As cryptocurrency (crypto) has become more and more popular, so has crypto-related crime. There has been a lack of academic research on crypto-related crime, but it is becoming more prevalent in the last couple of years. Crypto-related crime became especially significant in the impact it had on victims and the awareness of these crimes in the media and the government in late 2019 and early 2020 as various criminal organizations and criminal opportunities opened up as cryptocurrency became mainstream. The common crimes related to cryptocurrency include fraud, theft, and money laundering. In 2021 estimates of crypto-related crime were estimated to be as high as $14 billion, which is a small fraction of a percent of the cryptocurrency transactions that were around $15.8 trillion in 2021. The purpose of the chapter is to provide a detailed account of the common crypto-related crimes and scams that have occurred and to evaluate the effectiveness of enforcement of these crimes.
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As Bitcoin is one of the most popular cryptocurrencies it is also one of the most exploited by criminals (Leuprecht et al., 2022). Cryptocurrencies have various vulnerabilities that allow criminals to exploit them and the people who use them. The enforcement of cryptocurrency fraud and scams has also been limited due to the difficulty in tracking and prosecuting the offenders and the lack of law enforcement expertise and laws related to cryptocurrencies.
A major way that blockchains like Bitcoin can be exploited is through one issue known as a transaction malleability problem (De Filippi, 2014). The transaction malleability problem is an aspect of blockchain that opens up a vulnerability to the cryptocurrencies by the alternation of a cryptographic hash, especially the digital signature that identifies a transaction of cryptocurrency. The exploitation can be used to change the ID of a transaction before the transaction has been confirmed and a hacker can trick a computer system into sending multiple transactions through manipulation of the ID. This is considered a top vulnerability of blockchains like Bitcoin (Liu et al., 2017). The issue became known around 2011 by the Bitcoin community. The largest Bitcoin exchange in 2014 was Mt. Gox which was targeted by a transaction malleability, and the company soon lost $100s of millions because of this and later had to close the site down (Rajput et al.,2014).
In 2020 various well-known Twitter accounts were hacked including Apple, Barack Obama, Bill Gates, Elon Musk, Jeff Bezos, Joe Biden, Kanye West, Uber, and over 100 others (Rosengren, 2022). The scammers had hacked the accounts to send posts to the millions of followers to transfer Bitcoin into a wallet and the victims were told that their contribution would be doubled (Anderson & Saleh, 2021). There were around 320 transactions that occurred after the fraudulent posts, and victims sent over $110,000 worth of Bitcoin. Twitter had become aware of the attack and had created a statement a few hours after and stopped the hackers from creating any more messages.
There are many different black markets online on the regular web and on the dark web which often use cryptocurrency transactions (Leuprecht et al., 2022). The crimes that are supported through cryptocurrency exchanges include illegal pornography such as child pornography and revenge porn, illicit drugs, counterfeit pharmaceutical drugs, murder for hire, weapons trafficking, terrorism funding, counterfeit luxury goods, and much more (Han et al., 2020). Funding through cryptocurrency gives law enforcement and intelligence agencies a difficult time investigating and finding out who these people are because of the decentralized and anonymous nature of cryptocurrencies. When criminal organizations that use websites to sell illegal goods online are shut down by law enforcement they often open up again which can have a new name, or can be in a new country, as the ability to run a website anywhere in the world with an internet connection makes it difficult to shut down these criminal organizations.