How to Spot and Fight Crypto Scams and Security Issues: Expert Tips You Need to Know

Poline: Hi guys, this is the PissedConsumer channel. Our special guest today is Nirmal Shah, founder and CEO of Crypto-Helpline, a crypto expert and certified blockchain investigator. 

About Nirmal Shah and Crypto-Helpline

Nirmal: My name is Nirmal Shah, and I'm the founder of Crypto Helpline. We are an end-to-end crypto investigative agency. We started our journey about three years ago. What we do now for law enforcement agencies and every part involved in crypto fraud is we have them investigate crypto where the funds have gone.

We work very closely with law enforcement to do the due diligence on how to analyze the suspects. We also work with the lawyers and guide them in terms of what kind of arguments they can present in court. So, we help with end-to-end investigation. We have investigated over 200 cases so far, and these are all global. They span across the US, Australia, so on, and so forth.

We've had a lot of success in terms of identifying the suspects. One of the cases that was also recently reported in the media was one of the Indian victims, where we were able to recover about $40,000 for the victim. Such small cases never come in the media, but it was a big feat, and hopefully, after that, this is almost a revolution in India where everybody now feels that if they've lost money in crypto, they can get it back. But that's what we do. 

We are not a recovery agency; we are an investigation agency. So, we would like to work very closely with the affected parties in law enforcement. We also regularly conduct sessions for law enforcement and workshops on crypto investigations.

Cryptocurrency Security and User Adoption Challenges

Pauline: In your opinion, is cryptocurrency safe to use and easy to use? Is it secure?

Nirmal: There are two parts to it. If you talk about cryptocurrency itself, it is built on Blockchain. And Blockchain is a very, very secure technology. The problem happens when you are using this technology, and you're using this technology out there, and then you connect it with other systems for, let's say, money exchanges. And that is where those are like the endpoints in technical terms, where these are more prone to hacks, for example, if you've not done the right level of coding or the right level of due diligence.

The other challenge is security, which also comes in terms of how users use it. I mean, right now, if you think about the users, generally, folks are not very familiar with crypto all over the world. People who use it, of course, are familiar with it. But then otherwise, it's a bit hard to explain to, for example, a 60-year-old who wants to make a crypto investment: 'Hey, listen, you got to make a wallet. This is an exchange.' They only understand like, 'Oh, this is a bank account, and that is what I'm familiar with.' So, from that standpoint, I believe there are obviously some technical challenges, but more in terms of ease of use. I think there is a long way to go.

A lot of the organizations and exchanges are making it very easy in terms of education, training for the users. We are in the face of AI. Everybody has heard about AI but everything takes time, people need time to come up to speed. I think the same is the case with crypto.

There is an immense benefit to crypto and it has got a very strong future if it is regulated and if it is in the right hands. If we talk about safety, regular currency, or cryptocurrency, what's bad?

Cryptocurrency vs. Regular Currency

Pauline: How soon will cryptocurrency replace the regular currency?

Nirmal Shah: The cryptocurrency started. So, first and foremost, both regular currency and cryptocurrency have their pros and cons. To begin with, the regular currency has been used for almost over 100 years. And it's hard to replace something like that, which has been in use for such a long time.

I do believe that cryptocurrency needs to be understood in conjunction with regular currency because when you do buy cryptocurrency, it is backed by a regular currency. If I want to buy a Bitcoin, I need to spend a few dollars to be able to buy a Bitcoin and my dollars are actually regular currency. The advantage that we get with regular currency right now as it stands is that it is backed and adopted by everyone: the government accepts it, and the banks accept it. It's a common mode of payment. And that is why it's hard to replace. 

Cryptocurrency was invented with the sole purpose of making sure that if I need to make a cross-border payment, it should be fast, and the transaction fees should be minimal, which serves the purpose. 

But of course, there are a lot of bad actors, and because of that, we see in the news a lot of misuse of cryptocurrency.

So in terms of replacement, I do believe they both have to work together. And in fact, if you treat cryptocurrency more as an asset and not as a currency, like if I'm buying some stocks right now, am I going to say that I'm going to sell my stock to get a Starbucks coffee? No. My stock is an asset and I'm hoping that it is gonna like, let's say appreciate over time in terms of investment.

I think cryptocurrency needs to be considered in that way. 

Regulations need to be created for cryptocurrency as an asset rather than as a currency, and if we ever see a use of cryptocurrency, it will always be in conjunction with a regular currency.

