Malicious actors in the crypto ecosystem have been busy, stealing a staggering $9.9 billion last year, according to a recent report by Chainalysis. While this number is lower than the previous year, the firm predicts that it could rise to $12.4 billion as more fraudulent addresses are uncovered.
One of the key drivers of this illicit activity is the use of AI-powered fraud techniques. Generative AI, in particular, has made it easier for scammers to create synthetic identities, fake investment schemes, and deepfake-driven scams. In fact, the report reveals that 85% of scams involve fully verified accounts that bypass traditional identity verification processes.
Elad Fouks, head of fraud products at Chainalysis, warns that GenAI is making fraud more scalable, cost-effective, and harder to detect. Criminals can now impersonate real users, generate fake content, and orchestrate elaborate investment scams with ease. Platforms like Huione Guarantee, a peer-to-peer black-market hub, provide tools such as AI-generated identities, deepfake voice technology, and synthetic verification tools, enabling fraudsters to carry out their schemes more effectively.
Two of the most common fraudulent schemes in the crypto space are high-yield investment scams (HYIS) and pig butchering scams. These scams accounted for the majority of illicit crypto flows, with HYIS receiving 50.2% and pig butchering scams receiving 33.2% of scam revenue. While inflows to HYIS schemes have decreased, pig butchering scams have seen a significant increase, indicating a trend towards romance and investment fraud targeting unsuspecting victims.
Pig butchering scams involve luring victims into fake crypto schemes, convincing them to invest more money with false promises, and ultimately stealing the funds. Recent crackdowns by authorities in Nigeria and global efforts by Interpol have led to the arrest of individuals involved in these scams.
As scammers evolve their methods, they are moving towards quick-hit job frauds, where victims unknowingly send crypto deposits disguised as fees. This type of scam preys on job seekers, particularly those who are desperate for work. Huione, the platform at the center of many of these fraudulent activities, has even launched its own blockchain project and stablecoin to evade regulatory oversight.
Authorities are working to combat this growing fraud epidemic, but the sophistication of scams and their reliance on AI technology present challenges for traditional regulatory tools. It’s clear that the crypto ecosystem needs to adapt and find new ways to protect users from falling victim to these fraudulent schemes.