Bitcoin is the digital world’s most popular virtual currency, with millions in circulation.
The study is the first empirical study of its kind. Vasek and Moore found that hucksters used four different types of schemes through authentic-looking web-based investment and banking outlets to lure customers and heist deposits.
Vasek explained to CoinDesk journalist Joon Ian Wong how the researchers extracted Bitcoin addresses linked to the frauds, enabling them to look at transactions from victims to fraudsters recorded on the transaction addresses.
By Joon Ian Wong
CoinDesk
Scams promising bitcoin riches have netted swindlers at least $11m in the last four years, researchers have found.
Some 13,000 victims handed over their money unwittingly in 42 different scams over that time period, their data suggests.
However, the total amount of funds cheated from victims over this period is almost certainly higher than the estimated $11m the research identified.
A co-author of the research, Marie Vasek, said:
“There are a lot of scams that we couldn’t measure at all. There were scams we couldn’t find or verify … We think presenting our findings as they are, a lower bound, makes a lot of room for us and others to further quantify scams in this space.”
Vasek, who researches computer security at Southern Methodist University, co-wrote the paper with Tyler Moore, an assistant professor in computer science at the same institution.
Painstaking search
The paper, titled There’s No Free Lunch, Even Using Bitcoin: Tracking the Popularity and Profits of Virtual Currency Scams, has been presented at the Financial Cryptography and Data Security conference taking place in Puerto Rico this week.
Vasek and Moore combed online repositories of scam accusations, including a mega-thread of scams, hacks and heists on the Bitcointalk forum that has been maintained since 2012, as well as the subreddit r/bitcoin, BadBitcoin.org and CryptoHYIPs.com.
This process required the researchers to painstakingly go through forum threads post by post, even translating messages that were written in languages other then English, as well as visiting the websites that scammers created to publicise themselves.
“We went through every single post to determine if the scheme was a scam, any associated bitcoin addresses with the scheme, and any associated scams,” Vasek said.
Using this method they found 349 scams, which were then whittled down to 192 deceptions after excluding phishing, malware and pay-for-click websites, which fall outside the scope of the study.
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
First empirical study of its kind identifies fraud on seemingly legitimate web sites purposely designed to steal customers’ funds
Fraudulent schemes have scammed at least $11 million in Bitcoin deposits from unsuspecting cyber customers over the past four years, according to new cyber security research from Southern Methodist University, Dallas.
Bitcoin is the digital world’s most popular virtual currency, with millions in circulation.
In the first empirical study of its kind, SMU researchers found that hucksters used four different types of schemes through authentic-looking web-based investment and banking outlets to lure customers and heist deposits, said computer security expert Marie Vasek, lead researcher on the study.
Book a live interview
To book a live or taped interview with Marie Vasek or Dr. Tyler Moore in the SMU Broadcast Studio call SMU News at 214-768-7650 or email news@smu.edu.
“Our calculation of $11 million is almost certainly at the low-end,” said Vasek. “The amount of Bitcoin that depositors have lost to these scams is probably many millions more.”
Typically the scams succeed by exploiting not only people’s greed, but also the urge to “get rich quick,” coupled with the inability to judge the legitimacy of web services to decide which financial sites are good or bad, said Bitcoin and cyber security expert Tyler W. Moore, co-researcher on the study.
“Because the complete history of Bitcoin transactions are made public, we have been able to inspect, for the first time, the money flowing in and out of fraudulent schemes in great detail. It’s like having access to all of Bernie Madoff’s books for many of these scams,” said Moore, director of the Economics and Social Sciences program of the Darwin Deason Institute for Cyber Security in SMU’s Lyle School of Engineering.
13,000 victims and counting in four different kinds of scams
The researchers identified 41 scams occurring between 2011 and 2014, in which fraudulent sites stole Bitcoin from at least 13,000 victims, and most certainly more.
“We found that the most successful scams draw the vast majority of their revenue from a few victims,” Vasek said.
The researchers were only able to track revenues for about 21 percent of the scams, which would indicate that the amount of Bitcoin actually stolen most likely far exceeds $11 million.
The findings emerged when the researchers ran a Structured Query Language database dump of all relevant Bitcoin transactions, then analyzed Bitcoin addresses (the account numbers) of both victims and the siphoning transactions of scammers.
“The amount of fraud being attracted by Bitcoin is a testament to the fact the virtual currency is gaining in legitimacy,” said Moore. “But scams that successfully hijack funds from depositors may end up scaring away consumers who will fear using Bitcoin for their legitimate digital transactions.”
