these transactions must be examined to avoid fraudulent activities. Identifying and combating fraud with traditional detection methods involve extensive manual auditing and are time-consuming, expensive, and fallacious.
With cryptocurrency wallets being pseudo anonymous and more data pouring in every second, the only way to reduce the risk of fraud is by constant monitoring and surveillance to spot any inconsistencies at every stage of a transaction with the help of tools and technologies such as machine learning, big data, and cloud technologies.
- Predict market movements of any cryptocurrency and enable investors to improve profitability by using time series analysis to identify price fluctuations.
- By using social-based data like user activities and participation, transaction data, and current market price, better prediction on the market capitalization over time can be generated with the help of text analysis and supervised learning algorithms.
- With the help of classification algorithms and clustering heuristics, enhance the security of crypto networks, identify fraudulent user behavior, and prevent thefts.
- Apply sentiment analysis and NLP algorithms on a combination of cryptocurrency topics and crypto-related tweets, including Reddit posts, trading volume, Google search volume, Wikipedia views, news articles, and blog posts, to predict price bubbles of cryptocurrencies.
- Use network analysis to analyze the connections between different parties involved in transactions; firms can identify networks of fraudulent actors and trace the flow of funds between them.
As the number of users in the cryptocurrency domain increases, leveraging the power of data can help businesses gain a competitive edge in customer retention, ensure legal compliance, and assist investors in making well-informed decisions and reducing fraudulent activity. At LatentView Analytics, our data science experts seize the opportunity to make sense of the growing data and turn them into insights to make data-driven business decisions. Discover more here about how LatentView Analytics supports the finance industry.