Cryptocurrency crime skyrockets, but consumer protections are improving

Photo (c) Yuichiro Chino - Getty Images

A ‘paper wallet’ may provide the best protection for new cryptocurrency investors

Cryptocurrency-based crime reached a record high in 2021. As the world became more comfortable with digital currencies like Bitcoin and more businesses added options to use it for purchases, digital coin transactions skyrocketed to nearly $16 trillion. 

That opened up a whole new playground for cybercriminals, who were able to haul in $14 billion over the course of the year with various scams and cyberattacks. That’s nearly double the amount that was earned by criminals in 2020.

Losses from crypto-related crime rose by 79%, but experts say things could be a lot worse. Experts from blockchain data platform Chainalysis said it’s surprising that the increase in crime was lower than the overall adoption rate of cryptocurrencies.

Help is on the way

Chainalysis’ tracking shows that crime is shrinking inside the cryptocurrency ecosystem because federal regulators and law enforcement are getting better at combating cryptocurrency-based crime. As examples, Chainalysis pointed to the CFTC filing charges against several investment scams and the FBI’s takedown of the prolific REvil ransomware strain

“One promising development in the fight against cryptocurrency-related crime is the growing ability of law enforcement to seize illicitly obtained cryptocurrency,” the Chainalysis team said. The team pointed to an instance in November when the IRS announced that it had seized over $3.5 billion worth of cryptocurrency in 2021 — all from non-tax investigations. That haul represented 93% of all funds seized by the division during that time period. 

“We’ve also seen several examples of successful seizures by other agencies, including $56 million seized by the Department of Justice in a cryptocurrency scam investigation, $2.3 million seized from the ransomware group behind the Colonial Pipeline attack, and an undisclosed amount seized by Israel’s National Bureau for Counter Terror Financing in a case related to terrorism financing.” the team said.

Making cryptocurrency safer

With more investors giving cryptocurrencies a chance in their portfolios, hackers will have more opportunities to pull off scams on unsuspecting victims. Unfortunately, there’s no agency-backed protection for cryptocurrency like there is with a bank and the FDIC. If a scammer gets your digital money, you’re essentially left holding the bag with nothing you can do about it.

In Investopedia’s guide to safely storing bitcoins, the best advice ConsumerAffairs found was adopting a “paper wallet.”

“A paper wallet is a cold wallet that you can generate off of certain websites. It then produces both public and private keys that you print out on a piece of paper,” explained Luke Conway. 

“The ability to access cryptocurrency in these addresses is only possible if you have that piece of paper. Many people laminate these paper wallets and store them in safety deposit boxes at their bank or even in a safe in their home. Paper wallets have no corresponding user interface other than a piece of paper and the blockchain itself.”

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