The People Who Got Scammed Out of Hundreds of Thousands in Cryptocurrency

$384,006, gone.

Brandon Larsen was out for a meal with his wife when he first noticed something must be wrong. Larsen was in the habit of constantly checking his phone, particularly his cryptocurrency wallet. Except this time, it was empty. It must have been a mistake. He frantically restarted his phone and reopened the app – but the little black number still read zero.

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“In that moment, your gut is in your throat and you realise you just got robbed,” he recalls. “With cryptocurrency, I knew enough to know I would likely never see one cent of it ever again.”

Earlier that day Brandon had tried logging into what he thought was the Android app of the cryptocurrency exchange site he used, 1inch Exchange.

“I didn’t see any red flags because… it looked exactly like the desktop version,” he explains.

But the app was a fake and asked for his private key – a code that verifies your identity in trades and gives access to private accounts – to log in. Keys help to keep cryptocurrency secure, so they’re usually kept under extremely heavy guard (Larsen kept his in a safe in his closet).

“I put my key in and I got the spinning wheel. And it just kept spinning and spinning and spinning. I thought maybe their app was down,” he says.

Two hours later, nearly $400,000 had disappeared.

Larsen is one among thousands – from those new to the world of cryptocurrency to experienced traders – who have been devastated by an explosion in cryptocurrency scams during the pandemic. Fraud reporting service Action Fraud say cryptocurrency scams rose 57 percent in the UK last year. The true numbers are likely even higher. According to a 2020 EU survey, 41 percent of fraud victims don’t tell anybody, not even friends and family, about their experience.

One of the most viral scams last year involved social media. Faked endorsements from celebrities like Bear Grylls on Instagram tricked one woman into losing £120,000 to a cryptocurrency scam, while a mass hack of Twitter meant the verified accounts of celebrities like Kanye West, Barack Obama and Elon Musk shared links to a Bitcoin scam promising to double investments. In the end, the scammers took $121,000 in bitcoin.

“I can’t see cryptocurrency scams slowing down any time soon,” explains Jake Moore, a cybersecurity expert with ESET. “It’s a perfect scam.”

Luke, whose name has been changed to protect his anonymity, was targeted on Telegram by messages from a third party brokerage firm late last year. The company promised big cryptocurrency profits. Over weeks of persistent messages and sending links to their professional site, he decided to invest.

“Those scammers have a lot of material that they put out that makes them look like a real registered company, that gives the illusion they’ve been a company operating for years,” he explains. After an initial investment of $2,000, Luke never heard from them again.

On some levels, cryptocurrency appeals to scammers simply because it’s so popular, but not widely understood. “Bitcoin is just the hook. Everyone wants to talk about it, but not everyone understands it,” explains Moore. “And criminals are so good at adapting and evolving to current trends.”

But there’s a lot about the technology underpinning cryptocurrencies that makes these scams effective. The anonymity offered by blockchain transactions makes scammers harder to track; the transnational nature means it’s hard for national authorities to pursue perpetrators; and a lack of regulation means consumers have no protection and companies have no set standards.

“I knew I was in trouble when the FBI guy that I was assigned to literally didn’t know anything about crypto,” explains Larsen. “In that moment, I knew for sure I was never going to see one penny of my money.”

Given the mass Twitter crypto hack, questions have to be raised about the role social media can play in legitimising and spreading scams. “If people see an account with a blue tick that they already trust, they believe very quickly,” says Jake. “That blue tick is a dangerous thing.”

In the aftermath of events like the storming of the US Capitol last year, many are suggesting social media sites should have a legally mandated duty of care to stop dangerous content appearing on their sites. If that were extended to scams, it could help stem the tide of fraudulent content spread on these sites.

But crypto-related scams also go beyond typical cons.

Jonas, whose name has been changed at his request to protect his privacy, had just started looking into cryptocurrencies when he found a third party company that offered to make investments on his behalf. He signed up an initial £1,500, with the promise of a significant signing-on bonus from the company. In the small print, however, the company restricted him from removing the money if it made losses. In the end, he lost all of the £1,500 he had saved up to invest. The emotional and financial impact was huge.

“It’s been tough, really tough… it was very hard to keep going,” explains Jonas, who was then a final year university student. “It’s really sad that there are people out there who would wipe you clean and actually don’t care or give two shits about what happens to you after that.”