How to Avoid Crypto Scam Recovery Fraud: The Full Guide

Getting caught in a scam can see you losing money – potentially a lot of money. And you want to do everything in your power to get it back. Especially when the scam involves cryptocurrency and its complex technology, we all hope to find some fix that will recoup our losses. Scammers know this. And they see a great opportunity to scam you again. If you’ve been caught in a scam involving cryptocurrency, be on the lookout for crypto scam recovery fraud.

See Crypto Fraud and Recovery Scams with Nick Smart for a complete transcript of the Easy Prey podcast episode.

Nick Smart is the Director of Blockchain Intelligence and Data for Crystal Blockchain, a blockchain intelligence company. Crystal Blockchain analyzes transactions on the blockchain for suspicious activity and provides alerts for clients. They also help law enforcement trace funds on various blockchains. Before he got involved in the cryptocurrency and blockchain space, he worked in IT security and the British military for twelve years.

Nick has only been in crypto for about four years. He admits that he’s a latecomer to the space. At first, he was cynical about the whole idea. When working in intelligence, it pays to be a pessimist, and Nick thought crypto made a lot of outlandish claims. But then he found the story of law enforcement agencies using cryptocurrency and blockchain technology to take down a child pornography site. He highly recommends the book Tracers in the Dark to read the full story. But he saw the potential that he’d overlooked before. It was a wake-up call and it got him interested in crypto.

Understanding Crypto Scam Recovery Fraud

In order to understand crypto scam recovery fraud, we have to start at the beginning. Why does cryptocurrency have such a reputation for scams and fraud? There are a couple reasons. First, it’s perceived to offer a really high return on investment, which means a lot of people are potentially interested in getting involved. Second, the technology is generally not well understood, which means the people who are interested tend to not really understand how it works. And third, global regulation of cryptocurrency is patchy at best, so people often aren’t protected and there’s potentially no supervision involved. This all leaves lots of opportunities for criminals to run crypto scams.

We also have to remember that anyone can fall for scams. It could be an ad on social media, a friend who referred you, or you met someone on a dating site who talked to you about it. Whatever the method, anyone can get caught in it. Once you get caught, it’s very difficult to get away. And once you do get away, criminals can target you again with crypto scam recovery fraud.

Not only have you been deceived once by the fraudster, you are now going to be deceived a second time and they’re going to take more money from you because you are potentially desperate to get it back.

Nick Smart

People are Desperate for to Get Their Money Back

The big factor in crypto scam recovery fraud is that people are desperate to get their money back after something happens. We’ve all heard horror stories about people who’ve lost it all in the market. And we all have rent, student loans, or medical bills. We need the money! In a lot of other frauds, criminals have to work hard to create the urgency. With crypto scam recovery fraud, the work is already done. You’ve just lost money to a crypto scam and you’re desperate to get it back.

Whenever there’s a major incident in crypto – like theft, a widespread scam, or something like the recent collapse of FTX – these scams start coming out in full force. There are a lot of crypto-related discussions on Twitter, but even on other social media networks, there are people saying they know someone who can get your money back. Nick thinks of them like ambulance chasers, because it’s the same idea. They saw the big disaster and now they’re coming to “help.”

Scammers Cash In on a Lack of Understanding

Most people don’t understand the intricacies of cryptocurrency and blockchain technologies. That makes it easy for someone doing crypto scam recovery fraud to come in and make outlandish claims. Cryptocurrency wallets are protected by private keys. A recovery scammer may tell you that they can get your money back by cracking the first scammer’s private key. Even with advances in modern supercomputers, it would still take hundreds of thousands of years to crack the encryption on a Bitcoin private key, and these people claim to do it with a MacBook Pro. Nick may be an Apple fan, but they’re not that good. They rely on the fact that people don’t know what’s possible and are desperate for a solution.

In the fund recovery scams, they’ve already got a captive audience who’s desperate.

Nick Smart

Some wealthy people may not miss a few hundred dollars lost to a scam. But for some people, that might bet the difference between feeding their children or not. You were counting on turning that $500 into $700. Half of that money was your food budget for the month. How are you going to eat? What are you going to do now?

