Australians Lost $2.1 Million to Cryptocurrency Scams In 2017
Australians lost $2.1 million to cryptocurrency scams last year. The number is $800k more than the previous figures. In February 2018, it was revealed that the citizens lost a total of $1.3 million to various Bitcoin and Ethereum scams. Most of this money was lost in paying ransoms in digital assets or investing in fraudulent initial coin offerings.
However, the number could be inflated because of the December peak in crypto prices. The Australian Competition and Consumer Commission (ACCC) noted “Between January and September 2017, about $100,000 was reported lost per month to scams which had a cryptocurrency angle. However, in the month of December 2017, reported losses to [the ACCC’s] Scamwatch exceeded $700,000 and the average reported loss had jumped from $1885 in January  to $13,205.”
There was also some ambiguity regarding the extent to which digital currency ransoms have supported this number at the time. The ACCC said that the losses included in the report were recorded against ‘other’ buying and selling scams. It didn’t elaborate further.
Today’s data release shows that a big chunk of the losses is attributed to purchase of fake coins as well as coins bought through brokerages. The involvement of exchanges in these scams way quite less.
The ACCC commented in the annual scam report, “Examples of cryptocurrency scams in 2017 include fake ‘initial coin offerings’ which, like initial stock offerings, purport to be the launch of a new cryptocurrency.”
It further noted, “Others capitalized on the general confusion about how cryptocurrency works and instead of people discovering how to directly buy cryptocurrencies, many found themselves caught up in what were essentially pyramid schemes. A number of reports showed that victims entered into cryptocurrency-based scams through friends and family who convinced them they were onto a good thing, a classic element of pyramid schemes.”
The number is considered conservative by the agency which believes that many people could be too embarrassed to report.
It is evident that ICOs and pyramid schemes are at the heart of these scams. Several such frauds have unfolded in the past few months with companies raising millions of dollars based on fraudulent documents. Many of these companies do not have viable business models or even a real business and their whitepapers are plagiarized from established crypto businesses.
Financial regulators in Australia have also been keen on regulating these offerings. The Australian Securities and Investment Commission (ASIC) recently notified that it will be updating its guidance for companies who are trying to raise funds through virtual coins.
ICOs have become a popular method for raising funds, especially as they offer a more feasible method of getting business funds without sending endless proposals to venture capitalists. Using blockchain tech and a platform like Ethereum, companies can create coins of their own and offer them to investors in lieu of their Ether coins.
ASIC commented that there is opportunism in this space, “because it is seen as an easy, low regulation, low cost option [to raise funds] which could lead to immature businesses coming to market”.
In the US, the Securities and Exchange Commission is also tightening its grip on fake coins. Last week, it launched a fake ICO for HoweyCoin to educate investors about the fraudulent methods scamsters use to dupe people.