Cryptocurrency Fraud is Evolving; Bitcoin ATMs Mitigate Risk  - Global Coin Report
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Cryptocurrency Fraud is Evolving; Bitcoin ATMs Mitigate Risk 

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Cryptocurrency Fraud is Evolving

In one of the more overlooked aspects of the crypto ecosystem, it appears that the bulk of illicit activities are shifting from hacks and thefts to cryptocurrency fraud and scams.

CipherTrace, the crypto-surveillance, and analysis firm released a report at the end of Q4 2019 that revealed hacks and thefts had decreased by 66 percent in 2019 while fraud and misappropriation of funds surged by 533 percent. And beneath the COVID-19 hysteria of 2020, hacks in the crypto sector have been eerily isolated. 

Outside of a few exploited flaws in P2P exchanges and DeFi flash loan vulnerabilities, the headline-grabbing hacks of exchanges for hundreds of millions of dollars have been absent so far this year. Is the industry due for another massive hack, or are stringent KYC/AML processes, regulatory crackdowns, better security practices, and blockchain surveillance working? 

KYC/AML Improvements Are Reducing the Appeal of Crypto Exchange Laundering 

2020 is far removed from the no-KYC wild west days of the early-mid 2010s where anonymous altcoin casinos preponderated and the Dark Underbelly of Cryptocurrency Markets thrived. 

Today, bitcoin and the crypto ecosystem is becoming institutionalized with a surfeit of derivatives (e.g., options, futures, perp swaps, etc.) available on regulated exchanges. 

Most of the leading exchanges adhere to the demands of the regulatory regimes in their locales, whether they be in the US or some more obscure locations like Seychelles. Conventional wisdom would indicate that the growing adherence to stricter KYC/AML enforcement has reduced the appeal of major crypto exchanges for money laundering — a sentiment mirrored by CipherTrace’s most recent report. 

Many exchange venues are also embedding self-regulatory procedures into their business models. For example, exchanges are increasingly tapping blockchain surveillance companies to avoid regulatory ire when it comes to money laundering, regulators are dealing out enforcement dictates for AML compliance, and regulatory arbitrage is becoming harder for exchanges to manage. 

Even more grassroots access venues to crypto assets, like Bitcoin ATMs, are fully regulated under US KYC/AML laws. 

For example, Bitcoin ATM provider, Bitcoin of America (BOA), with more than 250 locations in 17 states, is a registered Money Services Business (MSB) with the Treasury Department. And the company’s compliance standards have already proved fruitful in mitigating fraud at a high level.  

For instance, in one case in September 2019, a BOA customer placed an online order for $500k in BTC. The transaction size raised the compliance level (e.g., identification requirements, etc.) along with increased scrutiny on the transaction by the team. Upon closer examination, the BOA team discovered that the customer had a restitution order against him in the state of California for a previous fraud scheme. 

BOA personnel subsequently notified the corresponding FBI office and alerted the agency that the transaction may be used to circumvent the restitution order. The FBI issued a seizure warrant for the funds, distributing to the victims of the previous scam. 

Bitcoin of America and other alternative fiat-to-crypto exchange services have strict command over fraud prevention. Wires and online transfers require ID And other personal info that increases in tiers in lockstep with the transaction amount increases. 

As the avalanche of KYC/AML processes continues to take the exchange market by storm, exchanges become less appealing for hackers. 

Gone are the days of absconding with $500 million anonymously. Exchanges thoroughly identify users withdrawing sizeable amounts, and blockchain surveillance companies like CipherTrace can trace and blacklist stolen assets on public blockchains. 

As a result, crypto hackers have turned into crypto fraudsters, or maybe fraudsters simply have their moment to shine. For example, debacles like QuadrigaCX, where roughly $200 million was “misplaced” by the founder, count as fraud. With reduced incentives for third-parties to maliciously steal funds from an exchange due to surveillance risks, inside jobs are becoming more commonplace. 

Inside jobs may be the new normal, especially when you consider the vastly improved security practices of most industry exchange venues. 

Better Security Practices are Forcing Hackers to Get Creative 

Unsurprisingly, many of the biggest crypto exchange hacks are inextricably linked to poor security standards of exchanges. Lousy security practices ranged from storing significant sums of customer deposits in hot wallets to a lack of multi-signature authorization for large withdrawals. 

Times are different now. 

Regulated custodians like BitGo are widely tapped by many of the leading exchanges, and self-custody digital asset management platforms like Ledger Vault are rapidly becoming the new standard. These services offer secure multi-signature authorization mechanisms, deep cold storage, and other conditional flows required to mitigate any potential exogenous threats to pilfer customer funds. 

