Types of Online Crypto Frauds in the World of Cryptocurrency

In contrast to traditional currencies like dollars or euros, cryptocurrencies, also known as virtual currencies or tokens, are a new type of currency.

Bitcoin and other cryptocurrencies are digital assets that are protected by encryption and can be used as a medium of exchange, rather than traditional currencies that are created and guaranteed by governments or central banks. Their legitimacy is often ensured via a blockchain system, which records transactions in an open, distributed ledger. Cryptocurrency frauds include:

Financial Fraud and Theft

Crypto’s fast transactions, mobility, and global reach make it a new weapon for tax evasion, money laundering, and bribery.

Initial Coin Offering Scams

Initial Coin Offerings (ICOs) are a way of preying on the uninitiated. Many ICOs are fully made up, with fake team profiles and technical whitepapers borrowed from other reputable cryptocurrencies.

Pump and Dump Systems

Cryptocurrency can be a fresh twist on the classic pump and dump technique, where investors aim to drive up a stock’s price before dumping at a high point. This is prevalent in the crypto realm during the ICO stage and beyond, when false claims can inflate demand and allow the coin’s creators or major holders to make huge gains.

Manipulation of the Market

Criminals can try to manipulate markets that trade cryptocurrency or associated derivatives. Some examples of improper market manipulation are spoofing and front-running.

Theft in the Traditional Sense

Crypto also allows thieves to steal new items. Heists are possible, as is setting up false wallets to defraud counterparties, and fraudulent crypto exchanges to defraud clients.

Fraudulent Broker/Dealer Transactions

This includes cryptocurrency exchanges and funds that may need to be registered as broker-dealers or exchanges depending on the circumstances.

Code of Conduct for Cryptocurrency

The IRS, SEC, and CFTC all regulate cryptocurrencies under specific conditions. The SEC defines a cryptocurrency as a security as “an investment in a shared venture with a reasonable expectation of benefits from others’ entrepreneurial or managerial efforts.” According to SEC’s famous report on The DAO (German crypto ecosystem), this test was first applied to bitcoin.