Cryptocurrency fraud as a future challenge for large-scale financial crime

Research summary

Cryptocurrencies are a form of non-fiat “digital money” that have become increasingly popular in recent years. They are a form of decentralised currency that facilitate secure and anonymous transactions between individuals. There exist many cryptocurrencies, with the most widely known being Bitcoin. Despite the vast amounts of money being invested and traded in cryptocurrencies, they are uncharted territory and are for a large part unregulated. That lack of regulation, combined with their technical complexity and market volatility, makes them an attractive target for fraudulent activity. 

One example of cryptocurrency fraud is a so-called pump-and-dump scheme. In a pump-and-dump operation a nefarious actor first accumulates a commodity over time for a relatively low price. In the second step (pumping), the price is artificially inflated through coordinated group trading activity, targeted misinformation, or a combination of both. The demand created through fake information and hype drives the price and allows nefarious actors to sell off their previously accumulated commodities at a higher price (dumping), generating substantial proceeds.
 
The proposed project aims to shed light on this emerging yet currently under-researched and non-regulated problem space by (1) Gaining a comprehensive overview of the problem of cryptocurrency fraud and its sub-types, as well as existing efforts to address this emerging problem (2) Identifying the key strategies and Modus Operandi used to defraud in the cryptocurrency market (3) Identifying the pressing research questions to develop appropriate mitigation, prevention and/or detection methods. 

Policy briefing

A policy briefing document has been prepared for this project, entitled “Cryptocurrencies and future crime”. The briefing is available by clicking here.

Lead Investigator(s)	Dr Bennett Kleinberg, UCL Department Security and Crime Science
Research Assistant(s)	Florian Hetzel Arianna Trozze  Eray Arkatuna
For information about this project contact	Dr Bennett Kleinberg (bennett.kleinberg@ucl.ac.uk)
Outputs	Trozze, A., Kamps, J., Akartuna, E.A. et al. Cryptocurrencies and future financial crime. Crime Science 11, 1 (2022).