There are 13.7 million Bitcoin in circulation, according to blockchain.info. The number of Bitcoin transactions exceeds 100,000 per day.
The research was partially funded by the U.S. Department of Homeland Security’s Science and Technology Directorate, Cyber Security Division, and the Government of Australia and SPAWAR Systems Center Pacific.
Four scams, each with varying lifespans, strategies and success
Vasek and Moore identified four common scams by tracking forum discussions, where scams are often initially advertised and later exposed, and by tracking web sites.
High-yield investment programs, otherwise known as online Ponzi schemes, which promise investors outlandish interest rates on deposits. The scammers lure both unsuspecting victims as well as those fully aware it’s a Ponzi scheme who hope to cash out in time. Of all the scams, this type has taken in the lion’s share of money from victims. The biggest of these scammers was Bitcoin Savings & Trust, formerly First Pirate Savings & Trust. When such schemes collapse, as they eventually do, and often within about 37 days, they’re replaced with a new program, often run by the same criminals, say the researchers. These scammers consistently pay out to their investors far less than they take in.
Mining investment scams are classic advanced-fee fraud, taking orders and money from customers but never delivering any mining equipment — specialized computer processors and electronic devices for mining Bitcoin. These retailers typically endure for 145 days, much longer than Ponzi schemes. Vasek and Moore looked at Labcoin, Active Mining Corp., AsicMiningEuipment.com and Dragon-Miner.com.
Victims make deposits into scam wallets under the promise the service offers greater transaction anonymity. If the deposit is small, scammers leave the money, but if it rises above a threshold, scammers move the money into their wallet. Services such as Onion Wallet, Easy Coin and Bitcoinwallet.in each surfaced with transfers from victims siphoned to one address held by a scammer.
Exchange scams, such as BTC Promo, CoinOpend and Ubitex, offer PayPal and credit card processing, but at a better exchange rate than competitors. Customers soon find out, however, they never get Bitcoin or cash after making payment. Longer-lived exchange scams survived about three months. Wallet and exchange scams exploit the difficulty in judging the legitimacy of web services.
The study is not a comprehensive review, the researchers note, as they were limited to those scams for which they could determine a minimum estimate of the prevalence and criminal profits of the scams after analyzing the public ledger of all Bitcoin transactions ever executed.
The researchers conservatively estimate that $11 million has been taken by scams, while only $4 million has ever been returned. Most of the successful scams catch a few “big fish,” say the researchers, who pay the bulk of the money into the scam.
“Bitcoin scams pose a problem for more than the victims who directly lose money,” Moore said. “They threaten to undermine trust in this promising technology, and cast a chilling effect on those interested in trying out new services. By mining the public record for fraudulent transactions, we hope to deter would-be scammers and assist law enforcement in cracking down on the bad actors.” — Margaret Allen
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
“It’s like any other digital commodity in that it finds its value in the people who use it…” — Tyler Moore
KERA Public Radio journalist Justin Martin tapped the expertise of SMU Bitcoin and cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
An expert on the digital currency Bitcoin, Moore’s expertise draws in part on his research surrounding Bitcoin, the exchanges that trade in the currency and patterns of online usage. One of Moore’s studies found that online money exchanges that trade hard currency for the rapidly emerging cyber money have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a computer science study in which Moore applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Book a live interview
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
By Justin Martin
KERA
Fans of bitcoin tout the digital currency as secure, anonymous and efficient. But wildly fluctuating exchange rates and charges recently in an alleged bitcoin Ponzi scheme in North Texas have put a spotlight on bitcoin’s risks.
Tyler Moore is an assistant professor of computer science and engineering at Southern Methodist University and he joins KERA’s Justin Martin for a conversation on bitcoin.
Interview Highlights: Tyler Moore …
… On bitcoin and cryptocurrency:
“Bitcoin is a currency just like dollars or euros or pounds, but it’s completely digital so there’s no paper equivalent. To do that, you need to have some rules in place so that people can’t willy-nilly copy the bits and steal each other’s bitcoins – so that’s where the crypto comes in – you have some cryptography to protect against double spending and sort of enforce the rules of the system.”
… On how to acquire bitcoin:
“So there’s two main ways – the more esoteric way is to mine bitcoins, but if you’re new to bitcoin the most common way is to go to a currency exchange, just like you would when you enter a new country, go the airport, go to the exchange, and provide your dollars and get whatever currency you’d like. You can get to an online currency exchange and pay your dollars and whatever the current market rate is they’ll give you the equivalent in bitcoin.”
