State of the Scam: Can Crypto Clean Up While Scaling Up?

Crypto scams have remained a booming industry for scammers who exploit the hype, anonymity and global reach of digital currencies.

But with crypto thefts and scams soaring up 53% into the billions last year, law enforcement has sharpened its focus on the historically opaque sector — a space where criminal ingenuity often outpaces regulatory efforts.

One report puts the increase in global crypto-related convictions over the past five years at a “staggering 267%.” The latest sting operation, in which the Federal Bureau of Investigation (FBI) nabbed a dozen and a half criminals, offers a rare view into the ingenious schemes law enforcement agencies are standing up as scammers scale and industrialize their operations.

To net the 18 criminals who were charged last week (Oct. 9), the FBI created its own crypto asset, named NexfundAI, and then tracked the usage of it in order to prove malfeasance and manipulation. Instead of flipping the coin for profit, the criminals found themselves at the other end of sealed indictments.

Talk about buyer beware.

“Operation Token Mirrors’ targeted nefarious token developers, promoters, and market makers in the crypto space. What we uncovered has resulted in charges against the leadership of four cryptocurrency companies, and four crypto ‘market makers’ and their employees who are accused of spearheading a sophisticated trading scheme that allegedly bilked honest investors out of millions of dollars,” Jodi Cohen, special agent in charge of the Federal Bureau of Investigation, Boston Division, said in a press release. “The FBI took the unprecedented step of creating its very own cryptocurrency token and company to identify, disrupt, and bring these alleged fraudsters to justice.”

The operation is a rare triumph in an ecosystem rife with deception, and while the FBI’s actions might not dismantle the entire crypto crime network, it serves as a clear message: scammers aren’t untouchable — no matter how decentralized their schemes might be.

Read more: Crypto Scamming Intensifies as Digital Asset Market Rallies

Striking Back Against Crypto’s Wild West

The FBI’s action comes against a backdrop where the broader crypto landscape, and its own institutional players, are seeking greater utility — and recognition — across the financial services ecosystem.

Just last week, Stripe authorized its merchants in the United States to receive the Circle-issued USDC through their online checkout pages, beginning Wednesday (Oct. 9). Stripe said in April that it would bring back crypto payments after stopping them in 2018.

PYMNTS Intelligence found in June 2022 that 77% of merchants that accept crypto payments said they did so because of lower transaction processing fees relative to other payment methods. In addition, 32% of merchants that were expanding their usage of crypto said they were doing so because they believed it could help them reach new customers, according to the PYMNTS Intelligence and BitPay collaboration, “Paying With Cryptocurrency: What Consumers and Merchants Expect From Digital Currencies.”

And at the center of this emerging crypto payments space aren’t the various cryptocurrencies that have populated the space for over a decade now without making a dent in merchant acceptance, instead, observers and industry stakeholders alike are pinning their hopes on stablecoins, such as the aforementioned USDC.

PayPal, for example, completed its first business payment, to EY, with its in-house stablecoin, PYUSD, earlier this month, while Visa launched a new platform for banks to issue fiat-backed tokens, such as stablecoins and tokenized deposits. Meanwhile, Coinbase is also expanding the ways businesses can pay via the Coinbase Prime brokerage platform.

Read also: What CFOs Should Know About the Growing Use of Stablecoins

Bridging Gap Between Traditional Finance and Digital Assets

“It’s important to know that crypto is not just bitcoin and Doge and NFTs,” Sheraz Shere, head of payments at Solana Foundation, told PYMNTS in May. “Blockchains are really alternative rails for payments and financial assets.”

“Blockchain solutions and stablecoins — I don’t like to use the term crypto because this is more about FinTech — they’ve found product-market-fit in cross-border payments,” Shere said in a separate conversation.

For example, Singapore — one of the world’s most digitally-engaged countries, per PYMNTS Intelligence research — has been working to establish itself as a hub for digital assets, and stablecoin payments during the second quarter hit a record high of nearly $1 billion in the city state, showcasing the potential the digital tokens hold for commerce.

Traditional methods of international payment like wire transfers, can be slow, expensive and saddled with regulatory hurdles, that report noted. But stablecoins offer a more efficient alternative, with nearly instant transactions, lower fees, and fewer intermediaries.

Of course, as with everything in crypto, it’s important to watch out for the scammers.