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Cryptocurrency-related illicit activities are on the rise. From the infamous Mt. Gox breach to the elaborate OneCoin scheme perpetrated by Bulgarian con artists, criminal behavior is growing in tandem with digital currencies. History tells us that value attracts those with malicious intent, waiting for an opportunity to exploit it. As the cryptocurrency space expands, so does the sophistication and prevalence of these fraudulent activities, making them difficult to overlook.
Chainalysis, a company specializing in blockchain analytics, indicates that 2025 is shaping up to be the year with the highest cryptocurrency theft to date. By July, over $2.17 billion had already been pilfered from various crypto services. This surpasses the total for 2024, which was also record-breaking, showing a 67% increase in wallet-draining attacks compared to 2023.
These statistics highlight significant weaknesses in the crypto ecosystem and negatively impact widespread acceptance. Kadan Stadelmann, CTO of the AI development platform Komodo, expressed his opinion:
“We are witnessing a real-time erosion of trust in the web3 domain. The 67% surge in wallet drainer incidents clearly illustrates that cryptocurrency, as it stands, functions more like a playground for exploiters rather than a reliable foundation for traditional finance. The path to broader adoption is blocked when the average person has to be part-programmer, part-detective just to handle transactions securely.”
Bill Zielke, Chief Revenue Officer at BitPay, a global cryptocurrency payment processor, shared his insights:
“The increase in crypto scams doesn’t just harm current users; it undermines confidence and impedes expansion. Potential users, whether individuals or businesses, may become hesitant to participate with cryptocurrencies due to frequent reports of phishing attempts, bogus wallets, and identity theft schemes. While crypto is gaining momentum, especially as a substitute for conventional payments, fears surrounding scams persist as a key obstacle.”
High Stakes: One Mistake Can Cost You Everything
There is a notable surge in ‘pig butchering’ schemes, where scammers cultivate a false relationship with victims to gain their trust before defrauding them. Revenues from these schemes increased by almost 40% year-over-year from 2023 to 2024.
Although less frequent, there’s been an uptick in physical attacks targeting Bitcoin holders, known as “wrench attacks.” Jameson Lopp, Bitcoin security specialist and Casa co-founder, noted in a recent Slate Sunday interview that over 200 such incidents have been documented, including over 30 in the first half of 2025. Chainalysis concludes:
“Based on current trends, 2025 could see double the number of physical attacks compared to any previous year.”
As security experts identify and mitigate specific threats, new, more sophisticated attacks emerge, creating a continuous cycle. These evolving tactics prey on vulnerable individuals.
Scammers are using AI to create content, deepfakes, and sophisticated phishing strategies to bypass security and mislead even seasoned users (and deter newcomers from self-custody). Michal “Mehow” Pospieszalski, Founder and CEO of MatterFi, a security infrastructure provider, stated:
“Scams not only delay widespread adoption but, more importantly, destroy trust. No level of reward or innovation matters when a user risks losing everything with a single click or a minor error in a wallet address. People won’t embrace an environment where the underlying assumption is: ‘Make one wrong move, and it’s all gone.'”
Common Types of Cryptocurrency-Related Crime
Fraser Edwards, an expert in online fraud and CEO of self-sovereign identity platform cheqd, provided further insight into the issue.
“Fraud is a continuous back-and-forth,” Edwards commented. “Currently, fraudsters have the advantage, but eventually, the momentum will shift.”
Cybersecurity is often characterized as a race where hackers constantly develop more deceptive techniques to outwit their targets. What are the most prevalent forms of attacks, and how can individuals protect themselves?
Phishing and Social Engineering
Social engineering and phishing are the most widespread forms of cybercrime, accounting for 70-90% of attacks. These usually involve deceptive emails, messages, and websites designed to trick users into revealing their private keys or wallet details. Edwards provided an example:
“A well-crafted phishing attempt uses a spoofed Calendly link via Twitter. Victims click the link, schedule a meeting, and authenticate using their Twitter credentials. The attackers then gain control of the Twitter account and use it to target others.”
Best practices involve verifying the authenticity of websites and communications, carefully examining links, double-checking wallet addresses, and avoiding clicking on links or attachments in suspicious emails.
AI-Powered Deepfake Scams
With the rapid growth of AI, deepfake scams are becoming increasingly prevalent, employing AI-generated videos and audio to impersonate trusted figures or company executives.
In 2023, a fabricated interview featuring Tesla CEO Elon Musk circulated widely on platforms like YouTube. The video resembled a CNBC segment and showed a manipulated version of Musk urging viewers to send Bitcoin or Ethereum to a specified address in order to double their investment.
While users are increasingly aware of deepfake threats, prominent individuals frequently remind their followers to be wary of fake AI-generated endorsements on social media platforms.
Verified data solutions, such as those pioneered by cheqd, can help address this by cryptographically verifying the source and authenticity of digital content. Edwards explained:
“For instance, a video could be created with a content credential generated directly when recording it on a phone. Samsung is considering integrating this feature into its flagship models, so every image or video would include a cryptographic signature, ensuring that it can be proven to be authentic.”
