Crypto scams have surged in recent years, starting from around five thousand reports of fraud in 2017 to seventy thousand in 2023(1). Cybercriminals have turned to cryptocurrency as a means for scams because there is a lack of regulation and awareness within the space. Along with a lack of familiarity, scammers appreciate the anonymity of crypto transactions since they are difficult to trace. Even outside of the crypto space, traditional scammers often demand crypto as payment in schemes like sextortion or fake job scams.
Although tracing crypto transactions is difficult, it’s not impossible. Using forensic analysis and crypto wallet tracing tools, cybercrime investigators like at Digital Forensic Corp. can follow the online trail of stolen assets back to the perpetrator.
What is Crypto Wallet Tracing?
A crypto wallet is a tool that stores the private keys that give you access to your digital assets and allows you to send, store, or receive cryptocurrencies. There are two different types of crypto wallets: hot and cold.
A hot wallet is connected to the internet through devices like mobile apps and websites. A cold wallet is an offline storage device that holds your private keys like a USB designed for holding crypto or even a paper document.
Crypto wallet tracing refers to the process of monitoring, analyzing, and tracing the transaction history of a blockchain-based wallet. All transactions on a blockchain are public and accessible to anyone. Using these transparent ledgers, crypto wallet tracing tools can track the movement of funds across blockchain networks.
How Crypto Wallet Tracing Helps Scam Victims
According to the FBI, the financial losses from crypto scams totaled over five billion dollars in 2023 alone. Despite the huge increase in crypto scams each year, the rate of convictions for the criminals responsible is extremely low.
Many factors contribute to this trend. For one, perpetrators of these scams can operate from anywhere and hide behind anonymity. Victims also severely underreport the scam. In schemes like romance scams, victims may have been lured into a false relationship by a catfisher and they may feel ashamed or embarrassed.
Most importantly, it is difficult to trace transactions and tie them to a real identity. Crypto wallet tracing is a tool, however, that can help scam victims track down the person responsible and may even help bring the perpetrator to justice.
Common Cryptocurrency Scams
Cryptocurrency may be a new technology, but cybercriminals are relying on traditional methods to scam people in the space. It’s important to understand the tactics and scams used by criminals so that you can always identify them as technology continues to progress. Investment fraud was the most reported type of fraud in 2023 with over three billion in financial losses. However, there are a few more scams you need to be aware of.
Romance scams
Otherwise known as pig butchering scams, these crypto scams are likened to a farmer and their pig. The analogy is that farmers “fatten up” their hogs to a high market value before sending them to the slaughterhouse and it’s similar in romance scams.
The scheme typically begins with a stranger reaching out to their target online through a dating app or social media platform. They use a false online persona as a successful and attractive person to draw in victims. Then, they begin building a romantic relationship with the victim. After gaining trust, they introduce a convincing crypto investment opportunity. However, the opportunity is only a ruse to steal the investment money or direct you to a fake investment website.
They will ask for an initial investment as a deposit and the fake website will display deceptive dividends that encourage the victim to invest more. Even after the victim has nothing left, the scammer may attempt online blackmail using the victim’s private information to demand even more money.
Investment Fraud or Fake Exchanges
A crypto exchange works similarly to a stock exchange. It’s a platform that allows users to buy, sell, and trade cryptocurrencies like Coinbase or Binance. However, fake crypto exchanges are being built by scammers to steal the funds and sensitive data of victims. It’s important to always use a reputable crypto platform for investment, especially for those new to the space.
Phishing Attacks and Seed Phrase Theft
Phishing scams are a popular method used to capture the personal data of users. Scammers will pose as a legitimate crypto platform and send a message or email to lure victims into entering sensitive data on a fake website. They use urgent warnings that claim that there is a problem with their account or that their wallet needs to be fixed, linking to a phishing site to steal the seed phrase or login credentials.
Online Blackmail
Many scammers will attempt to gather private or compromising information on a victim for online blackmail. They may use a pig butchering scam to build a relationship with a victim, access devices through malware and phishing scams, or they can even use the victim’s explicit content for sextortion. Once the compromising information is obtained, they will threaten to release it publicly unless they are paid in cryptocurrency.
How Investigators Track Wallets
The crypto wallet tracing process begins with investigators reviewing the crypto wallet used for the transaction. Crypto wallets have a unique address that is public, similar to an account number. Investigators can access wallets along with all the transactions to and from the unique public address.
