It turns out the cryptocurrency market is rife with fraud, according to the Internal Revenue Service (IRS) and Federal Trade Commission (FTC), which both acknowledged the pervasiveness of scams involving digital money this week.
Bloomberg reported Wednesday that Ryan Korner, who leads the criminal investigation division at the IRS field office in Los Angeles, said the agency is “just seeing mountains and mountains of fraud in this area.” That area, of course, being the cryptocurrency market and the associated rise of non-fungible tokens (NFTs).
Korner reportedly said the staggering prices people pay for some NFTs is particularly worrisome because criminals might use the NFT market to launder money. It’s also easy to manipulate the crypto market writ large, according to Korner, especially when public figures can trumpet investments on social media.
The FTC said in a Consumer Protection Data Spotlight on Tuesday that crypto-related scams are becoming increasingly common. “Reports make clear that social media is a tool for scammers in investment scams,” it said, “particularly those involving bogus cryptocurrency investments — an area that has seen a massive surge in reports.”
Sometimes those scams merely use cryptocurrency for money transfers because those transactions can be more difficult for law enforcement to trace. But the FTC said that investment scams, which scammers promise their victims will see a massive profit if they “invest” a certain amount of cryptocurrency, are also common.
Neither of these warnings should come as a shock. Law enforcement organizations have known that criminals use cryptocurrency to launder money or make illicit transactions harder to track for years. Scams taking advantage of the average person’s growing awareness of the crypto market have been around for a while too.
There are all kinds of crypto-related scams—and some of them even have fun names. “Pig butchering” scams that seem to offer people legitimate returns on investment before robbing them have cost their victims millions of dollars, for example, and “rug pulls” leave their early investors-slash-victims empty-handed.
These issues are so prevalent that Chainalysis said in December 2021 that scammers made off with $7.7 billion worth of cryptocurrency that year. Of course, many of those scams are good ol’ fashioned Ponzi schemes, but rug pulls have become increasingly common thanks to the rise of decentralized finance platforms and NFTs.
Korner reportedly told Bloomberg, “this space is the future.” This is a common refrain among crypto enthusiasts, NFT collectors, and the so-called “web3” movement. They see the future of finance; the IRS sees the future of financial crime. Pretty much everyone else is still just trying to figure out what the heck “fungible” means.