Cryptocurrency thefts and frauds across the world could hit over $4.3 billion this year, reported CipherTrace in its Q2 2019 Cryptocurrency Anti-Money Laundering (AML) report.
Although exchanges, wallets and other cryptocurrency custody services are strengthening their defenses, hackers continue to innovate and outpace even the current state of the cyber security art. Even Binance, the world’s number-one cryptocurrency exchange, lost tens of millions of crypto assets to a cyberattack perpetrated by sophisticated hackers using a lethal cocktail of phishing, viruses and other attack vectors. In total, cybercriminals looted $125 million in Bitcoin, Ethereum and other digital assets from exchanges this quarter. However, CipherTrace based this theft number on the price of the assets at the time they were stolen. In actuality, given the recent price movement of Bitcoin and other tokens, this value is likely much greater since they more than doubled in value the second quarter 2019. Additional exit scams, thefts and dark market takedowns still under investigation could push the total losses much higher.
2019 Shaping Up as the Year of the Exit Scam
Additionally, this quarter’s report identifies a concerning trend that may once again overshadow the cryptocurrency losses due to cyberattacks — the “Exit Scam.” While thefts due to cyberattacks have netted criminals $287 million during the first half of 2019, several alleged exit scams under investigation have resulted in fraudsters making away with more than $3.1 billion, while $851 million was reportedly “lost” by Bitfinex. In aggregate, hacks, exit scams and misappropriation of funds fraud, cost cryptocurrency exchanges, investors and users $4.26 billion in the first half.
Global Regulatory Imperative as FATF Travel Rule Now Applies to Cryptocurrency
Owing to the acceleration of hacks and frauds in tandem with related money laundering—as well as high-profile abuses of cryptocurrency by rogue countries to evade sanctions—regulatory bodies have increased their oversight of virtual assets. For a major example, the Financial Action Task Force (FATF) rocked the crypto economy with a new “travel rule”—for which the G20 announced its full support in Osaka in June—that requires transactions between exchanges to include personal information about the sender and the receiver of funds similar to international bank wire and SWIFT transfers of fiat funds.
Facebook Awakens Policy Makers with Announcement of Libra
Cryptocurrency regulation is now obviously viewed as an imperative across the globe, and there is increasing political concern about the potential financial disruption blockchain technologies pose. In particular, Facebook’s enter into the cryptocurrency world by announcing Libra ignited a fury of debate in global capitals regarding the risks and rewards of these new financial tools.
Dark Markets Fall Like Dominoes
The report also covers a revealing new update from Canadian courts regarding the implosion of QuadrigaCX during the first quarter 2019 — what had been Canada’s largest exchange. The “Fifth Report of the Monitor” confirms CipherTrace’s assertions of fraud and misappropriation of funds over years, which ultimately cost exchange users nearly $200 million in lost crypto assets.
At the end of second quarter, a bizarre saga unfolded involving an unconfirmed exit scam around PlusToken, a purportedly South Korean exchange and investment pyramid scheme. It culminated at the end of June with Chinese police arresting six Chinese nationals, the “PlusToken 6,” on the South Pacific island of Vanuatu, and may have cost millions of unsuspecting crypto investors as much as $2.9 billion in lost funds. CipherTrace has not completely confirmed the details of this alleged exit scam, including in whose pockets the billions ultimately found a home.
Meanwhile, the darknet marketplace Wall Street Market’s attempted an $11 million exit scam that was thwarted by Europol. Wall Street Market was one of three darknet markets seized this quarter. Also, new research by CipherTrace reveals that despite the proliferation of privacy coins, Bitcoin is still king in dark markets and cybercrime.
For access to the full report, click here.