… On bitcoin’s value:
“It’s like any other digital commodity in that it finds its value in the people who use it. Which is one reason we see these huge fluctuations in that there can be wildly differing demands for the currency at a given time.”
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
“The bitcoin ecosystem is in need of regulatory oversight and reform.” — bitcoin expert Tyler Moore, SMU assistant professor
Journalist Will Deener with The Dallas Morning News tapped the expertise of SMU Bitcoin and cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
Moore’s expertise draws in part on his research that found that online money exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a computer science study in which Moore applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Book a live interview
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
By Will Deener
Dallas Morning News
Bitcoin was a dream come true for computer geeks, libertarians and big government paranoids.
Just imagine a digital currency untethered from government regulators, existing only in the virtual world of computer code and cheaper to use than credit cards.
But the recent collapse of a leading bitcoin exchange, Mt. Gox, has raised concerns about the legitimacy of this virtual currency.
A $470 million digital heist last month at the Tokyo-based exchange pushed the company into bankruptcy and left many bitcoin investors empty-handed with little recourse.
Mt. Gox chief executive Mark Karpeles offered some hollow condolences during a late February press conference in Tokyo. He basically said, oops, there was a bug in the bitcoin software, which allowed thieves to hack their way into the system and fraudulently withdraw bit coin.
And to think this was supposedly the precursor to a digital Utopia.
Investors in traditional currencies — U.S. dollar, Japanese yen or Swiss franc — need a cast iron stomach, a savvy trading strategy and a fat wallet because big losses are inevitable.
Breaking news in these markets is like waving a biscuit at a mad dog. It comes fast, and it ain’t pretty.
But at least sovereign governments and regulatory authorities stand behind and monitor traditional currencies. While Bitcoin’s exchange rate is even more volatile than traditional currencies, there is no oversight from the FDIC, Federal Reserve or U.S. Treasury.
Tyler Moore, an SMU assistant professor in computer science and engineering, said he doesn’t believe the Mt. Gox fiasco will spell the demise of bitcoin, but regulatory safeguards are needed. Moore co-authored a research report last year in which he examined the risks of investing in bit coin.
“The bitcoin ecosystem is in need of regulatory oversight and reform,” he wrote in an email response to my questions. “Bitcoin currency exchanges act like de facto banks. Many customers leave the bitcoins in accounts at the exchanges, but there are no capital requirements as there are for traditional banks.”
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
“The currency that is supposedly beyond state control is actually still within the grip of governments …” — Tyler Moore
Journalists Alistair Barr and Kim Hjelmgaard with USA Today tapped the expertise of SMU Bitcoin and cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
Moore’s expertise draws in part on his research that found that online money exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a computer science study in which Moore applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Book a live interview
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
By Alistair Barr and Kim Hjelmgaard USA Today Bitcoin was supposed to be beyond the reach of governments, but investors in the virtual currency are realizing that is not the case.
The price of a Bitcoin slumped Wednesday after China’s largest exchange for the virtual currency said it would stop accepting deposits in yuan — China’s local currency.
The much-ballyhooed Bitcoin currency has lost more than half its value since hitting records above $1,100 at the end of November. On Wednesday, the price of a Bitcoin fell 18% to $558 and traded as low as $422.50 earlier in the day, according to an index run by CoinDesk, a website focused on digital currencies.
The exchange, BTC China, had to “temporarily stop its yuan account recharging functions,” according to comments it made on Weibo, a popular Chinese micro-blogging service similar to Twitter.
“Bitcoin is inherently volatile, but the decision by this large exchange has played a role,” said Tyler Moore, a Southern Methodist University assistant professor in computer science who has studied Bitcoin. “Stopping new deposits prevents new Chinese investors from piling more yuan into Bitcoin, eliminating some of the demand.”
Bitcoin is a digital currency and payment method that is not regulated by any government. Instead, software controls how many Bitcoins are produced, leaving it less prone to the whims of central banks, some of which have caused inflation in the past by printing too much paper currency.
The Bitcoin software first emerged in 2009 via a person or group using the name Satoshi Nakamoto. Since then, many other developers have jumped on board to support the currency and make it more accessible to consumers and investors.
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
To book a live or taped interview with Marie Vasek or Dr. Tyler Moore in the SMU Broadcast Studio call SMU News at 214-768-7650 or email news@smu.edu.
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