Because the adoption is like there are 7 billion people in the world, not everybody is going to use cryptocurrency. So like how I go and make a payment right now, I have the option of credit card and I have the option to use a bank account. I should also be given the option to pay using cryptocurrency. And it's up to the user to decide how they want to do it. But I don't believe they will replace each other. In fact, they will complement each other in the long run. 

Tips for Average Users on Cryptocurrency Use

Pauline: What should an average user, regular person, not a professional who deals with cryptocurrency on an everyday basis know about cryptocurrency?

Nirmal: They should know three things about cryptocurrency just to begin with. Number one, that it is not regulated. 

Number two is that if you are deciding to put some of your money, for example, in cryptocurrency, you need to understand some of the basic things. In regular currency, your money is stored in the bank, the bank account. But in cryptocurrency, the money goes and is stored as a virtual asset or whatever we call it. That's like a bank account, but it's called a wallet in the crypto world. So, they need to understand how basic functioning works. When I'm sending money to someone, I should know how I'm sending it and to whom I'm sending it.

Number two is also to work with legitimate exchanges because crypto is so relatively new that if you don't do your research and if I put my money in a shady bank, for example, I know that at some point, I may end up losing my money; the bank will just close the process and then run away.

If I do decide to invest in cryptocurrency and use a platform like Binance, I should make sure that it's well-known, that a lot of people are using it, and that there are robust policies. These are some of the basic things that any person who's trying to make a traditional investment should think about.

And last but not least:

Cryptocurrency should not be used as a gateway to put in all of your funds. It is one of the investment mechanisms.

So, an average user who puts money in a savings account and gets some interest over a period of time should think about cryptocurrency to diversify. If I want, I've got $100 as my savings; I don't have to go all in into cryptocurrency, which is why many average users make a mistake. When trying to go all in, they feel this is cryptocurrency. I've done some research, and I'm going to put all my life savings into it. I hope that I'll get 10x returns in a short time. I want to retire rich. So, people generally fail to do proper research in this quick-to-get-rich scheme. Obviously, if something goes wrong, they will be disappointed. 

These are some of the things that an average user should keep in mind when trying cryptocurrency for the first time, I think.

Types of Crypto Scams and Ways to Regulate

Pauline: How soon could cryptocurrency in general, including crypto scams, crypto crimes, and the process of transferring cryptocurrency from one account to another account—all crypto activity—be regulated, and who should be in charge of it?

Nirmal: The regulation has to come in terms of how the country views cryptocurrency. If the country believes that cryptocurrency is a form of investment and if the country wants folks to adopt it, they won't use it. They need to put in stringent measures. If you're doing cryptocurrency, you need to report those transactions in your taxes. It has to start from that level. 

Suppose an exchange is operating in a specific country. In that case, they need to make sure that they are cooperating with law enforcement, which, if you look like a lot of these exchanges are based out of safe haven countries like the Bahamas and Cayman Islands, and it's very hard to chase them. 

I do believe that regulations have to happen both at the country level and then at the exchanges, and all these platforms that say 'We're going to provide these services' need to make sure that they meet their security requirements. We have to start from there and see how space evolves because regulations that work in one country may not work in a different country. So we have to start small because adoption by the exchanges and the people who provide cryptocurrency services also has to be considered. They are like what a simple thing in the cryptocurrency exchange can do. You have to work with the crypto service providers to ensure the regulations work. Otherwise, this is like we talk about the regulations, but it has to be a collaborative effort.

Pauline: What is a crypto scam? How do people get involved in this? I'll ask you to give some examples.

Nirmal: The base level of the crypto scams is very, very simple. If somebody comes up to you with an opportunity, a person or a platform or whatever, and tells you, 'Hey, you invest a dollar, and we will give you $10 in two days like a 10x return,' that's a red flag. That's a scam. It doesn't matter where it is happening or how it is happening in the crypto world.

Generally, there are two types of scams. The one is happening more legitimately. Like the Ponzi scheme, the crypto exchange will ask a lot of investors to put in their money because it's a very exciting crypto project. People put in their money. And then suddenly, you know what essentially they are doing is they say, 'Oh, this is the 10x return that you have.' But that's only something that they see on the screen.

What they're essentially doing in the Ponzi scheme is taking my money as an investor and showing it on your screen that you made a Tenex profit. But when you actually try to withdraw, that is where I think the problem lies. This is just one example of a scam happening in a more legitimate way, where people are putting money into crypto projects.

