2017 was peak for cryptocurrency and fidget spinner-related scams
Australians only lost $2.1 million to crypto scams in 2017, showing how little used it really is.
Australians reported $2.1 million lost to cryptocurrency scams in 2017, according to a newly released ACCC report (PDF). The figures come from reports to the Australian Cybercrime Online Reporting Network (ACORN) and the Australian Competition and Consumer Commission (ACCC). Like most other scams, the real losses were probably much higher than what was reported.
Either way, it's a startlingly low amount given the shady reputation of cryptocurrency. The amount lost accounts for just a tiny fraction of the $340 million total scam losses reported by Australians in 2017.
The ACCC also noted that 2017 was also a peak year for fidget spinner-related scams, most of which essentially boil down to fake sale offerings. The ACCC didn't mention how much was directly lost to fidget spinner-related scams, but it apparently received enough reports to warrant a mention.
As with fidget spinners, it's quite possible that crypto scam losses peaked in 2017 and will continue declining. Cryptocurrency-related scams already accounted for an almost negligible portion of the total scam pie, so a continued decline might see it drop as close to zero as realistically possible.
The reason for this might be seen in the way cryptocurrencies defy classification. Cryptocurrency might be a currency, an asset, an investment, a utility or something else. This confusion is mirrored in the forms taken by cryptocurrency scams.
- Crypto as a commodity. The most basic scams might treat cryptocurrency as a hot commodity, like fidget spinners. These scams can simply take the form of fake sale offerings posted on social media or made through cold calls. Here, the scammers use crypto as a hook to steal people's fiat currency. This category might be responsible for the majority of cryptocurrency scam losses in 2017.
- Crypto as a financial product. Scammers will sometimes treat crypto as a miracle investment opportunity and tout it in a similar way as binary options.
- Crypto as a currency. Others, such as the surprisingly effective Twitter impersonation scams, treat crypto as money and go after people's funds directly or use it as a payment method in lieu of gift cards or prepaid debit cards.
Scammers might have different opportunities depending on how they, and their victims, look at crypto.
Why aren't crypto scams costing more?
Crypto as a commodity
One reason might be because main-street hype came and went relatively quickly. Fake sales scammers simply spruik whatever's most hyped up and profitable at the time, and they are used to quickly moving from one product to the next. These kinds of fake sales scams accounted for a significant portion of the losses reported.
But they also have a lifespan that's inherently limited by hype. A quick glance at Google Trends suggests that most people's interest in cryptocurrency only went as far as bitcoin, and that its hype simply came and went like other fads. This broadly suggests that the field of inexperienced potential victims might simply have been much, much higher in December than it ever will be again.
Scams that treat crypto as an asset came and went along with the hype and might never reach the same level again.
Crypto as some kind of vague financial product
Cryptocurrency's reputation as the Wild West is keeping people on their toes and making them more discerning than they would otherwise. This is bad news for investment scammers who take great pains to appear legitimate.
If you look at the MoneySmart list of unlicensed financial companies and probable scams, you'll quickly see the trend towards formal and financial-sounding names, designed to act dignified and instil false confidence. Most reputable crypto exchanges, by contrast, seem to go for hipper tech-sounding names. A single one of these reputable-sounding fake companies can pull in more than $2 million all by itself, which kind of puts the measly $2.1 million cryptocurrency-related losses in perspective.
There were six occasions in 2017 where an individual reported losing over $1 million to scammers, and five of those were investment scams while one was an unexpected money scam (distant inheritance, Nigerian prince, bank error in your favour, etc). Scammers dream of landing these whales, which is still only really possible with traditional scams, rather than crypto. Also, older people (age 55+) tend to be less interested in cryptocurrency while also being richer targets for scammers.
Cryptocurrency investment scams simply can't match the returns of traditional investment scams, and other than a handful of anomalies most will fall flat, so not many scammers have any reason to try.
Amount lost to scams by age
Crypto as currency
This is the domain of iTunes gift cards, prepaid debit cards and similar, but cryptocurrency might be encroaching on it now. These might be the scammers who are most interested in cryptocurrency itself, rather than simply cashing in on the hype as it passes by. For example, the scammers who have made over $50,000 so far by posing as the ATO and asking people to send them bitcoin, or the hackers who embedded a ransom message in their DDoS attack.
But it's still a relatively tiny area.
Australians reported losing $2.1 million to all cryptocurrency scams in 2017, but in the same year ended up losing $1.9 million via iTunes gift cards, while more was undoubtedly lost through other prepaid gift cards. These cards are used to extract untraceable payments from victims. Basically, the victim buys a bunch of cards, then sends those card numbers to the scammer who can then sell the numbers online.
A significant amount of time and value is lost along the way, and victims are getting increasingly suspicious of prepaid cards, so it's easy to see why scammers would rather move to cryptocurrency payments.
But here, they might be held back by a simple lack of public interest and ability. Anyone can buy those prepaid cards with cash at a convenience store, and scammers will sometimes coach their victims, step by step, on how to buy and redeem them.
A similar system has emerged in a recent blackmail scam wave, which handily comes with step-by-step instructions on how to buy and send bitcoin. It's still much more difficult than gift cards, however.
And crucially, it's also a lot slower, with most crypto platforms requiring user verification, which can take several days. This gives the victim some time to think twice, discuss it with someone else, report the scam and similar. Many scams depend on keeping the victim off guard while rushing them through to payment as fast as possible, which isn't yet compatible with cryptocurrency. For these reasons, phone calls are still a scammer's tool of choice, accounting for 40% of contacts and a disproportionately large amount of money stolen. Scammers have every reason to love cryptocurrency payments, but they still need a system that works for their "customers."
Scam takings might be one of the more unconventional benchmarks for real-world cryptocurrency adoption, but its ability to cross all the facets of cryptocurrency, as a commodity, a currency and a kind of financial utility, means it might be one of the more accurate and holistic ones that simultaneously measures hype, awareness and real-world adoption.
A mere $2.1 million lost, even with cryptocurrency hype near its peak, clearly shows how much further the space has to go.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VEN, XLM, BTC and NANO.