Using specialized crypto wallet tracing tools like Chainalysis and TRM Labs, the investigators will track the trail of funds through multiple wallets, recognize patterns of suspicious behavior, and look for any connections to centralized exchanges. These exchanges often have policies that require identity verification and law enforcement may be able to work with centralized exchanges to request user information about the owner of certain wallets.
Recovery Possibilities and Limitations
While tracing lost funds through cryptocurrency is difficult, recovering the stolen funds is even more challenging. However, it is possible. If the funds were passed through a centralized crypto platform, law enforcement and legal professionals can work with crypto platforms to identify the perpetrator and take legal action against them.
Several factors determine if recovery will be possible. How the funds are moved is an important factor in the crypto wallet tracing process. The funds may be sent through mixers or multiple wallets which makes them more laborious to trace. The recency of the transaction is another factor to consider. Once a scammer cashes out their ill gotten gains in cryptocurrency, recovering stolen funds is nearly impossible.
The crypto wallet tracing process also depends on the type of cryptocurrency. Traceable cryptocurrencies are publicly recorded and easier to track while privacy coins keep the details of transactions hidden. Lastly, if an identity can be tied to the perpetrator, you may be able to take legal action against them to recover stolen funds. However, you should always consult with a legal professional about your options.
Digital Forensics Corp’s Approach to Crypto Investigations
If you have become a victim to a crypto scam, you are not the only one. Thousands of others have walked this path. However, you don’t have to walk it alone. Digital Forensic Corp. has a team of cybercrime investigators that provide victims with end-to-end support.
We use the latest technology to investigate the loss of your funds and trace the crypto transactions through multiple wallets. Our experts understand the activity to look for on the blockchain and analyze the data to track it back to the perpetrator. We can also equip you with the details of our investigation as evidence to use against your offender while connecting you with legal professionals and local law enforcement who will need to work with you if you hope to recover from the scam.
What To Do If You’ve Been Scammed
Crypto is an exciting new form of digital money. However, the complex landscape of the currency and lack of oversight has led to an epidemic of crypto scams. If you have fallen victim to this epidemic, time is of the essence. You need to act fast to maximize the chances of tracing or recovering your stolen funds. You need to take the following steps immediately to protect yourself after being scammed.
- Stop all contact and gather evidence. Whether it’s a phishing or pig butchering scam, it’s best to cease all communications with the scammer. However, preserve the messages, profile, and anything else relevant as evidence.
- Don’t attempt DIY recovery or pay more to scammers. The crypto landscape is full of cybercriminals, including bad actors reaching out with recovery scams. Every second is important in a cryptocurrency investigation, and you need to know exactly what to do to avoid wasting money and time.
- Contact Digital Forensics Corp immediately. Working with professionals like at Digital Forensic Corp. can streamline the crypto investigation process to maximize the chances of tracing and recovering your stolen funds. In cases of online blackmail, we also offer services to protect the victim from any possible exposure of private information
- Report to FTC, FBI IC3, crypto platforms. Even though reporting the scam may seem insignificant, it’s actually one of the most important steps to take after being scammed. The FBI’s Internet Crime Complaint Center (IC3) is the national reporting center for cybercrimes and the FTC’s ReportFraud tool is for tracking and analyzing fraud in the country, leading to fraudulent businesses being shut down. Both reporting services are essential for fighting cybercrime. Some crypto platforms also provide a tool for users to report any suspicious activity.
Battle Blockchain Fraud with the Help of DFC.
Despite what many cybercriminals believe, crypto scammers are not as anonymous as they think they are. Blockchain technology does leave a trail and cybersecurity experts can follow it back to their real identity.
Victims of crypto scams can fight back against their perpetrators, and they don’t have to do it alone. Cybersecurity experts at Digital Forensic Corp. will work alongside you to investigate the crypto scam, trace the transactions, and provide you with the evidence you need to take legal action. Contact Digital Forensic Corp. today if you want timely and expert help in battling blockchain fraud.
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DISCLAIMER: THIS POST IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TO BE CONSIDERED LEGAL ADVICE ON ANY SUBJECT MATTER. DIGITAL FORENSICS CORP. IS NOT A LAWFIRM AND DOES NOT PROVIDE LEGAL ADVICE OR SERVICES. By viewing posts, the reader understands there is no attorney-client relationship, the post should not be used as a substitute for legal advice from a licensed professional attorney, and readers are urged to consult their own legal counsel on any specific legal questions concerning a specific situation.
