"Spot the Root: The Nature of Cryptocurrency Scams and Countermeasures"

"Spot the Root: The Nature of Cryptocurrency Scams and Countermeasures"

Author :

George Yim

Managing Director, Crypto HK

Recently, a fraud case in Kwun Tong’s Hung To Road shocked the community, where a victim was deceived into handing over HK$1 million in cash during a cryptocurrency transaction. This incident has reignited public concern over cryptocurrency scams, raising questions about the safety of the industry. However, are these so-called “cryptocurrency scams” truly intrinsic to cryptocurrencies themselves? This editorial dissects the nature of such scams and proposes how the government can address the root causes of fraud.

For years, the cryptocurrency industry has been perceived by the public as a hotbed for fraud, with investments carrying not only market risks but also a significant chance of deception. Media reports often link various scams to cryptocurrencies, creating an impression of widespread malpractice within the sector. Yet, upon closer examination, many of these scams are not directly tied to cryptocurrencies or blockchain technology; rather, cryptocurrencies are merely used as a final conduit for extracting funds.

Common “cryptocurrency scams” include several types: First, romance scams, where fraudsters build relationships with victims online and persuade them to invest in fictitious “cryptocurrency projects”, ultimately stealing their money. Second, fake exchange scams, where fraudsters impersonate legitimate exchanges to trick victims into transferring cryptocurrencies to their controlled addresses. Third, phishing scams, where fraudsters send seemingly credible text messages or emails to lure victims into clicking malicious links, installing malware to steal assets from cryptocurrency wallets.

However, the essence of these scams is not unique to cryptocurrencies or blockchain technology. They rely on social engineering to lower victims’ guard, inducing errors that lead to financial loss. Such tactics are no different from traditional frauds. For instance, in conventional romance scams, victims may transfer money via WeChat, yet we do not label these as “WeChat scams.” Similarly, London gold scams may involve bank transfers, but we do not call them “bank scams.” Singling out cryptocurrency scams is a misrepresentation of the issue.

Admittedly, fraudsters favor cryptocurrencies as a withdrawal channel due to their cross-border and rapid settlement features, which complicate efforts to trace and recover stolen funds. However, these attributes are precisely what the financial industry has long sought and align with Hong Kong’s policy direction as a global financial centre. Stifling cryptocurrency development to prevent scams would be counterproductive. The real question is: how can we protect citizens while fostering financial innovation?

In fact, the aforementioned scams largely rely on phishing tactics, employing phone calls, text messages, or social media platforms to lure victims. Hong Kong citizens have long been frustrated by the rampant proliferation of scam calls and phishing messages. Why is it that, despite the implementation of phone number real-name registration for years, there are scarcely any reports of scammers being apprehended based on these numbers? Why do fraudulent pages on social media platforms persist despite efforts to curb them? These issues highlight significant enforcement gaps and inadequate regulation, creating a breeding ground for scammers. The root cause lies in the insufficient oversight of telecommunications channels by law enforcers. To address these loopholes, the government should adopt concrete measures. For instance, it could strengthen the enforcement of the phone number real-name registration system by mandating telecom providers to regularly audit highly active numbers—such as those sending large volumes of texts or making numerous calls in a short period—and blacklist suspicious numbers to restrict their use. Additionally, the government could collaborate with telecom providers to establish a real-time monitoring system, leveraging artificial intelligence to analyze the content of texts and calls, identify phishing patterns (e.g., messages containing suspicious links or keywords), and automatically block them while reporting them to law enforcement. Furthermore, social media platforms should be required to enhance content moderation by establishing dedicated fraud monitoring teams to regularly scan and remove fraudulent pages or advertisements, with permanent bans imposed on accounts that repeatedly violate regulations. These are merely some straightforward solutions that any Hong Kong citizen could propose, many of which rely on artificial intelligence and do not require significant increases to existing government structure. Yet, for unknown reasons, the government continues to turn a blind eye to these measures.

We urge the government, while regulating new payment systems, to intensify enforcement of existing laws and close regulatory loopholes. Strengthening oversight of telecommunications channels and social media, and promptly intercepting fraudulent communications, is the most effective way to curb scams at their source. Only by eliminating the space for fraudsters to operate can we ensure the safety of citizens and allow emerging technologies like cryptocurrencies to contribute to Hong Kong’s financial innovation in a secure environment.