Cryptocurrencies and future financial crime

Abstract

Background: Cryptocurrency fraud has become a growing global concern, with various governments reporting an increase in the frequency of and losses from cryptocurrency scams. Despite increasing fraudulent activity involving cryptocurrencies, research on the potential of cryptocurrencies for fraud has not been examined in a systematic study. This review examines the current state of knowledge about what kinds of cryptocurrency fraud currently exist, or are expected to exist in the future, and provides comprehensive definitions of the frauds identified.

Methods: The study involved a scoping review of academic research and grey literature on cryptocurrency fraud and a 1.5-day expert consensus exercise. The review followed the PRISMA-ScR protocol, with eligibility criteria based on language, publication type, relevance to cryptocurrency fraud, and evidence provided. Researchers screened 391 academic records, 106 of which went on to the eligibility phase, and 63 of which were ultimately analysed. We screened 394 grey literature sources, 128 of which passed on to the eligibility phase, and 53 of which were included in our review. The expert consensus exercise was attended by high-profile participants from the private sector, government, and academia. It involved problem planning and analysis activities and discussion about the future of cryptocurrency crime.

Results: The academic literature identified 29 different types of cryptocurrency fraud; the grey literature discussed 32 types, 14 of which were not identified in the academic literature (i.e., 47 unique types in total). Ponzi schemes and (synonymous) high yield investment programmes were most discussed across all literature. Participants in the expert consensus exercise ranked pump-and-dump schemes and ransomware as the most profitable and feasible threats, though pump-and-dumps were, notably, perceived as the least harmful type of fraud.

Conclusions: The findings of this scoping review suggest cryptocurrency fraud research is rapidly developing in volume and breadth, though we remain at an early stage of thinking about future problems and scenarios involving cryptocurrencies. The findings of this work emphasise the need for better collaboration across sectors and consensus on definitions surrounding cryptocurrency fraud to address the problems identified.

Keywords: Bitcoin; Cryptocurrencies; Fraud; Ponzi Schemes; Virtual Currency.

Fig. 1

PRISMA-ScR flow diagram. *Articles were published on electronic pre-print service SSRN and appeared to be academic in nature from screening their titles and abstract but, upon full-text examination, were excluded. **One article was included in the initial search as a pre-print, but had since been formally published and was, therefore, excluded during the updated search as a duplicate

Fig. 2

PRISMA-ScR flow diagram for grey literature selection (search conducted November 2020)

Fig. 3

Number of publications and expert consensus exercise participant votes per fraud type. *CPO/CTA fraud is an abbreviation for Commodity Pool Operator or Commodity Trading Advisor fraud. For more details, see Appendix 3 or https://osf.io/7w9mu/?view_only=c9ad3a1e2ed54dae9b1a0fc2807f144f

Fig. 4

Problem analysis on the harmfulness, profitability, feasibility, and defeatability dimensions (horizontal axis; judgment certainty on the vertical axis)