Cryptocurrency is money and people lose money. What will you do if you lose your bitcoins to a hacker or scam? I’m sure that you’re aware that there is no way to reverse transactions on the Bitcoin network. The same is applicable to most other cryptocurrencies. So what are your options when you lose your coins to a malicious activity such as fraud or a hack?
Before we look at what you’ll do in such instances, let us understand that irrespective of how careful we are with our coins that something may still go wrong. You may mistakenly send your bitcoins to a wrong address or even be tricked by a scammer to participate in a scheme.
The Russian cyber security firm Kaspersky in a 2019 report stated that 19 percent of respondents in its survey admitted that they have lost bitcoin through exchanges while 15 percent have been victims of crypto fraud.
Common frauds encountered by users of cryptocurrency are such the more obvious ponzi and pyramid schemes. There are others like doublers, high yield investment programs, wallet scams and so on.
So what must you do when you’re victim of a crypto scam?
It is important that you act decisively and fast immediately you realize that you have been scammed. This is necessary because a tech savvy fraudster may move your coins to a wallet where it’ll be difficult for you to track it.
You have to understand that Bitcoin is pseudonymous. This means that you can follow the movement of the coins, but chances are that if the scammer moves it through some obfuscating services, the likelihood of following your coins becomes non-existent.
Involve The Police
You should report to the police as fast as you can. But before then, you have to have some data or information to share with them. You can follow the unspent output of the scammer’s wallet using a wallet explorer.
Your objective is to know if the fraudster had moved coins to a wallet associated with an exchange. This may give you the break you’re looking for since most exchanges conduct mandatory KYC verification for users.
With this information, you could go to the police while putting a call across to the exchange notifying them that they have a user involved in criminal activity. In some countries, getting an exchange to freeze the funds of a customer may require court order. Remember that you can call the exchange yourself if you can’t hire a lawyer to do this.
You may get your lawyer to put a call across to the exchange and hope that they act before the thief moves the fund. It is possible of course that the exchange-linked wallet may not belong to the scammer, but it is a lead the police could work with.
Use Blockchain Analysis
I know it’s discouraging to ask you to shell out more money for a service despite losing your Bitcoin to a thief. However, this is an option you should explore if the fund you lost is considerable.
Blockchain analysis costs money but many are very good at tracking movement of funds on the blockchain. Government agencies such as FBI use these firms to track money laundering activities and if you can afford a couple of thousand dollars, you could get them to follow the trail of your funds to get the criminal that stole it.
The main advantage of blockchain analysis is that it would reveal where the funds have gone. Even though there are services that try to obfuscate the movement of coins, unless they’re extremely good, chances are that the person who stole your crypto asset slipped up somewhere and has his identity linked with an exchange that the chain analysis could link him to while following the movement of your cryptocurrency.
Marc Jones, an attorney at Stewarts Law in the UK said,
“In general, to enforce an order requiring fraudsters to pay damages or handover stolen property, ultimately you’ll need to know who they are.”
This is why it is important that you use a good tracking system to follow the coins. Sophisticated criminals would try to hide the coins but bear in mind that sometimes, they don’t do a good job at it.
Chain analysis companies are good at following cryptocurrency trails. They use algorithms that are quite complex to track the identity of the person who stole your coins or at least get to know the people they deal with. So if you have lost a large sum of cryptocurrency, this is an option that you can explore.
If the fund doesn’t warrant hiring chain-analysis firm, a simple wallet explorer would help you follow the unspent fund from the scammer’s wallet. Many police departments have cyber fraud units and would pursue crypto trails with the hope that it would lead to cracking a huge scam network. So do not hesitate to report to the police after your wallet explorer comes up with some form of id.
Explore The Fraudster’s IP
Every terminal equipment such a phone or computer connected to the internet has an IP address unique to it. You can also try to locate the scammers IP depending on how they made contact with you.
A fraudster who you met on a website such as a forum already has their IP logged by the website. If they sent you an email, it is also possible to track them through that though you have to understand that there are services that help people anonymize their internet access thereby using it privately.
How Do You Protect Yourself?
Cryptocurrency is a new frontier and many users lose their funds because they do not apply the right cyber security protocol. Understand that your phone could be stolen. Your SIM also could be swapped effectively putting your funds at risk.
Your first line of defense is to keep only a small fraction of your funds in a hot wallet. A hot wallet is one that is connected to the internet. Do not leave your funds in exchanges, they may be hacked.
90 percent of your funds should be in cold wallets such as paper wallets and hardware wallets. This is the only way to keep them off-limits to hackers.
Do not get involved with schemes that promise you quick profits that are not in tune with reality. Bear in mind that all HYIP, ponzi and pyramid schemes are scams. Be sure that you opened your crypto wallet yourself. Do not give third-parties authorization to download and open a wallet for you.