January 30, 2015

Over 12 Million Dollars Lost in Bitcoin Scams Since 2011 [Research]

In 2011 scams that promising Bitcoin riches , netted the crooks with over $12 Millions in the last four years  , stated by researchers from South Methodist University – Texas .

Over 13,000 victims handed over their money unwittingly in 42 different scams over that time period, their data suggests. The total amount of funds cheated from victims over this period is certainly higher than the estimated $12 millions that the research identified.

A co-author of the research, Marie Vasek, said:

There are a lot of scams that we couldn’t measure at all. There were scams we couldn’t find or verify … We think presenting our findings as they are, a lower bound, makes a lot of room for us and others to further quantify scams in this space.

Vasek, who researches computer security at Southern Methodist University, co-wrote the paper with Tyler Moore, an assistant professor in computer science at the same institution.

Diligent research

The paper entitled “There’s No Free Lunch, Even Using Bitcoin: Tracking the Popularity and Profits of Virtual Currency Scams”, has been presented at the Financial Cryptography and Data Security conference taking place in Puerto Rico this week.

Vasek and Moore research had used as reference points online repositories of scam accusations, including a mega-thread of scams, hacks and heists on the Bitcointalk forum that has been maintained since 2012, as well as the subreddit r/bitcoin, BadBitcoin.org and CryptoHYIPs.com. This process required the researchers to painstakingly go through forum threads post by post, even translating messages that were written in languages other then English, as well as visiting the websites that scammers created to publicise themselves.

We went through every single post to determine if the scheme was a scam, any associated bitcoin addresses with the scheme, and any associated scams. – Vasek

Using this method they found 349 scams, which were then whittled down to 192 deceptions after excluding phishing, malware and pay-for-click websites, which fall outside the scope of the study. The researchers then extracted bitcoin addresses linked to the frauds, enabling them to look at transactions from victims to fraudsters recorded on the blockchain.

The paper groups scams into four categories: wallet software, exchanges, mining ‘vapourware’ and ‘high-yield’ investment programmes that operate as Ponzi schemes.

The authors notably exclude the collapsed bitcoin exchange Mt Gox from their study because it’s unclear if the platform was originally set up to defraud users or was simply poorly run.

Being bad at running a business does not make you a scammer, even if many people accuse you of that on the Internet. – Vasek stated

Catching the ‘Big Whales’

The most lucrative scams were Ponzis, which yielded $7.5m to the fraudsters that the researchers were able to track. Mining scams were next, generating $3m in ill-gotten gains for the cryptocurrency hustlers. Exchange and wallet scams, by comparison, yielded a paltry $500,000 and $400,000 respectively.

Notably, it is the schemes that cross over from the traditional HYIP world to the Bitcoin realm that are the most successful, the paper finds. Nine scams bagged $6.5m-worth of coins in the 12 months from September 2013. These include schemes like Leancy, Cryptory and Rockwell Partners.

These ‘bridge’ HYIPs also keep the carousel going the longest, operating on average for 125 days before folding. Bitcoin-only schemes, like First Pirate Savings and Trust, by contrast run for only 37 days on average.

For a scam to be successful, it appears that it must catch the few ‘big fish’ who will pay the bulk of the money into the scam  .

Vasek that blockchain is an easy to use ledger to track all transactions was one of the biggest reason to run this reasearch togheter with Mr. Moore .

The blockchain creates an opportunity in that transactions may often be tracked, which could make it easier to assess the true risk posed by scams

Will all this make people more careful regarding their Bitcoin investments ? It will affect startups ? Or bring new notions of what is a good investment and what is not .

Research Link : http://fc15.ifca.ai/preproceedings/paper_75.pdf

Comment below what are your points to follow before making an investment in Bitcoin .




No Comments Yet! You can be first to comment this post!

Write comment