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August 10, 2023 - Greg Oprendek

How Do We Make Cryptocurrency Safe?

Long before blockchain was a buzzword worthy of garnering seven-figure seed investments, it was a promising new technology for verifying ownership of assets online. In the years since, it has fueled the explosive growth of cryptocurrency, decentralized finance (DeFi) tools, NFTs, and countless fintechs.

The rise of accessible investment in these ventures spurred by user-friendly tools and celebrity promos brought millions into a fledgling payment space—aka the fraudster’s playground. But is there a way to make it safe? To answer that question fully, we need to understand crypto fraud on a deeper level and our options for fighting back.

Why is crypto so risky and vulnerable to fraud?

Some of the reasons crypto fraud flourishes are obvious. What tends to attract the most blame is crypto’s unique combination of low barriers to entry, lack of consumer education, and absence of regulation.

New crypto investors have a lot to learn about the technology that powers cryptocurrency markets, exchanges, coins, and transactions. Not only that, they must sift through the “educational information” shared in forums and social media circles—much of which is dubious at best.

This dearth of trustworthy guidelines is made more dangerous by the accelerated volatility of the space and a growing sense of FOMO to jump on the next Bitcoin-like bandwagon before it takes off. Fraudsters thrive in dynamics like these because they can inject their own false information and take advantage of eager new investors by posing as mentors.

This leads us to the crypto fraudster’s favorite aspect of the space: irreversible transfers. Many crypto trades and transactions happen in real-time and settle immediately. Just as Zelle fraudsters use social engineering tactics to trick victims into giving up money they can’t get back, crypto scammers play on victim’s naïveté to swindle them out of their coins.

Decentralization is a core value of crypto, and really Web3 as a whole. It’s what makes crypto unique from other currencies and payment systems. That decentralization is good for growth, but also invites fraud because there is little identity verification (if any) and no tracking money as it moves around different accounts.

Finally—perhaps the trait that new scams take advantage of most—is crypto’s still extremely high volatility. This makes coins, even so-called “stablecoins,” open to manipulation. Pump and dumps, rug pulls, fake ICOs—all are able to flourish because of the lack of regulation and high variability the space is known for.

Common frauds crypto companies face

Just like in any payment space, cryptocurrency scams attack weak points that give fraudsters the most leverage over someone else’s funds. Here are a few of the most common frauds cryptocurrency companies deal with on a near daily basis.

Account takeovers

The onboarding process is a vulnerable point even for traditional financial institutions. In crypto, there’s little to no verification of who owns a wallet, even in established and respected exchanges. Combine this with the fact that there are countless places to trade and fraudsters see the opportunity to trick victims into handing their accounts over or creating fake exchanges entirely.

All a fraudster needs to take over a crypto wallet is the password or key to access it. They can try credential stuffing and other traditional methods to get this. But oftentimes they rely on social engineering to convince users they are investing, when they are actually handing over their account.

ACH and Card fraud

Because wallets need funds added from somewhere to start, ACH fraud and card fraud are actually common in the crypto world. Fraudsters use stolen cards to add money to their wallets, helping add a layer of obscurity to where the money originated.

Similarly with ACH, when a fraudster takes control of a bank account, they may pour the money into one wallet, then take advantage of the settlement time delay (known as ACH kiting) to move it around to invest in other coins or exchanges before the transaction can be caught.

Money laundering

You’ve no doubt heard about crypto’s problems with money laundering in the news. Because crypto is decentralized, anonymous, and unregulated, it’s the perfect place to launder stolen money.

Typically, crypto comes in the layering phase of a money laundering scheme. The criminal wants to add layers of transactions that cover the money’s origin, and investing it in different coins or transferring it to multiple wallets they own in small amounts (known as smurfing) is a common way to accomplish this.


Fake exchanges and fake coins are everywhere in the crypto space. Savvy investors can spot them and know the signs to avoid them, but these scams work incredibly well to take advantage of new investors.

One of the most dangerous and rapidly rising new crypto scams, pig butchering, relies on phishing to trick victims into entering their wallet details to invest in a fake coin or exchange. This gives the fraudster control of the victim’s wallet and leaves the victim with no way to recover their coins.

Market manipulation scams

The volatility of crypto markets fuels many frauds. Fraudsters use stolen money to manipulate markets, adding huge investments to pump up a coin’s value. Then, they dump the investment altogether and remove their profits from the price increase, leaving the other investors to suffer the crash.

More recently, coins that being as seemingly legitimate investments see their creators pull the rug from investors after cashing out their own profits. Fraudsters also love to lie about their prowess investing in foreign exchange (Forex) markets, with their scam concluding when they stop paying investors and disappear with their money.

What’s the secret to winning customer trust in crypto?

Some of the factors that cause crypto fraud, like volatility and lack of regulation, aren’t problems crypto companies and fintechs can solve. But in shaping the customer experience, there are many ways they can win customer trust while keeping users safe.

First and foremost, companies need to invest in customer safety by adding fraud detection and prevention tools. Fraud platforms, especially holistic all-in-one services, can add security for customers at the most vulnerable points and proactively combat many common crypto frauds.

These platforms help detect fraud at account creation by giving companies a single view of new customers based on device and behavior data, personal information used, and much more. When fraudsters sign up for accounts, strong fraud platforms spot and deny them. As part of anti-money laundering (AML) regulation in banking, Know Your Customer laws mandate institutions identify to the best of their ability who is opening an account with them and that they’ve verified the new account holder’s true identity.

Crypto companies can add this level of compliance voluntarily without adding friction to the customer experience. As part of this account opening, companies should educate new users about the risks associated with trading and share common fraud red flags so they can avoid social engineering scams.

Providing strong fraud prevention guardrails for customers creates a sense of safety, and a strong sense of trust follows.

How crypto providers fight fraud

Modern fraud platforms leverage machine learning to see patterns of fraud and weed out scammers. It’s true crypto providers face unique challenges in identifying fraudsters and keeping customers safe from scams. But with the right AI-powered tools, they can adapt to common schemes and make decisions quickly to proactively stop fraud.

The best combination to do this is using both supervised and unsupervised machine learning models. These work in tandem to detect fraud at account onboarding, spot suspicious transaction activity, take down botnets, and automate decisions on preventing fraud.

Key components of AML come baked into the best-in-class platforms as well. In the case of DataVisor, fintechs see 10x operational efficiency and 35% (or higher) uplift in threat detection upon install. For one top five crypto exchange, DataVisor’s platform detected 92% of fake accounts before abuse and improved accuracy 42% over their in house system.

Curious how this real-time ready solution can become your new high-powered fraud platform and integrate in weeks? Chat with one of our team members.

about Greg Oprendek
Greg is a passionate digital marketer, avid basketball fan, aspiring fraud expert, and Content Marketing Manager at DataVisor.
about Greg Oprendek
Greg is a passionate digital marketer, avid basketball fan, aspiring fraud expert, and Content Marketing Manager at DataVisor.