Pig Butchering
In these schemes, scammers build trust by establishing relationships through social media or dating platforms, then persuade their victims to invest in fraudulent cryptocurrency ventures. Once the funds are transferred, the scammers vanish with the money, leaving the victims emotionally and financially devastated.
In 2023, the FBI’s Internet Crime Complaint Center (IC3) reported a substantial increase in cryptocurrency-related fraud reports, with total losses of $3.96 billion, representing a 53% increase from the previous year.
Edwards advocates for reusable KYC (Know Your Customer) to limit the amount of personal data available. This approach allows users to verify their identity once and securely reuse that verification across multiple services, reducing the amount of shared data, eliminating risky centralized data stores, and minimizing fraud because it relies on cryptographically signed credentials. He emphasized:
“Reusable KYC is a significant development. I think it’s going to gain traction quickly.”
Ponzi and Pyramid Schemes
Although Ponzi schemes have been around for over a century, unsuspecting investors continue to fall prey. These schemes involve fraudulent crypto platforms that promise guaranteed returns, paying early investors with funds from new investors, eventually collapsing and leaving most investors with significant losses.
Examples include thousands of Nigerians who lost millions to CBEX, a deceptive digital asset trading platform masquerading as a legitimate exchange, and the more recent First Liberty scheme from June 2025, which led to a sudden closure and left roughly 300 investors shorted by at least $140 million.
Protecting yourself from Ponzi schemes can be challenging. Key indicators are unrealistic returns, high-pressure sales tactics, and unsolicited investment offers. Also, reviewing the OneCoin documentary can be useful.
Rug Pulls and Pump-and-Dump Schemes
Seasoned cryptocurrency users are familiar with rug pulls, where project founders aggressively promote new tokens, attract substantial investments, then abruptly remove liquidity, leaving investors with worthless assets. Edwards lamented:
“It boils down to people failing to conduct adequate research and simply jumping into these projects. Many of these teams remain anonymous.”
He believes that verified data can help investors make better decisions. Legitimate founding team members can use decentralized IDs to accumulate verified contributions to projects and cultivate positive, verifiable reputations.
Physical Bitcoin Attacks (Wrench Attacks)
In many of the physical attacks targeting Bitcoin holders, Lopp has observed a growing trend of organized crime involvement. Victims have included Ledger co-founder David Balland, and Lopp himself, which prompted him to limit his online presence. Attacks also target social media crypto influencers who flaunt their wealth on platforms such as TikTok and Instagram.
In addition to implementing comprehensive security measures, it’s vital to maintain a discreet lifestyle. Avoid sharing the amount of BTC you hold, and refrain from taunting followers while displaying extravagant displays of wealth. Edwards noted:
“As wealth increases, personal security needs attention. Displaying wealth makes you a target because information is easily accessible on the blockchain. Someone’s net worth is more easily determined than it would be in conventional banking systems.”
Things Can Only Get… Worse
Unfortunately, available information indicates that this situation is likely to worsen. Chainalysis cautions:
“Currently, 2025 shows a 17.27% increase compared to the figures for June 2022. If this trend continues, losses from service breaches alone could top $4.3 billion.”
The proliferation of AI agents might lead to cybercrime that operates without human intervention. Edwards noted:
“Presently, cybercrime is mostly carried out by humans. However, the prospect of AI agents handling these tasks on a large scale is particularly alarming. This removes the limitations imposed by human capacity.”
There is the possibility of artificial intelligence being weaponized for fraud and theft. Chenxing Li, a developer at Conflux Network, suggests that the industry needs “time to mature in three key ways:”
“1. The Test of Time: To determine which projects can deliver reliable and stable products, establishing a reputation for security.
2. Learning from Incidents: To analyze security breaches collectively and revise product designs to address vulnerabilities.
3. Gaining User Trust: To gradually replace outdated solutions with secure ones and earn widespread adoption.”
Given the rapid advancement of AI and the surge in cybercrime, there is not enough time to assess everything. Edwards reflected:
“Ideally, solutions should be implemented before fraudsters can exploit vulnerabilities. Although progress has been made, the problem may worsen before it improves.”
A Glimmer of Hope on the Horizon
There are strategies to counter this. James Toledano, COO of Unity Wallet, suggested that AI might also be a solution.
“This is not a lost cause. We must strengthen security measures. Self-custodial wallets are inherently secure; breaches typically stem from deception. Education is crucial. When in doubt, avoid engaging.
AI can be utilized for protection by enabling real-time scam detection, monitoring user behavior, and adapting threat responses to enhance trust and promote safe web3 adoption.”
Edwards concurred:
“The technology is available to tackle this issue. This is a problem for which we can find a solution.”
One AI-leveraging project is Algebra Labs, which is developing a new decentralized exchange (DEX) governed by bots. Co-founder Vladimir Tikhimorov explained:
“We anticipate that AI will transform the industry, including threat detection and mitigation. Real-time automated security, which responds to threats proactively rather than reactively, will become essential, leading to a shift towards platforms with advanced security measures.”
As cryptocurrency adoption increases and technology matures, crime remains a persistent challenge. Yet, with vigilance, education, improved security practices, and advances like AI, the chances of avoiding an online crisis improve. The battle between defenders and attackers is ongoing, but, vigilance can minimize risks.