Hackers are acutely aware of this dilemma. Naturally, they have shifted focus to DeFi hacks like the BZx attack. Flash loan attacks are likely to become the new normal as they essentially allow hackers to capitalize with massive sums at little cost. However, zooming out, DeFi liquidity pools and protocols contain vastly fewer aggregates of assets than their centralized exchange counterparts. 

Hackers will have to get creative probing DeFi KYC protocols, but the days of repetitive strings of high-profile centralized exchange hacks may be waning. That’s a net positive for the industry. 

Inside jobs are likely to continue in popularity, however, but that’s no different than the legacy financial world. Fraud is much more commonplace in banking that overt hacks on banking security layers, which may end up reflecting the new standard in the crypto ecosystem. 

Either the lack of headline-snatching hacks in 2020 is portending that we’re due for another big one, or KYC/AML processes and better security practices are working well. If that’s the case, look for more QuadrigaCX scandals than CoinCheck-style hacks. 

Image by Gerd Altmann from Pixabay

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3 Reasons Why WISE Token Could Be a Massive Winner in 2021

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WISE token

After working in proprietary trading for over a decade, I decided to transition to crypto in early 2017.  Although crypto is significantly different from traditional capital markets, I managed to successfully find a niche for successful and opportunistic trading.  While 2017 was the perfect time to get involved, the past few years have proven to be a bit more challenging as far as generating ROI.

Cryptocurrency traders have spent the past several years searching far and wide for the next big winner.  While the market as a whole hasn’t been very bull friendly, one specific area that appears to be gaining traction is decentralized finance, more commonly known as DeFi.  This area generally refers to the digital assets and financial smart contracts, protocols, and decentralized applications (DApps) built on Ethereum.  The reason why so many crypto entrepreneurs are flocking to this space is that it allows them to create traditional financial vehicles in a decentralized network, outside the meddlesome control of foreign governments.

One extremely popular DeFi project is Chainlink (LINK) which is a decentralized oracle network that provides real-world data to smart contracts on the blockchain.  Chainlink has seen its token price increase by more than 300% year-to-date.    Another impressive project in the space is Kyber Network (KNC) which has seen its token soar from $0.20 at the start of the year to more than $1.60 at present.  Kyber Network’s on-chain liquidity protocol allows decentralized tokens swaps to be…

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The Pros And Cons Of Cryptocurrency

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Many facets of our lives are now digitized––money is no exception. 

Have you noticed that paper money is on its way to being obsolete because so many people receive direct deposit and love the simplicity of their debit card? 

Not to mention, cash carries germs, as we’ve heard lots about during the pandemic. Many businesses have turned to card only options in light of this. 

But what about cryptocurrency?

You probably heard everyone raving about it a few years ago, but the excitement’s calmed down quite a bit. That doesn’t mean that it’s not a viable option you should keep in mind. 

What’s Cryptocurrency? 

Let’s start with the basic definition of cryptocurrency so we’re all on the same page. Cryptocurrency utilizes cryptographic methods and complex coding systems to encrypt sensitive information during data transfers. This protects your funds and personal information on a whole different level. 

These transactions are virtually impenetrable due to the combination of mathematical and technological protocols created and put in place. This aspect of cryptocurrency is what makes it safer. Also, the details of transactions are kept private. No one can see who sent what, etc., because those rigorous mathematical and technological protocols protect it.

The Pros: 

Different From Traditional Banking Transactions

One thing people hate about traditional banks is the fact that they can…

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As Global Tensions Grow, Bitcoin Price May Go Higher

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BTC Surged Again as A Safe Haven Asset During Global Tensions

  • India – China Border Conflict

After weeks of squabbling and brawling along their long-disputed border, hundreds of Indian and Chinese soldiers engaged in a deadly clash Monday in a river valley that’s part of the region of Ladakh last week. Troops had massed on both sides of the border in recent months in the northern India region of Ladakh and the southwestern Chinese region of Aksai Chin, causing global concerns of a potential escalation between the two.

  • North and South Korea Clash

Last Tuesday, North Korea destroyed the liaison office it jointly operates with South Korea in the city of Kaesong, just north of the demilitarized zone that separates the two countries. 

North Korea also said it would send troops to now-shuttered joint cooperation sites on its territory, reinstall guard posts and resume military drills at front-line areas in a violation of separate 2018 deals with South Korea. Jeong said South Korea will take “immediate, swift and corresponding” steps to any North Korean provocation.

The tensions grown in Asia and the potential “second wave” of coronavirus in the United States may add more difficulties to the global economic recovery. Thus, Bitcoin, as a safe haven asset, attracts more investors to buy and hold. 

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