Criminals go where the money is, so it’s no surprise that with the rise of bitcoin and other virtual assets, crypto scams are on the rise too. And because crypto is so new to so many users, it may be even more difficult for people to identify and avoid potential fraud.
This dynamic resulted in reported crypto fraud losses of $680 million last year in the roughly trillion-dollar cryptocurrency market, according to the Federal Trade Commission. Many are falling victim to classic frauds updated for the Web3 age: crypto investment schemes promoted by fake influencers or romance scammers looking to dip into your crypto wallet. Other new types of hacks, thefts or fraud are focusing on the continued rise of decentralized finance, in which criminals try to exploit a decentralized system, blockchain or smart contact.
While the inherent transparency of crypto transactions does help in tracking your lost coin – to a degree – the patchwork of regulations governing the space and the lack of expertise for this kind of financial fraud are some of the factors that make it hard to recover stolen cryptocurrency. People may need to turn to a reputable investigator who will work with law enforcement agencies and who will attempt – but never guarantee – to recover stolen funds. On the flip side, always remain vigilant for “scammer” investigators purporting to recover funds, especially if they ask for up-front fees. But if you’ve fallen victim to a crypto scam, here are four key steps you should take:
1. Find your transaction IDs
Before investigators can begin tracing your assets, they will need all the transaction IDs identifying the funds you sent to the scammers. These transaction IDs will allow investigators to “follow the money” and see exactly where your coins are moving. While it is still possible to investigate without transaction IDs, knowing these will expedite any investigation and reduce potential complications.
What is a transaction ID?
On most blockchains, a transaction ID, or TXID, is a unique string of letters and numbers that represent a record of the movement of cryptocurrency from one address to another. This can sometimes be referred to as the transaction hash. This hash identifies the datetime, sending addresses, receiving addresses, transaction amounts, fees and more. A Bitcoin transaction hash, for example, is displayed as a 65-digit-hexadecimal number.
Where can I find my TXID?
Using bitcoin as an example, start by locating the address you sent your bitcoin to and paste this into the search bar of any open-source blockchain explorer. This will display all incoming and outgoing transactions to and from that address. To locate your TXID, look for the date/time and the amount sent. If the date/time and amount received match with your transaction, then you can identify your TXID by locating the hash associated with the transaction.
Not all exchanges and wallets provide TXIDs for you. Depending on the Cryptocurrency Recovery Services. or wallet you are using, you may need to dig deeper into your transaction information to find the transaction ID. Since most blockchains are public, you should be able to find it yourself through any open-source blockchain explorer.
2. Write your narrative
A clean and concise narrative of your incident will help give your case color, aiding in an investigator’s understanding of the flow of funds. Important information to include in your narrative would include:
all transaction IDs
where you sent your crypto from (private wallet, account at exchange X)
where you believed you were sending your funds (perpetrator’s private wallet, arbitrage account at XYZ)
screenshots of fraudulent interaction (fraudulent email/text, or Twitter post)
any additional details regarding the scam and scammers
3. Prepare to prove ownership
Law enforcement will usually require proof of ownership of the original source of funds. Ensure that you still have access to any accounts you initially used to send money to the scammers. A reliable way to prove ownership of a wallet is by signing a specified message with your private key, or by sending a micro transaction (a few Satoshi) to a predefined crypto-address.
4. Contact law enforcement and report
If you think you or someone you know has been a victim of fraud, it is important to notify the applicable law enforcement or government agency. Reporting mechanisms for cybercrimes such as crypto scams may vary from country to country. Below is a sample list of available resources you can use to report the incident in various countries