How Regulators Manage to Retrieve Scammed Crypto Funds

The cryptocurrency industry is slowly but surely catching up with the world today. It has transcended through skepticism and unpopular culture to become one of the most thriving spaces in the financial sector. Furthermore, it has a top option for people looking to invest their money, whether due to its lucrative nature or monetary insurance.

Over the years 2020 and 2021, we have seen several digital currencies skyrocket to new all-time highs. However, as the crypto world thrives, so do the crimes associated with it. According to the Federal Trade Commission, Q4 2020 and Q1 2021 have seen a dramatic spike in crypto frauds, with over 7,000 complaints filed concerning crypto scams.

Recently, the DeFi platform Poly lost over $600M after a hack, rendering it the most massive DeFi hack of all time. Sadly, the attack was enabled by a cryptographic issue on the platform. Being among the most recent, this incident shows how prevalent cyber-related crimes on crypto platforms continue to be.

As it stands, this is a massive issue for all investors dealing with cryptocurrencies. Moreover, it calls out that watchdogs have to revamp their tactics to battle and retrieve stolen crypto. This article hopes to answer several questions, including recovering scammed crypto and what authorities are doing.

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Understanding Crypto Scams

The shape that crypto scams take is a varied and hot topic for both investors and crypto regulators. Some stand as more prevalent than others, always targeting novice investors more than experienced. Nonetheless, scammers are incorporating new tricks up their sleeves to target even the best of the best.

Some of the most common scams include ICO scams, pump and dump scams, mining scams, trading bot scams, phishing scams, ransomware, social media scams, to mention but a few. Considering crypto’s decentralized and anonymous nature, tracking down perpetrators can be a real pain. Additionally, the lack of clearly outlined regulations concerning crypto globally creates a guideline void on what to or not to do within the space.

The vital point is that fraudsters will take advantage of any condition to loot money from unaware users. But, on the other hand, regulators have to remain vigilant to protect and recover user funds as fast as possible. After all, with the right tools at hand, there is always a trail to follow.

Before we get into that, a look into how to protect yourself from crypto scams may come in handy if you wish to or already are investing in digital currencies.

How to Protect Yourself from Crypto Scams

Keeping in mind that perpetrators will always be there looking for quick ways to make money, here are a few pointers on how you can keep away from crypto scams:

• Knowledge is The Best Defense

Do extensive research on everything you involve yourself in. That way, you have a better chance to fend off scammers by knowing what to look for. Keep in mind that understanding your way is better than focusing on someone else’s thoughts and opinions. This point goes a long way, including when looking for a good service provider.

• Too Good to be True?

Most of the time, if a deal is too good, think twice. Whether on an ICO, an advertisement, or a celebrity endorsement, extremely rosy deals have a catch. A good example is during the Twitter hack in June 2020, where the hackers took over celebrities’ Twitter accounts. So while the offers to send their funds to the addresses listed to get double the amount looked legit, they weren’t.

• Passwords and 2FA

You need to be more creative when coming up with your passwords. For example, avoid too obvious combinations like birthdays or the names of your loved ones. Also, it might help if you consider 2-factor authentication on your wallets, making it harder for anyone trying to access them without your permission. Also, consider spreading out your funds to lower risks.

• Avoid Random URLs or Pop-ups 

First, it is always advisable to access your wallets offline since that is less susceptible to cyber-attacks/ malware. However, if necessary, you need to watch out for random URLs or pop-ups offering bonuses. These are one of the most typical ways which cyber-criminals use to infiltrate user wallets.

Additional ways to protect yourself are checking on whitepapers, transactional activities of different tokens, avoiding SMS, among others.

Ways Regulators Use to Recover Scammed Crypto

It is common knowledge that crypto transactions are irreversible. This element has instilled the idea that once scammers get a hold of crypto funds, it is impossible to recover them; arguably, this is not the case. As stated before, crypto regulators are hassling to discover new ways of finding stolen crypto funds. The process stands higher chances of success now than earlier through their knowledge and the help of various tools.

These aids include:

• Blockchain Explorers

In crypto and blockchain, you can refer to blockchain explorers as the Google of this space. They provide their users with information concerning blockchains, their transactions, wallet addresses, messages, etc.

Blockchain explorers utilize APIs and nodes to collect certain information, organize it in a specific format, and present it in a searchable order. Mostly, users look for recent transaction data from different mining activities. Furthermore, they hold block and wallet histories, miner information, mining difficulty, hash rates, transaction fees, among others.

This data can help regulators follow up on fraudulent transactions on different blockchains and the addresses that received such funds. Good examples of blockchain explorers are etherscan and blockchain.org.

• Help from Exchanges and Social Websites

The best example of this point is with the Twitter hack back in 2020. While celebrity accounts were taken over by hackers who scammed Twitter users their funds, authorities arrested the mastermind rather quickly. Moreover, the 17-year old’s scheme led to only $118,000 in crypto, mainly because concerned officials caught it early.

The success cannot be credited to the FBI only since Twitter, Discord, and Coinbase helped during the investigations. Getting information from such institutions may be a problem in most cases; however, acquiring court orders demanding the release of crypto codes takes the regulators a long way in their investigations. In addition, combined with advanced technology today, identifying scammers and other cyber-attackers is relatively more straightforward.

• Crypto Recovery Companies

Another significant contributor to the recovery of scammed crypto is fund recovery companies. Their expertise in conducting crypto-related research and investigations is a vital addition for law enforcement agencies.

By collecting information from victims, such companies can provide reports useful to regulators when searching for perpetrators. Moreover, they are the ones to go to parties if you fall victim to a crypto scam to start the recovery process. One well-known company dealing with the same is Ciphertrace.

Author’s Note

Concluding that we can have complete knowledge of what channels law enforcements use to recover stolen funds would be a lie. However, there are clear hints of what has been helpful in related cases in the past.

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The success rate of crypto fund recovery from scammers by regulators has not yet hit the expected levels from concerned users. Besides, they still have a long way to go, including providing clear regulations to follow within the crypto space. Nevertheless, everyone hopes that law enforcement agencies will catch up as far as crypto scams are concerned in the long run.