The Rise of Cryptocurrency and the Fraud That Comes With It

You don’t have to follow the financial news closely to have heard about the growing popularity of cryptocurrency. While the crypto world can seem confusing to many, and it is certainly still growing and emerging, there is little doubt that it is going to play an increasingly important role in the financial landscape for years to come.

With this article, we’d like to take a moment to explain the basics of the rise of crypto assets, what it means for the business world, and how fraud risks can open up when crypto is involved. As with anything new, there are advantages to be enjoyed, but there are also threats to be mitigated. The potential for fraud doesn’t mean that crypto assets should be completely ignored or avoided, but care needs to be exercised with blockchain technology to steer clear of any unwanted trouble.

If you are dealing with any fraud concerns in your business, having an expert on your side is a critical piece of the puzzle. Turn to Space Coast Forensics for the help you need breaking down complex accounting issues to detect signs of fraud before they become even bigger problems that threaten the very existence of the company.

A Crypto Primer

If you are going to get a handle on what kinds of possibilities exist in the world of cryptocurrency as it relates to fraud, you’ll first need to have a clear understanding of what crypto is and what it can be used for in the modern world. Of course, an in-depth discussion on such a topic would fill many books, but we’ll do our best to give you a big-picture overview in the next few paragraphs.

Cryptocurrencies are, in many ways, a new way to think about money. They are decentralized in the sense that they operated outside the system of fiat currency that relies on individual countries to issue and support a currency system. For example, the U.S. dollar is managed by the government of the United States, and all other countries have their equivalent system. There is no such system with crypto, however, as they exist within a blockchain technology that isn’t tied to any one government or nation.

For some people, this system comes with a few notable advantages. For one thing, crypto is borderless, and it doesn’t need to be converted from one currency to another when it crosses political lines. You could be anywhere in the world and your crypto would – theoretically – be able to be used. Also, there is a degree of anonymity associated with the crypto system that isn’t available with traditional currency, so some are drawn to it by the privacy that it has the potential to offer. Crypto transactions don’t have all of the personal information attached to them that you would see with a standard financial transaction. Banks are not needed for crypto transactions, which can be a positive or negative depending on your perspective.

Is cryptocurrency safe? That is a question of perspective more than anything else. Some people like the sense of security that banks and government-issued currency seem to provide, while others would prefer to have those parties cut out of the process entirely. As we are still in the early years of this technology, cryptocurrency investments have proven to be wildly speculative, with huge gains and massive losses experienced all within a short time. While more and more people have crypto wallets and wish to use this type of currency as a form of payment, it seems that we are still a long way off from mainstream acceptance of digital currency on a broad scale.

A Few Fraud Possibilities

If you only have a cursory understanding of crypto, you might be surprised to learn that fraud is a risk that is present with this type of money. After all, the potential security of using a crypto wallet is promoted as one of the primary benefits, and while there are some security advantages to crypto, nothing is perfect. The potential for fraud exists here just like it exists anywhere else money changes hands. Cryptocurrency transactions themselves tend to be rather secure by the nature of the underlying blockchain technology, but that doesn’t mean that nothing can go wrong. Here are just a few of the possibilities to consider with regard to crypto and fraud.

Investment Scams

With an emerging market like this one, investment scams might be the most dangerous part of the crypto world. Crypto investments have gotten a lot of good publicity for the potential they hold, but there is a darker side that isn’t talked about nearly as much. Schemes that promote investing in cryptocurrency, often in the form of an Initial Coin Offering, can lure people into thinking that they are likely to enjoy returns far beyond what is reasonable. There are a variety of ways to execute this type of scam, including creating a powerful network of positive publicity to drum up interest and have people make an investment more on an emotional basis rather than looking at the underlying fundamentals of the asset they are purchasing.

In some cases, this can simply mean the investor doesn’t make much money at all on the ICO, or loses some money. In more dramatic, brazen cases, the entity that offered up the coins initially might just disappear, falling off the radar as quickly as it had come onto it, and taking the money from investors at the same time. Departing from the tightly regulated world of traditional investments and diving into cryptocurrency investments takes away some standard protections and makes the investor far more vulnerable in the end.

Pump and Dump

This is a type of fraud that is certainly not unique to cryptocurrency exchanges, but it is something that potential investors need to watch out for when looking at getting involved in the crypto markets. The way it works is this – a fraudster or group of fraudsters will aggressively promote a relatively small, obscure cryptocurrency. Before doing this promotion, they will own as much of that coin as possible, and they will be attempting to drive the price on the market up by openly and loudly touting its potential as an investment vehicle. This is the “pump” phase of the fraud process.