In a crisis or major incident, humans are wired to look for someone in charge to give us instructions. Crypto scam recovery fraud banks on this. People are motivated to come to them for help, and they’re prepared to trust them and view them as an authority. It gives fraudsters a big advantage, and they’re ruthless. On top of that, law enforcement still isn’t great at dealing with cryptocurrency-related fraud. That makes victims even more motivated to seek a non-official source – and it’s just one more tool in the crypto scam recovery fraud toolbox.

Recovery Fraud Isn’t Unique to Cryptocurrency

Crypto scam recovery fraud isn’t the only type of recovery fraud that exists. Recovery fraud has been around for a long time. Very early on, scammers realized that when people had been scammed, they wanted to do something about it. By posing as someone who will help fix the fraud, they saw a great opportunity to defraud victims again. Often the recovery fraud is perpetrated by the same people who perpetrated the original scam. It’s especially common as a follow-up to investment scams.

I think as long as fraud has been happening, the fund recovery has been alongside it.

Nick Smart

The main difference between crypto scam recovery fraud and other types of recovery fraud is the story. When committing recovery fraud on an investment scam, for example, it has to look very professional. The scammer has to claim that they have attorneys and paperwork and can fight the legal battles. But with crypto fraud recovery scams, they can use a whole different narrative. It doesn’t have to be a bunch of lawyers and professionals. The person offering to get your cryptocurrency back can be an independent hacker-for-hire who can get your money back through tech channels.

How Recovery Fraudsters Fish for Prey

The methods of finding victims are different between ordinary recovery fraud and crypto scam recovery fraud, as well. General recovery fraudsters may put up a listing on Google or purchase ads, doing their best to look like a legitimate professional service. Crypto scam recovery fraudsters usually put up their hacker-for-hire statement on one social media platform and wait for people to find it. You post about a scam you experienced on Twitter, and someone will say, “Hey, I saw this guy on Instagram who does crypto scam recovery.” You reach out to them out of hope and start losing money all over again.

The hacker-for-hire variety of crypto scam recovery fraudsters are especially dangerous because they often ask for access to your entire device. Not only will they take the fee you pay and never get your losses back, but device access can give them some nice bonuses. They will probably leave some malware behind. They will also probably use social engineering and other tricks to get you to do bank transfers or steal your credentials.

It’s not just a loss from a crypto scam. Now you’re paying guys to pretend to help you. And you’re also going to be attacked again and again. Some of these crypto scam recovery fraudsters create very convincing video testimonials about their fake services. It’s all lies to feed the narrative. There are community monitoring websites that let people report fraudulent wallet addresses, and crypto scam recovery fraudsters are even commenting there advertising their fraud. They really don’t care how much it hurts you, they just want to get paid.

The Shame and Stigma of Falling for a Scam

One thing we should all do – especially anyone involved in countering or discussing fraud – is to try to lift the stigma of being a victim. It can happen to any of us, and has happened to many. Nick was once part of a group presentation where a colleague attempted to demonstrate something and lost $40 to a scam in front of a room full of bank regulators.

It happens to the best of us. Nobody’s immune to this. They have always got some way of enticing you in. Everyone’s got a particular thing, they’ll just keep [trying] until they find it.

Nick Smart

Getting caught by a scam or fraud can be devastating both financially and emotionally. Romance fraud is a good example. The victim learned to trust someone. They formed an emotional connection deep enough that they were happy to part with their money. They may have been lonely, and they probably put a lot of time and effort into the relationship. Now they find out that not only does their partner not really care for them, but they’ve stolen their money too. Adding shame, stigma, and self-blame on top of that only makes it harder for the victim to recover afterwards.

Cryptocurrency is Not Untraceable

In money laundering and terrorism financing, there are four pillars of funding criminal activity: Raise, store, move, and spend. The only difference with cryptocurrency scams are the raise and spend steps. The “raise” part is where and how they get that money. In a scam, criminals do the scam and get the money from victims. The “store” and “move” parts are self-explanatory – where that money is stored and when, where, and how it’s moved.

The biggest difference where cryptocurrency is involved is in the “spend” part. If you want to convert crypto into a luxury good or service, you’re probably going to have to convert it to a fiat currency. It’s difficult to buy something like a house with cryptocurrency only. But most places that let you convert cryptocurrency into ordinary fiat currency have strict controls about it. It’s difficult for scammers who got paid in cryptocurrency to convert it to fiat.

