Hacked, scammed and on your own: navigating cryptocurrency 'wild west'
Hacked, scammed and on your own: navigating
cryptocurrency 'wild west'
By Gertrude Chavez-Dreyfuss OCTOBER 17, 2018 / 10:07 PM
NEW YORK (Reuters) - When Peggy and Marco Lachmann-Anke
learned in January that hackers cracked a 40-character password and cleaned out
their cryptocurrency wallet, they did not go to the police or alert the tokens’
issuer, the Berlin-based technology group IOTA.
They bought more coins.
The Cyprus-based German couple, who describe themselves
as financial educators, figured they had no chance of recovering the coins and
it was not even clear who might take up their case. Yet they took the roughly
$14,000 loss in stride - something that comes with the territory when one bets
on a new, exciting technology in a yet unregulated market.
“We really believe in cryptocurrencies. We have studied
this for about a year before investing, so we are aware of the risks,” Peggy
Lachmann-Anke said. “There was nothing we could do.”
Far from unusual, the episode is emblematic for a market
where few rules apply and where investors’ faith in the blockchain technology
goes hand in hand with the belief that it also helps criminals cover their
tracks so well that trying to catch them is a fool’s errand.
Patrick Wyman, FBI supervisory special agent at the
financial crimes section of the agency’s anti-money laundering unit
acknowledges cryptocurrencies pose some unique challenges.
“A decentralized currency system like bitcoin, or another
form of virtual currency is not governed by any entity, suspicious reporting
activity, and any anti-money laundering compliance,” Wyman told Reuters.
Various estimates show cryptocurrency crime is on the
rise, keeping pace with the market’s rapid growth. That forces investigators to
focus on high-profile cases, security professionals and officials say,
effectively leaving small investors to their own devices.
“We do not pretend that every law enforcement agency is
devoting resources to every single crime. That would not be possible,” said
Jaroslav Jakubcek, an analyst at Europol, which serves as a center for the
European Union’s law enforcement cooperation, expertise and intelligence.
UNREPORTED CASES
Officials still encourage people to report cryptocurrency
theft to local police like any other crime, saying failing to do so only
emboldens criminals.
Yet because many victims simply do not see the point,
cryptocurrency theft is far more common than any published estimates suggest,
security professionals say.
According to financial research firm Autonomous NEXT and
Crypto Aware, which works with investors affected by crypto scams, about 15
percent of cryptocurrencies have been stolen between 2012 and the first half of
2018, representing a cumulative $1.7 billion in value at the time of the theft
and with a rising tendency. In the first half of this year alone, more than
$800 million has already been stolen, according to the data.
Yet Lex Sokolin, a partner and global director of fintech
strategy at the firm, estimates that as much as 85 percent of crimes go
unreported and says the published statistics only represent publicly reported
heists.
Reuters interviews with half a dozen victims paint a
similar picture. Out of that group only two reported their losses to the
authorities and one soured on cryptocurrency investments.
Armin Fischer, a Vienna-based IT specialist said he lost
about $5,300 in ether coins in a phishing scam in the summer of 2017 and
immediately alerted the local police just to find out that the duty officer had
no idea what he was talking about.
He said it took many months of knocking on doors to get
his case ultimately taken up by Vienna prosecutors’ office, but it is still
pending. Fisher says by now he has had enough.
“I have seen firsthand how big the security leaks are.”
Others are more philosophical.
Dave Appleton, a blockchain developer for HelloGold, a
gold trading app company in Kuala Lumpur, said he lost about $3,000 of ether
coins when scammed by a fake site touting a startup’s token pre-sale. He said
he just moved on, glad he did not lose more.
“The point is there’s no one to report the crime to,”
Appleton said. “I am not sure what country or jurisdiction it would come
under.”
According ICO tracker Coinschedule a record $21.3 billion
flowed into new tokens so far this year as investors keep snapping up “initial
coin offerings,” undeterred by high-profile heists, bitcoin’s and other
currencies’ slide from late 2017 peaks, and government warnings of widespread
fraud and theft.
MILLIONS AT STAKE
David Jevans, chief executive of cybersecurity firm CipherTrace
in Menlo Park, California, estimates that even when exchanges or trading
platforms get hacked, perhaps only a fifth of stolen coins is recovered because
of the ease with which digital tokens can move across several borders.
“You have to get law enforcement in five countries
interested enough, have time enough, and have evidence enough to open a case,”
he said. “By the time they agree, get the information, do all the paperwork,
the money has been moved.”
Security experts say in most cases millions need to be at
stake to justify such an effort.
U.S. entrepreneur and long-time cryptocurrency investor
Michael Terpin, who says he got robbed twice, learned firsthand that not all
hacks are created equal.
He said first time when criminals accessed his cellphone
with stolen SIM card credentials, emptied a wallet connected to it, and tricked
his friends into sending money by impersonating him on Skype, he contacted a
friend at the FBI.
But once she learned that only $60,000 got stolen, she
advised him to file a report via the FBI’s internet crime center website.
Terpin said he did, but never heard back.
Then, when last January he lost almost $24 million in
tokens from his mobile account, he went straight after the service provider
AT&T, filing a $224 million lawsuit accusing it of negligence that allowed
“digital identity theft,” a claim AT&T denies.
Undeterred, Terpin says he remains committed to
blockchain comparing it to the early days of Amazon.com Inc when the online
retailer faced much skepticism and even derision.
“That’s similar to today’s narrative that all ICOs
(initial coin offerings) are scams and nothing will ever be developed of value
because they’re not already fully deployed,” he said.
Steadfast commitment to the new technology and belief
that it gives sophisticated criminals the upper hand mean that even some
multimillion heists go unreported.
For example, when hackers stole about $9 million worth of
ether tokens from a Zug, Switzerland-based company Swarm City in July 2017, the
peer-to-peer digital platform did not report the theft to the police, business
leader Bernd Lapp said.
“It’s impossible to track and return the funds. We live
and die with this technology.”
Reporting by Gertrude Chavez-Dreyfuss; Editing by Tomasz
Janowski
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