Cryptocurrencies have made millionaires of ordinary people. But even as investors flock to digital tokens in record numbers, so too has there been a corresponding rise in crypto scams and thefts.
There were 116,139 addresses belonging to declared Bitcoin millionaires as of October 28, 2021, when the currency was trading at a high of just under $58,000, according to calculations by the financial publisher Finbold.com. Some 10,319 of the addresses had a combined balance of approximately $10 million.
Although Bitcoin was trading at $43,000 on February 10, the currency still boasted in excess of 96,000 millionaires – with a total market capitalisation of over $800 billion. There are an estimated 16,000 existing cryptocurrencies in total, with a market capitalisation of over $2 trillion, according to reference website CoinMarketCap.
But cryptocurrency crime has seen similar record-breaking numbers. Scammers in 2021 took $14 billion worth of crypto in 2021, nearly twice the $7.8 billion stolen the year before, according to blockchain data firm Chainalysis.
Irresistible appeal
The digital currencies appeal to both investors and scammers for a number of reasons, said Ola Lind, Director, FTFT Capital, a UAE-based financial technology (FinTech) holding company that invests in blockchain-based companies and whose parent, New York-based Future Fintech Group, is listed on Nasdaq.
“Cryptocurrencies have the potential to be a secure, censorship-resistant store of wealth,” he told GN Focus. He enumerates a number of reasons why cryptocurrencies are popular, including the need for a stable, long-term store of wealth that be easily controlled and deployed towards a wide range of investment opportunities and direct control over investments.
“Most cryptocurrencies have a finite supply controlled by mathematical algorithms, eliminating any governments’ ability to dilute their worth through inflation. Additionally, because of the cryptographic structure of cryptocurrencies, a government entity cannot tax or seize tokens without the owner's permission,” Lind explained. “Cryptocurrencies carry risks are that evolving as the industry matures. Investors should therefore acquire enough knowledge and information before they step into this market.”
Nigel Green, CEO and Founder of the financial advisory firm deVere, takes a similar view. Green, whose firm advises expats across the Gulf and elsewhere, launched a cryptocurrency exchange more than four years ago and frequently describes the digital tokens as “the future of money.”
He told GN Focus: “Savvy investors appreciate the inherent value of digital, borderless, global currencies for trade and commerce purposes in our increasingly digitalised economies in which businesses operate in more than one jurisdiction. They’re increasing their exposure to cryptocurrencies for ‘early adoption’ advantage.”
Significant risks
But besides the risk of losing their money, investors must now guard against scammers. Crypto-related crime losses rose 79 per cent from a year earlier, driven by a spike in theft and scams – although transactions involving illicit addresses represented just 0.15 per cent of total volumes in 2021, Chainalysis reported.
Some of this growth is a consequence of more investors entering the market, security experts say. Overall, some 152,000 UAE residents owned cryptocurrencies last year, according to a survey by payment enabler Triple A. At 2 per cent, that remains less than half the global average.
Still, as more first-time investors come to cryptocurrency markets for fear of missing out, their naïveté makes them easy targets for scams and Ponzi schemes in a largely unregulated marketplace. “With cryptocurrency assets seeing meteoric rises in their prices, there is naturally a fear of missing out amongst those who have not purchased cryptocurrency over the last few years. As a result, we are seeing a similar rise in cryptocurrency scams, as users who are joining the space for the first time are naturally prime targets for scammers,” said Satnam Narang, Staff Research Engineer at cybersecurity company Tenable.
Total transaction volume across all cryptocurrencies tracked by Chainalysis grew to $15.8 trillion in 2021 around the world, up over 550 per cent from 2020’s totals.
David Brown, Security Operations Director at Axon Technologies, a UAE-headquartered cybersecurity company warned that investors must do their own homework as long as crypto markets remain inadequately regulated. “There is a strong drive to get rich quick while doing no work to earn it, and the marketing around crypto makes it appear to be the answer. With no regulations in place, there is nothing to protect uneducated individuals about the subject matter from engaging in financial self-harm,” he said.
Rahil Ghaffar, Regional Director MEA at cybersecurity firm Virsec, advised investors to educate themselves and make informed decisions. “Investors must be alert, keeping in mind certain red flags that should never be overlooked – such as the lack of a white paper or not enough information; limited, if any, details about the actual team members and their respective backgrounds and qualifications, embellished or baseless claims, an unrealistic budget structure, unrealistic projected returns, and a general lack of feasibility, are all signs that should not be ignored.”
