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Understanding Crypto Fraud, Investigations and Asset Tracing part 1

This article kicks off a 3-part series diving into the world of blockchain and cryptocurrency. In our first article, we’ll explore the diverse realm of Blockchain and Cryptocurrency Fraud. Subsequently, our second article will delve into the array of Blockchain and Cryptocurrency Disputes, while the final one will review available Legal Recourse and strategies to mitigate risks.


Blockchain and cryptocurrency, with its promise of decentralisation and financial innovation, has evolved into a dynamic yet ambiguous space. The very same traits which allow it to be a disruptive technology have also fostered an ecosystem with high risk of fraud and dispute. In particular, some sources of dispute stem from legal uncertainties unique to the blockchain and crypto space, such as:

  • The lack of enforceability stemming from the difficulty in identifying jurisdiction, classifying assets and thus, the applicable law,
  • The high risks of fraud or misrepresentation due to pseudonymity, and
  • The enigmatic legal nature of smart contracts due to its nature as self-executing computer code.

With much of the decentralised finance (DeFi) space often obfuscated by technical jargon, it is important for stakeholders to understand the types of disputes and avenues of legal recourse within the ecosystem.

Blockchain and Cryptocurrency Fraud

Cryptocurrency fraud cases often rely on similar elements as traditional fraud cases. Blockchain and crypto fraud, however, is often harder to spot and seek legal redress, given its opaque inner workings. The following are a few examples of crypto fraud:

  • Rug-pulls. Rug-pulls occur where a fraudulent developer artificially inflates the publicity and interest over a DeFi project, only to liquidate the funds and abandon the project overnight. While dubious investment opportunities have always existed, the anonymous and online nature of DeFi projects make it easier to generate interest over questionable investments, whilst making it harder to identify and prosecute the fraudulent developers. Ponzi Schemes. Ponzi schemes have existed for decades, but thrive behind the opacity of DeFi projects.
  • Ponzi schemes occur when funds from new investors are used to pay out previous investors, a model which very quickly becomes unsustainable. In particular, the technical nature of DeFi projects allow developers to lure in victims who lack the expertise to understand the mechanics of the project.
  • Phishing. Traditional phishing occurs when individuals are tricked into giving away their bank account details. Crypto wallets and trading platforms hold greater risk of phishing attacks as they lack a central authority (such as banks) that may be able to prevent suspicious transactions. Moreover, the pseudonymous nature of crypto spaces makes it extremely difficult to trace who is behind the scam. 

This article marks the first instalment of our 3-part series delving into the realm of blockchain and cryptocurrency. In the subsequent article, we will examine the myriad types of blockchain and cryptocurrency disputes while the final one will review available Legal Recourse and strategies to mitigate risks.

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