Alert! Crypto Scams May Be On The Rise

No official data exists on India’s cryptocurrency ecosystem — not on investments and not on frauds. These tokens continue to exist in regulatory no-man-lands. But ask around and you know the interest is high. And so are the complaints about fraud.

MD Sharath, superintendent of police— cybercrime division, Bengaluru, told BloombergQuint that they are receiving more and more complaints on fake investment schemes linked to cryptocurrencies. Most victims of such frauds, he said, are below 45 years of age.

"Most of the crypto-related frauds that we have seen over the past year were either reported against those who collected money to invest in crypto and then disappeared, or those who promised high regular returns similar to a multi-level marketing scheme and then ran away with it," he said. “We have also seen instances where people were investing in a scheme but were not aware that their investment was getting diverted to crypto.”

This is not surprising. Even in the U.S. frauds have risen. The Federal Trade Commission reported that consumers have lost over $80 million to cryptocurrency investment scams between October 2020 and May 2021, an increase of more than ten-fold year-over-year.

Vishal Gupta, co-founder of Bitcoin Alliance India, a non-profit organisation that educates people on cryptocurrency, said that new users who lack knowledge of how these investments work are being targeted by fraudsters.

“As cryptocurrency gains popularity in India, many uninitiated new users who are driven by the greed to get high returns are investing without gaining complete knowledge of how it works, which is making them an easy target for fraudsters,” he said. “As more such users have begun investing in crypto following the 2020 bitcoin rally, frauds have also gone up.”

BloombergQuint spoke to a number of investors who allege that they have been defrauded. Each has a different story to tell.

Ponzi Investment Schemes

Vishal, who did not want to disclose his full name to protect his identity, began crypto investing in December last year. He was lured by the bumper returns in the cryptocurrency market. He claims he put all his savings, worth Rs 5 lakh, into buying two most popular crypto tokens— Bitcoin and Ethereum.

In January, he was added to a channel called Metamask on online messaging app Telegram, where members claimed their crypto holdings doubled in a free giveaway scheme.

Vishal alleges that he lost all his crypto holdings that included 0.25 Bitcoin and 2 Ether tokens to this ponzi scheme and his money was never returned. “Every time I called their customer care cell, they asked me to send more Bitcoins to process the transaction.”

On further probe, BloombergQuint found that the Metamask group's administrator, who simply goes by the name ‘metamask administrator’ was marked as 'scam' by users on Telegram.

When contacted, the person said that the group “is not fraudulent” and has been organised by other crypto exchanges. ”They're trying to create awareness in the crypto market, to teach youth how to invest and also earn most especially in this difficult time,” the group's administrator said, while refusing to disclose his true identity.

However, the group has several complaints from people alleging they had not received their dues. When asked about that, the administrator said: "This isn't a scam page, you can check testimonies of beneficiaries in the platform. A lot of people have benefited from the giveaway event. Bonus is 💯 assured, bonus takes 4-8 minutes to process in wallet, but btc takes 8-10 minutes to be processed."

What happened with Vishal is an example of a ‘social engineering attack’, in which fraudsters manipulate individuals into divulging confidential or personal information for the purpose of stealing their wealth.

Such attacks, said Rajshekhar Rajaharia, an independent cyber security expert, have recently become very common in the crypto space as new users tend to fall for it. “A lot of times we see users giving away their private wallet keys or extremely confidential information to individuals who promise them great returns, without understanding the full consequences of it,” he said.

Fake Coin Offerings

As BloombergQuint continued to scroll the numerous available crypto chat groups and forums, other allegations of scams weren’t tough to find.

Fake coin offerings are another popular route.

Navjot Singh, a 40-year old from New Delhi, began investing in cryptocurrency in January this year to boost his income as his restaurant business was facing losses during the pandemic. Earlier this month, he was added to a group on Telegram. The group, he said, had 40,000 followers, and also had a Twitter page with over 32,000 followers. Singh said he got convinced of the group’s legitimacy because of the number of followers on its social media and Telegram channels.

The group launched a scheme ‘MooMooSwap’ for existing crypto users that offered new tokens called $MOMO in exchange for a certain number of Binance coins or BNB. Such a trade is commonly known as an ‘airdrop’ in crypto parlance.

The company's website calls itself a decentralised finance protocol that runs on Binance Smart Chain— a blockchain network built for running smart contract-based applications. It further claims that its users can swap between tokens issued on BSC (such as BNB) and earn rewards.