Because the coin they are promoting is small and not owned by that many people, the price is easily influenced by a relatively small number of investors. In other words, this scheme does not require millions of people to get involved for it to be effective. If the fraudster is able to gain some traction with their promotional efforts and people start to invest in the coin, the price will rise. Then, at some point, the “dump” piece of the fraud will come into play, where they will sell the virtual currency that they have promoted, cashing in on the price gains and sending the value crashing for everyone else who is left holding the bag. Digital assets are still vulnerable to this type of scheme because they aren’t as widely owned or as carefully regulated as more mature markets.

Money Laundering

It’s also possible for crypto wallets and crypto assets in general to be used as part of a money laundering operation. Since crypto is anonymous by nature, it makes for a perfect ally in the attempt to move money around and avoid detection. Money laundering is the process of “cleaning” assets by disguising their true origins and making them seem legitimate when they are not. Using crypto transactions to hide the history of money isn’t a perfect plan, and an experienced forensic accountant will likely be able to track the trail of these assets to figure out what is going on, but taking this step does add a layer of complexity to any investigation.

Along a similar line, it may be possible to use a crypto wallet to hold digital or virtual currency that one wants to keep away from taxation. Trying to avoid paying taxes is another form of fraud and hiding assets so they can’t be found later in case of an audit is a big part of the evasion playbook. Toward that end, would-be criminals can use the blockchain technology behind cryptocurrency exchanges to attempt to hide some of the money they possess and keep it out of the hands of the government.

Ransomware Attacks

This type of crime isn’t necessarily rooted in crypto, as it has been used since the rise of the internet, but crypto may have given it some new life. A ransomware attack is when a hacker takes over control of a website or network and then demands the payment of a ransom to return the site or network to the control of the victim. While they control the data, the hacker will typically encrypt that data so that it is useless to the victim, and the only way they will provide the decryption key is through the payment of a set ransom amount. These days, that ransom is often demanded in crypto because of the anonymous nature of the system.

A ransomware attack can be particularly crippling for a business that has its network taken over and no work can get done while it is occupied by the criminals. So, not only does the business face the prospect of paying a lofty ransom, but also they will lose money while not being able to operate. Taking the proper steps to defend against this type of attack can help, like having detailed backups that are stored on a separate server, but anyone who operates on the internet is at least somewhat vulnerable to this sort of criminal attack.


Along with ransomware attacks, this is another one that isn’t new to the internet just with the rise of blockchain technology and crypto. Phishing is the act of attempting to get someone to reveal some private, personal information that can then be used to steal from them. In the terms of cryptocurrency scams, that means attempting to get an individual (or even a business) to reveal the private key or login credentials for their digital assets. With that information revealed, the scammer can use the private key to steal whatever crypto asset was being held in just a matter of moments.

There are many different techniques available to be used by phishing scammers, including the classic email stating that there is a problem with your account and you need to login in to solve it. The login page in this scenario is not legitimate, and it will be collecting your data so the scammer can then quickly use the private key to access the account separately and steal from it. As far as cryptocurrency scams go, this one is pretty basic and not particularly effective, but it can still trap victims who aren’t aware of the threat and what to avoid.

Leaning on Forensic Accounting

The continual growth of blockchain technology and the advancing popularity of cryptocurrency makes it more and more important to bring in a forensic accountant when trying to sort out any complex financial issues or unravel any fraudulent activity. Digital currencies have made it increasingly difficult for standard accountants to track the movement of money, meaning the skills that a forensic accountant brings to any project are going to be called for with more regularity. Crypto exchanges make it easier than ever for people to move money around anonymously, and while most of those people aren’t committing any type of fraud, some of them are.

With a forensic accountant on your side, it will be possible to find suspicious transactions within the blockchain technology to pull out and identify as patterns that could be covering up something more sinister. Also, the tracing of the movement of money is something that forensic accountants are particularly adept at handling, and while that can be harder when crypto is involved, it is not impossible.

There are plenty of types of clients that might need to hire a forensic accountant when crypto trading is involved. It could be a business that has embraced the crypto market as part of its operation only to find itself facing a fraud scheme that is draining the business of money. Or, it could be a person going through a divorce who feels that their spouse is hiding assets in a cryptocurrency wallet in an effort to not have those assets divided as part of the terms of the breakup. Whatever the case, getting an experienced, proven forensic accountant on your side can make all the difference in the work when crypto is involved.

An Urgent Matter

Are crypto scams threatening the health of your business? Is cryptocurrency safe at all? It can seem like there are more questions than answers in this space at the moment, but it doesn’t need to be that way. Whatever your questions or concerns may be, take a moment today to get in touch with Space Coast Forensics for expert assistance. With our team on your side, you’ll get the answers your need to move forward with confidence. Thank you for visiting and we look forward to serving you soon.

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