Following the Money Through the Blockchain

When scammers do the “raise” step to get that money, they have to send their victims a cryptocurrency wallet address to receive that payment. Once they’ve received it, they can then move it around the blockchain. There are private blockchains, like Monero, where you can’t track between two points. But with any well-known blockchain or major cryptocurrency, like Bitcoin or Ethereum, you can follow it. You can track the money from the scam all the way to conversion. And the conversion is an opportunity to learn who’s behind it.

It’s possible to start drawing these things together. It’s possible to start linking together groups of individuals and activities thanks to the blockchain.

Nick Smart

Crypto isn’t anonymous – it’s pseudo-anonymous. At some point, the criminal is going to want to swap it for fiat currency. But the crypto asset industry is highly scrutinized. We scrutinize traditional financial institutions, but much of what happens there is opaque. With crypto, we can see quickly which exchanges are receiving money from drug marketplaces, child porn sites, and fraud. It’s hyper-transparent, and that isn’t necessarily a bad thing.

How to Avoid Crypto Scam Recovery Fraud

So you lost money to a crypto scam. That’s an awful situation to be in. But now there’s someone saying they can get some of that money back for you. What do you do?

First of all, engage your cynicism and take it with a pinch of salt. Nick wants to dispel one of the more common technical myths: It’s not possible to hack a private key. The person offering crypto scam recovery can’t get control of the private key and send the funds back to your account. It’s just not happening. In most asset recovery, the money is caught while it’s moving. Nobody is breaking into wherever the money is to steal it back.

If you’ve been a victim, report it and tell someone who can help. With cryptocurrency especially, it’s best to move fast. Report the wallet address you sent the lost money to on sites like Chainabuse and Blockchain Abuse. Talk about what happened online to make other people aware. Keep records of what happened and preserve the evidence. And if it’s on a dating app or platform, report it there, too.

Also report it to law enforcement. Get a record on paper, and provide copies of whatever evidence you have. Law enforcement is slowly getting better at dealing with crypto-related issues. Asset recovery is never a fast process, especially in cases with newer technology like crypto, but it’s possible that something could be done.

Many blockchain intelligence companies, including Crystal Blockchain, have investigations teams. These are services that you have to pay for, but they are companies with tools, technology, and skills to do these investigations. There are people out there who claim to do the same thing, but there are no regulations in place. Chances are good that they’re just crypto scam recovery fraudsters.

Talk to the Exchange

Cryptocurrency exchanges are generally quite responsive to fraud. All of the big regulated (or regulation-attempted) exchanges have dedicated investigations teams. These include the bigger household names like Kraken, Coinbase, and Binance.

The exchanges put resources towards stamping out fraud because it’s an existential crisis as an industry. If everybody says that anything involved with cryptocurrency is a scam or not, it doesn’t matter if it’s true. It will really hurt the reputation.

If they know fraudulent money will be coming through a particular exchange, report it to them. They will work with you and do what they can to help. Nick doesn’t know what they can or will do specifically, but they know that fraud on their exchange is a bad thing. They have an incentive to self-regulate and build trust in the industry. Report fraud to them and get their help as well.

Where to Report Fraud on the Blockchain

Crystal Blockchain offers a blockchain explorer on their website. There’s a button you can use to report an address associated with fraud. To report Bitcoin addresses specifically, there’s bitcoinabuse.com. Chainabuse also allows you to report addresses on the blockchain. Nick always recommends reporting directly to a blockchain analytics provider like Crystal Blockchain where possible. They can report suspicious addresses to the exchanges. The exchange can then freeze the account, preventing the criminal from being able to spend that money.

They are not invincible … they will get caught and their day is coming. I really hope to speed that up.

Nick Smart

In order for it to work, though, people need to come forward and volunteer information, especially addresses and websites used to commit fraud. If you imagine the blockchain is a photograph, you can look down and see buildings, roads, rivers, and all that. A blockchain analytics tool identifies that this building is a bank, that one’s a shop, and that’s another bank – it labels those parts. If you come in and say “I know a criminal lives in that building,” it helps. The analytics company can now watch very closely every time a car leaves that building and goes to a bank. Linking that information can have a much bigger impact.

You can find Nick Smart on LinkedIn. You can also visit Crystal Blockchain online at crystalblockchain.com. They have blogs and insights available, including some recent reports about seizures by worldwide law enforcement and an upcoming report about romance fraud that includes materials leaked from a criminal’s computer. If you have additional questions, feel free to reach out.