$MOMO, it says, is the “native currency” on its platform.

Singh went ahead and bought 1.25 lakh such $MOMO for 0.2 BNB. But on the day the coin got listed, he realised it had zero . Later the Telegram and social media groups that offered these coins also stopped working.

Soon enough, ‘MooMooSwap’ disappeared. While the Twitter handle of the company does not exist anymore, the Telegram group listed on its website has a different name, 'ELENairdrop Channel'. When contacted, its Telegram group's administrators, who go by the names Theoderus and Joe Hahn, did not reply.

Singh claimed they began operating under a new group name, ‘Tosa INU’. "All their groups and social media names were changed overnight," he said.

To be sure, the Tosa Inu group has a separate website and Telegram channel. When contacted, its administrator did not reply to BloombergQuint's query on how the group was connected to MooMooSwap.

“I tried contacting their executives but got no reply, and their website also did not offer much help. I can no longer exchange these coins either as they were bogus and had no to begin with. Call it my greed or gullibility, but I had invested in the coin thinking I would get good returns because so many people were following it,” said a repentant Singh.

While fraudsters will find ways to edge into most financial products, for cryptocurrencies, the complete lack of regulations makes things worse, said Gupta of Bitcoin Alliance India.

“In the cryptoverse, meme coins such as Doge and Shiba Inu with no fundamentals have given their investors exponential returns. As no regulations exist for launching new coins and there is no authority to regulate them, it is hard to tell which one is real and which is fake. Fraudsters have been taking advantage of that, and more so recently as Doge and Shiba have got so popular,” Gupta said.

Identity Thefts

Aditya Singh is a full-time crypto trader and social media influencer who has been running a Youtube, Twitter and Telegram channel by the name of Crypto India for the past four years.

Two months ago, he saw multiple fake Twitter accounts and Telegram groups cropping up, that either used his or his public channel's name to lure new investors into fraudulent crypto schemes.

"I reported some such groups on Twitter and also informed all the members in my Telegram group to be aware of such scamsters. But still, some of these fake groups are still running and there is no way to know what activities they're engaging into," he said.

Some of his existing followers also messaged to inform him that they were being contacted by these fake groups. These messages were reviewed by BloombergQuint.

A similar incident, at a much larger scale, emerged globally when dozens of consumers got duped by Elon Musk impersonators. These schemes promised that a celebrity associated with cryptocurrency would multiply and return any coins the consumer sent to their digital wallet.

Safeguarding Against Fraudsters

The rise in cryptocurrency frauds has been reported through last year. A similar trend was also observed between 2017 and 2019, when, according to an August report by Cointelegraph, Indian investors lost almost $500 million to scams operated within India and abroad.

Nikolaos Chrysaidos, head of threat intelligence platforms and services at cybersecurity firm Avast has a few suggestions for crypto users to protect themselves against fraud.

"Generally, users should download apps only from well-known and trusted developers and read through app reviews which can sometimes reveal a fake app. The situation is the same for the cryptocurrency trading apps, although the number of reviews can be lower," he said.

Besides, crypto investors should opt for physical wallets over online ones to hold their crypto assets. "The recommended way to protect your cryptocurrency wallet from most attacks is to have a hardware wallet on a dedicated and separate system that isn’t used for anything else, which is also advisable for traditional online banking," he said.

Increasing awareness among investors also goes a long way, said Nischal Shetty, founder and chief executive of India's largest crypto exchange WazirX. "We have several initiatives to increase awareness about cryptocurrencies among new investors. For instance, we run a grassroot-level initiative called 'WazirX Warriors' through which we engage volunteers that help educate masses about crypto tokens".

"We are also trying to build a dedicated program for our existing users and those who sign up on our exchange so that they can learn how to secure their crypto assets," said Shetty.

There is also need for clarity on legality of cryptocurrency in the country but for now, any complaints of crypto related frauds are being dealt with under the ambit of the Indian Penal Code that covers criminal offences, said Sharath of Bengaluru cyber crime division.

"Frauds related to crypto have a slightly different dimension compared to other online frauds due to the nature of the asset and how it can be potentially used for money laundering. Therefore, there needs to be more clarity on the legality of cryptocurrency in the country, and it should be guided by separate and specific laws, which we hope will get covered in the crypto bill that is due to get tabled in the parliament," he said.