Fool Me Once: Ethereum Traders Make More Money After Being Scammed

A landmark research paper found that Ethereum investors who’ve lost funds because of cybercrime tend to see better gains after becoming victims—a surprising result, according to the author, with some big caveats.

Published in early August, the investigation identified 19 unique cybercrime categories. On the Ethereum network, Ponzi schemes have accounted for 60% of funds stolen, followed by giveaways (18%), exploits (13%), and hacks (5%).

Paul Momtaz, professor of entrepreneurial finance at the Technical University of Munich and one of the four co-authors, told Decrypt he was shocked to find that for Ethereum investors “burning your fingers is good for you.”

Cyber Criminals Are Turning to Crypto Mining Pools to Wash Ill-Gotten Funds: Chainalysis

Crypto mining as a tool to bolster money laundering capabilities extends beyond nation states actors, holding special appeal to conventional criminals, according to a new report by blockchain forensic firm Chainalysis. Sanctioned nation-states such as Iran have reportedly resorted to crypto mining as a means to accumulate capital outside the conventional financial system. In a recent development, cybersecurity company Mandiant also revealed how the Lazarus Group, the infamous North Korean hackin…

NewsBusiness4 min read

Andrew AsmakovJun 15, 2023

He told Decrypt that the team discovered “once you become a victim, your returns from investing in Ethereum tend to improve.”

The results revealed that investors modified their risk-taking models, both according to portfolio size (smaller wallets tend to “become gamblers,” explained Momtaz), but also timeframes. In the long run, read the paper, victims reduce their overall risk by diversifying more, but also “become less willing to take risks that are harder to control.”

The researchers also came across another surprising finding: The Federal Trade Commission (FTC) has been understating the amount of Ethereum lost to scams by a factor of 16. The paper, titled “Cybercrime on the Ethereum Blockchain,” cites a report commissioned by the FTC that estimates $106 million worth of ETH has been lost on the network.

According to the researchers, who ran an Ethereum full node to collect and analyze the data—costing the team nearly $100,000, according to Momtaz—the number of “abducted funds,” is closer to $1.65 billion.

“This is striking,” he explained, “because they are the primary agency that informs governments who later make policy decisions.”

For Momtaz, who has written a plethora of research papers on DeFi and cryptocurrency in the past, “the crypto market is maturing.”

Not only because the “structure of the type of scams is changing over time,” he told Decrypt, but as institutions come onboard, bringing more stringent requirements for enterprises in the industry, “crypto companies are becoming more legit,” he said.

Despite the steep costs incurred by the team–which Momtaz emphasized could be a hindrance for others, urging industry players to help with funding–this type of research paper is much needed.

Another benefit of this type of research, he said, is identifying how wallets operated by cybercriminals might act. “We now have the data to develop great forensic tools to detect scams before they happen,” he said.