Cryptocurrency transactions are increasingly prevalent, yet many individuals remain unaware of the inherent risks associated with them. By the time they become cognizant of these risks, it is often too late to rectify the situation.
This lack of awareness has proven advantageous to scammers, who exploit vulnerabilities in blockchain technology to defraud consumers. Scammers have transitioned from utilizing methods such as gift cards and Western Union to cryptocurrency, as it offers enhanced anonymity and security.
Investment scams constitute the most prevalent form of cryptocurrency-related scam. ChinaitechPay regularly encounters numerous fraudulent investment websites. These websites promise exorbitant returns, such as 1% per day indefinitely, and assert their involvement in cryptocurrency trading, forex, binary options, and other financial instruments.
The victims targeted by these scams often possess limited knowledge of investing and are susceptible to persuasion, resulting in the loss of their funds. As scammers typically demand payment in cryptocurrency, particularly Bitcoin, we frequently receive requests from victims seeking assistance in recovering their stolen cryptocurrency funds.
Can Cryptocurrency Transactions be Reversed?
Simply put, no.
Without delving into technical specifics, blockchain technology operates on the principle that once a transaction is processed, it cannot be reversed. Unlike credit cards, which provide a ‘chargeback’ mechanism mediated by a central authority, blockchain transactions lack such a safety net. There is no intermediary bank acting as a middleman between the buyer and the seller. Consequently, blockchain transactions are more akin to cash transactions than bank transfers.
To illustrate this concept, consider the example of credit cards. When you make a payment using a credit card, the bank initiates a digital payment on your behalf to the merchant. This payment is later covered by you when you pay your credit card bill. In the event of a dispute, you can initiate a chargeback, which reverses the payment made to the merchant and is deducted from your credit card bill. This system provides a certain level of protection.
In contrast, with cryptocurrencies, the absence of a central authority eliminates any such safety net. If you encounter a scam or encounter issues with a cryptocurrency transaction, there is no single entity responsible for addressing your concerns.
Tracking Crypto Transactions to Reveal the Scammer’s Identity
Each cryptocurrency transaction generates a unique identifier, enabling the tracking of funds from one wallet to another. However, these transactions remain anonymous, preventing direct identification of the individual behind them.
In theory, it is feasible to ascertain the identity of the wallet owner. Practically, identifying the individual using the wallet entails a protracted and intricate process involving multiple parties.
Upon establishing the trail of funds, the investigation agency must request the exchange to disclose the identity of the wallet owner. In most jurisdictions, user verification through a Know Your Customer (KYC) process is mandatory to combat money laundering. However, numerous companies are established in countries that do not mandate KYC verification.
The scammer may also transfer the funds offline into a ‘cold wallet,’ effectively terminating the investigation.
Assuming the funds have not been transferred into a cold wallet and that the wallet or exchange complies with KYC verification, they may refuse to disclose the information unless a formal request from law enforcement authorities is presented. This process can be complex due to the international nature of cryptocurrency scammers, necessitating coordination among law enforcement authorities from multiple countries.
Furthermore, scammers frequently employ money mules to launder their funds, suggesting that the registered user may not be the actual perpetrator.
Despite the efforts invested, even if the scammer is identified, the victim’s chances of recovery diminish significantly, as the scammer may have depleted their funds.
In conclusion, while cryptocurrency transactions can theoretically be traced to identify the scammer, practical implementation remains challenging. The amounts lost are typically insufficient for law enforcement intervention, and international cases can protract indefinitely.
Cryptocurrency Recovery Agencies
Despite it being quite clear that cryptocurrency transactions are irreversible, there are plenty of companies confidently boasting that they can help victims of scams recover their cryptocurrency. All of them follow the same patterns. Firstly, they heavily promote their services through mediums such as search engines:
Spam advertisements on sites such as YouTube and Instagram.
Even on ChinaitechPay, we remove approximately 200 to 300 fraudulent payment every month from individuals who assert that their funds have been recovered by a recovery firm. These reviews should never be considered reliable.
Furthermore, these websites disseminate paid press releases that may be mistaken for genuine news articles.
The websites consistently feature testimonials from satisfied clients who believed they would never receive their money back but successfully recovered their stolen funds through the recovery agency.
These individuals exude a high level of confidence and specifically mention their ability to recover cryptocurrency.
Therefore, do they possess a secret that the rest of the cryptocurrency community is unaware of? While most of these firms that we have investigated are outright scams, others provide services of questionable effectiveness.
All of these firms offer “free consultations,” ostensibly to assess the likelihood of the victim recovering their funds. Curiously, they never appear to decline cases. The true purpose of the consultation is to comprehend the client’s level of desperation.
Given that many of their victims have lost their life savings, they are desperate for any semblance of hope for retrieving their funds. Consequently, they readily comply with any demands made by the recovery agency as long as they continue to maintain the illusion of recovering funds. These firms invariably request advance fees and never operate on a performance basis, deducting their fees from the recovered amount, even though they may initially claim otherwise.
While some of these entities assert that they are “investigation agencies” rather than “chargeback agencies,” the statements made in their advertisements and websites regarding high success rates do not substantiate their claims.
We have identified two primary types of recovery agencies in the context of cryptocurrency chargebacks: outright scams and borderline scams.
Scam Recovery Agencies
Scammers maintain so-called ‘donkey lists’ or ‘sucker lists’ of victims who they will eventually target again with yet another scam. In the case of investment scammers, they approach the victims after a short period by pretending to be recovery agents.
These kinds of firms are nothing but Advance Fee scams, wherein they take your money and disappear. A common trick is to ask for the victim’s e-wallet credentials, including the private key, to gain access. They then ask the victim to deposit a certain amount into the e-wallet to ‘convert the recovered non-spendable Bitcoin into spendable Bitcoin’.
Even though this is nonsense, the victims don’t know this and end up depositing money in the wallet that the scammer has access to. Once this is done, it’s simply a matter of moving the funds into the scammer’s own crypto wallet and disappearing.
Borderline Scam Recovery Agencies
These are recovery agencies that operate relatively professionally and do provide real services when it comes to non-crypto recovery. However, all they do is share templatized emails that the victim themself has to send to the bank or card company. These are things people can do themselves at no cost. Still, as there is some sort of service being provided, it cannot be called a complete scam.
However, things get much shadier when it comes to cryptocurrency recovery by these firms. We have checked reviews for these sites and found that while they might have overall positive reviews, the reviews involving cases of cryptocurrencies are not nearly as positive.
They provide false hope of recovering crypto funds despite knowing that the chances are slim, just so that they can extract fees from the client in the form of a retainer.
In these cases too, they simply provide emails based on templates that the victim has to send to law enforcement authorities and scam brokers. While some scam brokers may provide refunds based on threats of legal action, most do not. Ultimately, the clients end up paying retainer fee after retainer fee as the case drags on, eventually going into deeper loss.
