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Crypto Scams Increase: How Analysis Can Aid Recovery From Losses

Published October 30, 2023 3:50 PM
Josh Adams
Published October 30, 2023 3:50 PM
Key Takeaways
  • Digital assets associated with illicit activity continue to rise.
  • Blockchain analysis can help crypto holders to recover losses.
  • Some of these techniques can be also done for free.

Unfortunately, crypto crime isn’t going anywhere soon. According to the Chainalysis 2023 Crypto Crime report , $18 billion of crypto was associated with illicit addresses in 2021, with that figure rising to $20.6 billion in 2022. 

As crypto scams proliferate, analysis tools are becoming a critical resource for tracking down stolen funds.  A recent report  from blockchain analytics firm Bitrace outlines common crypto scam tactics and demonstrates how victims can leverage analytics to follow the money trail and potentially recover losses.

Crypto Scams: A Continuing Concern

Bitrace notes that crypto scams have boomed alongside the growth of the industry. Scammers are deploying increasingly sophisticated techniques, from fake wallet downloads to clipboard hijacking to phishing sites. Sadly, victims often don’t realize they’ve been duped until their funds vanish.

Crypto crime is a continuing problem
Source: Chainalysis Crypto Crime Report 2023

Once the theft occurs, analysis can make or break the victim’s chances of recovering their assets. As Bitrace explains , tracing transaction fees provides clues about where the scammer obtained their initial crypto. Tracking the movement of stolen funds reveals what types of entities or services the scammer uses to launder the money.

Powerful analytics platforms like theirs—or Chainalysis’ Reactor software , for example—can identify high-risk addresses associated with money laundering, online gambling, and other illicit activities. This “address labeling” contextualizes on-chain data to illuminate the scammer’s modus operandi.

Follow the Transaction Fees

To move crypto on-chain, scammers will at some point come into contact with transaction fees. This leaves an unintended breadcrumb trail behind criminals. Analyzing fee sources often exposes the hot wallet of an exchange the scammer used. From there, investigators can trace the money trail further upstream.

By simply following the fees, you can track the scammer’s behavior, and equip yourself with concrete leads to potentially track down your stolen assets. By leveraging transaction fee forensics, anyone can transform blockchain data into actionable intelligence.

For one victim who lost over 32,400 in the stablecoin USDT, analytics revealed the scammer’s funds originated from a centralized exchange, OKX. While the thief had limited personal activity, tracing the money upstream revealed a crucial lead.

In the words of the report: “Attackers will deceive people, but the fund laundering link will never.”

Accuracy Requires Proper Analytics

The report emphasizes that comprehensive analytics circumvent incorrect assumptions. In probing an exchange user linked to a theft case, many would presume the user was the scammer. However, Bitrace’s comprehensive assessment determined the address facilitated deposits and withdrawals for both legitimate exchange activity as well as money laundering. Pinpointing the true criminal requires proper analytics.

Paying a little money can help, too. Beyond official blockchain explorers (like etherscan ) premium and specialized analysis tools can enrich investigations with address labeling—illuminating addresses linked to risky or illegal activity like gambling, fraud, and money laundering.

In the long run, comprehensive labeling helps to trace a scammer’s actions and connections, but it also equips victims and authorities with a more complete intelligence picture. This key information can help speed-up potential enforcement measures against the criminal, whether by law enforcement agencies or blockchain-based firms.

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