From hacks to romance scams: US consumer protection agency sees ‘crypto’ complaints surge

“Fraud, theft, hacks, and scams are a significant problem in crypto-asset markets,” was the finding of a November 2022 complaint analysis by the U.S. Consumer Financial Protection Bureau (CFPB).

Between October 2018 and September 2022, the CFPB received more than 8,300 virtual currency complaints, “the majority in the last two years.”

An increase in digital asset related complaints might be expected as the industry grows, becoming more mainstream and commonly accessed. However, while the sector has seen steady growth since 2020—crypto winters aside—it seems complaints have grown exponentially when compared with the previous two-year period.

The Consumer Financial Protection Bureau (CFPB) was formed in 2011 as a U.S. government agency responsible for consumer protection in the financial sector.

In the bureau’s report, it found that the top issue across all digital asset complaints was “fraud and scam,” which made up to 40% of complaints in the four-year period under review. Other complaints included “transaction issues” (25%) and complaints where “money was not available when promised” (16%).

“This issue appears to be getting worse, as fraud and scams make up more than half of virtual currency complaints received thus far in 2022,” noted the report. It went on to highlight how, “some consumers stated that they have lost hundreds of thousands of dollars due to unauthorized account access.”

The CFPB pointed the finger squarely at digital asset platforms and providers: “The prevalence of fraud and scam complaints raises the question of whether crypto-asset platforms are effectively identifying and stopping fraudulent transactions.”

Despite the security potential built into some digital assets, they can still fall victim to a range of frauds, scams and hacks, but there are methods in development to address some of these issues.

In October the Bitcoin Association for BSV launched a software tool, known as Blacklist Manager, allowing miners to freeze digital assets on the BSV blockchain, once a court order or equivalent documentation is secured.

The ability to freeze digital assets is a significant development towards a process that would allow owners to enforce their property rights in the event of theft or loss of keys, and it comes hot on the heels of another positive step in the fight against hackers.

In June, Tulip Trading Limited (TTL) and Bitcoin Association reached a settlement in Dr. Craig Wright’s landmark suit, which asserted that blockchain developers owed fiduciary and tortious duties toward their users—compelling developers to act in cases of lost or stolen coins.

While this settlement is not an agreement to move any specific coins, it did lay the groundwork to implement future court orders relating to lost or stolen coins, making it easier to acquire the court paperwork necessary for the Blacklist Manager technology to freeze assets.

Until these recovery methods become more refined and widely used, the CFPB concluded its analysis with a list of key facts and risks for digital asset consumers to consider:

– Digital assets are a common target for hacking.

– Important terms and clarifications are often buried in the Terms and Conditions.

– Arbitration clauses and class action bans may limit dispute options.

– The value of digital-assets have and will likely continue to fluctuate greatly.

– Transactions may not be as private as imagined.

– The use of digital-assets may violate sanctions.

Watch: Where does Blacklist Manager feature within DAR Process Explainer