It’s never been harder for media platforms and regulators to shut down crypto scams. Regulators can’t simply shut down blockchains. And social media does more harm than good by allowing fake profiles, fraudulent ads, and inefficient report tools, among others.
Why Are We Failing to Shut Down Crypto Scams?
If you’re the average crypto newbie, chances are you’ll eventually lose between $2,000 and $10,000 on investment schemes and fake projects. The list of victims grows every year, with over 40,000 complaints to the FTC. Consider how attractive it is to young people with no trading experience, and how hard it is for older investors to catch up with DeFi, NFTs, and further innovations.
Welcome to the wild west of crypto. Where traditional regulation is skipped, everything is your fault, and no one’s to blame. If you’re wondering why nobody does anything about it, they’ve already tried to.
It’s not that they don’t shut down crypto scams. It’s just too easy for scammers to return to the game within minutes, and it’s too much work to report and stop one. We need different ways to prevent crypto scams because:
- Blockchain technology is designed in a way that doesn’t allow regulation
- It’s easy to exploit social media platforms, which are essential for almost every online scam
- Regulators can’t control a system without a central authority. At least not without unfairly restricting the whole because of a few.
To find out what we can do, we have to understand how public, permissionless blockchains work.
How Blockchain Started the Golden Age of Online Scams
Cryptocurrencies make convenient payment systems. It allows us to move money among countries within minutes. There’s no regulation when using self-custodial wallets, and if you’re using privacy coins like Monero, it’s also anonymous and untraceable.
Which leads to the classic dilemma between convenience and security. Blockchains are useful tools, which unfortunately make scamming easier too. You can completely hide your activity when trading crypto for fiat money on peer-to-peer platforms.
All the following explain what makes crypto to most profitable scam on the Internet:
- Many blockchain networks are decentralized. Nobody owns them unless you count every node which has no linked identity. If you can regulate blockchain, you can hack it. The best choice is to regulate the developers who code smart contracts, but again, they’re distributed worldwide with no linked identities.
- Blockchain is immutable. Cryptocurrency is secure because undoing transaction blocks is ridiculously expensive. Thus, victims can’t revert bad transactions. And if scammers find a way to exploit smart contracts, it might take months to update the blockchain code (without a hard fork).
- Blockchain is KYC-free. While some networks are anonymous, most people use Bitcoin and Ethereum, which still show your payment history and IP location. Still, you can trade any coin from unregulated platforms without having to verify ID documents or your address.
- Blockchain evolves rapidly. Blockchains like Ethereum allow developers to discover new use cases with DeFi protocols, NFTs, and Metaverse apps. It can take years to understand, regulate, and enforce laws on new technologies, and we’re still dealing with Internet scams for decades. Not only does crypto change too fast for regulators but also for the masses to understand risks.
As a result, cryptocurrency has become the favorite payment method for scammers. It doesn’t matter if it’s investing, romance fraud, real estate, or healthcare.
Why Media Platforms Won’t Shut Down Crypto Scams
Social media platforms make it easy to reach anyone worldwide. As long as you follow the terms, anyone can join anytime and pretend to be anyone. You can message anyone, share links, and use bot accounts to fake social proof.
Most crypto scams wouldn’t exist without social media. It’s its most valuable tool. Despite restrictions, media platforms are far from stopping scams (more like the opposite). Here’s why:
- They’re less restricted than financial platforms. While you need KYC to use regulated exchanges, anyone can join social media within minutes. Scammers can do what they want because even if platforms shut them down, it takes minutes to create a new fake account. In fact, they can automate it.
- They’re too many. Another reason platforms don’t give it enough attention is that people are giving up reporting. Any investment channel you visit might have hundreds of spam comments from fake profiles, each with hundreds of fake likes. The coders behind these typically use bulletproof hosting and public locations to avoid being traced.
- Conflicts of interest appear. Even though media platforms filter some content, they’re not responsible for 100% of the messages and links. If fraudsters find loopholes to scam while complying with social media ToS, there’s not much they can do. And because most Internet content is spam/scams, they bring a lot of company revenue from ads and traffic.
- Reporting is ineffective. It takes time since you report until the account shuts down. Because it doesn’t really stop scams, most people won’t report, and accounts will stay active. Reporting isn’t always easy, because creators can disable comments and other metrics (in fact, media platforms are designed to hide negative feedback to favor engagement).
By the time they shut down scams, they’re already back, and too many people have lost money. Social media platforms face a difficult decision: How to stop crypto scams without setting unfair restrictions that drive users away and reduce revenue? If they can’t find a solution, the problem escalates to regulators.
Why Regulators Won’t Shut Down Crypto Scams
Some regulations are flexible and pro-blockchain while others banned it completely. Regardless of these decisions, how much can governments realistically control cryptocurrencies? Imagine if they could prevent losing $1B in crypto scams, either to enrich users or reinvest in security infrastructure.
Possible or not, here’s why it won’t happen anytime soon:
- You simply can’t ban public blockchains. Over 42 countries “banned” cryptocurrencies, especially China. Other than seizing mining devices, they’re unable to prevent the private use of crypto payments (because of how Bitcoin is designed). At least 1% of the population owns crypto in banned countries due to unsuccessful law enforcement. Despite warnings and increased regulation, 10%+ of the global population owns cryptocurrencies, excluding all that couldn’t be tracked.
- International politics are ineffective. Blockchain is accessible to anyone worldwide just like the Internet, which makes it hard to regulate. There’s never been absolute agreement among countries, so universal laws and regulations don’t exist. Countries might accept just to look politically correct but then do their own thing with their military power, economy, and internal order. Because regulated countries can’t block those that aren’t in a global network, anyone can bypass regulations.
- The most effective laws are the unfairest ones. An immediate solution to scams brings the dilemma between freedom and security. Does it make sense to impose restrictions for the masses because of a few that exploit technologies? It’s not a popular choice, which by default means that people choose to be exclusively responsible for fraud.
- Scammers trick people to make it their fault. Governments can prosecute because crypto scammers share no identity, hide their addresses, and often live abroad. Not only are there no refunds, but most schemes are confidence tricks, not hacks or theft. There are no victims, only bad investment decisions.
Can Blockchain Be The Problem And The Solution?
Blockchain technology creates a new economy where traditional regulation isn’t effective. What if instead of enforcing laws, cryptocurrency could regulate itself? Developers and users can set rules the same way people vote in democracies, except we wouldn’t need to trust a government.
Blockchain today is safer than before because:
- We have smart contracts to automatically execute contracts without middlemen
- There are oracles to supply blockchains with accurate real-world information coming from several audited sources.
- Most modern blockchains use proof-of-stake. The more voting power users have, the more money they have at stake to make sure they make fair decisions.
- Due to countless updates and bug bounty programs, large blockchains are far safer than government websites or banks.
- Users can reinforce security with multi-step verification, multi-signature wallets, and hardware keys.
You can see how most scams don’t come from blockchain technology, but from investing, which can be regulated.
Crypto Scams: Prevention Is Better Than Cure
Crypto scams are quickly outperforming Internet scams, which affect far more people. If we’re still dealing with online scams 25 years later, it’s safe to expect crypto scams to be around for a long while. And while platforms and regulators fight against these schemes, they’re simply not effective enough to prevent them from reappearing. Not at the pace of blockchain’s advancements.
Maybe trust isn’t the answer to security issues. Maybe we need a transparent system where we don’t need to trust each other, one that gives users full control. That’s why blockchain and DeFi exist in the first place.
Crypto scam prevention starts with awareness, responsibility, and learning. No regulation or security system can save you if you don’t know what you’re doing. As the saying goes, you can only trust yourself.