The more common scams that we deal with on a day-to-day basis at the business or individual levels are the crypto hacks. You are talking to somebody on social media, and then by mistake, you press something, or you end up sharing some OTP, or you click on the wrong button, and they are able to snoop into your phone, and they're able to hack all the information - your user id, password credentials to your exchange, to your wallets that you have on your phone. And they are actually just withdrawing the money. That's a very common scam that happens with businesses and individuals. We call it a crypto hack. You don't have control; you intentionally press something.

We also see about 70-80% of scams at the individual level. And we've seen this all over the world. But you know, like in the US and India rank, in terms of the number of cases we deal with, somebody again reaches out to you on social media and comes out through something like a two-month, three-month conversation. They will convince you to put the money into a fake platform and send it to a wallet with the promise that they will give you 10. Sometimes, we call it a romance scam where they make the person fall in love with you emotionally. So you're emotionally tied to them. And then eventually, they say, 'Hey, listen, I've got a need in my country. Can you send the money to me? But you send the money to me in crypto.' 

These are some of the common scams that we see. They are more legit-based, where it starts with a very interesting project, but then people lose the money. It's a Ponzi-like BitConnect, with a couple of other examples. 

There are other scams that are more at the consumer level, where either consumers get hacked because they intentionally press something or they are having a conversation with a bad actor on the other side, and they end up putting a lot of money into it over a period of time. 

These are the few examples I can give. A phishing scam happened on Twitter in July 2021 - somebody impersonated a Twitter handle so close to Twitter. They said, 'Hey, listen, we've got this exciting project coming up. Your profit will double; this is the wallet where you can put the money.' A lot of people fell for it before Twitter actually shut down that particular user and shut down that particular tweet. 

It's very easy to fool users through social engineering and use deceptive practices for investors, businesses, or consumers.

Also, there are scams, for example, that happened more in terms of the hack. Binance in 2019 was hacked for about $40 million. The reason they were hacked is because they had a security flaw. The technology is blockchain, but the endpoint, the security features, and the infrastructure, if it is not robust, then the bad actors have an opportunity to steal the money from you, which is what they did. They do it, and then they actually negotiate with the exchanges and all the law enforcement authorities, saying that I'll release the money to you. Still, my ransom is going to be $5 million. So they've stolen 50 million, and they're like, you need to transfer $5 million into a large account. But this is generally how we've seen the crypto scams happen.

Fighting Against Crypto Scams and Security Issues

Pauline:How can we actually fight against the crypto scams? What are the effective ways?

Nirmal: There are three things. One is education, the second is awareness, and the third thing is regulation. Education is very important. If I'm an average user and want to start using cryptocurrency, make sure you know about cryptocurrency and the wallet because there is a wallet concept:

• You do not have to share the private key with someone because your wallet may get hacked. 
• Always sign up with those exchanges or crypto service platforms that are well known, and do not go with something that offers you a very high incentive. 

The awareness side is a sense of common sense that folks need to use. It doesn't matter whether it is crypto or a traditional investment if I were to ask you tomorrow, 'Hey, listen, give me $10 in a week, I'm going to give you $100.' It doesn't matter; you know what the mode of communication is with you.

In every crypto scam, the promise of returns is very high, or you're emotionally involved.

But the bottom line is that if you're emotionally involved and like someone, they will never ask for money; they will want to meet you in person. And if you're not emotionally involved, you need to use common sense and sound judgment. 

Folks need to understand that because this is the same approach I would use if I were to put the money in the stock market or a bank. I know that this bank is good because there are some bad banks as well, and I'm not going to put my money there to save. 

The third part is the regulation. When we spoke about the regulation, whatever the governments and the law enforcement agencies need to do on the regulation side, they also need to make folks aware that if you are signing up with the exchanges, then the exchanges need to have strict KYC. If the government mandates those regulations and those regulations are also available for a normal consumer like me to read through, ok. If the government is deeming it to be like a not so good exchange. I should not be putting in the money.

So, a combination of sound judgment and common sense, making sure that you are not driven by greed and impulse rather than taking some time. And I would also suggest that if you are unfamiliar as an average user, always talk to your friends and family: 'Hey, this is, this is what I'm going to put my money in. There is somebody who's promising me 10x.' I've had a lot of people, for example, who realized that they could have consulted their family members when the scam was happening. They could have stopped. The drive and the greed are so intense that at that time, if they talk to their family members, somebody could be there to say, 'Hey, this is wrong. You lost your money, let's not lose more.' 

Pauline: Is it possible to secure your crypto assets and wallet?

Nirmal: Absolutely. For the average user or a professional user, cryptocurrency and your money are in a wallet. You can think of a wallet as a bank account, except that a bank account is provided to you by an exchange or a crypto service provider. Because of how technology works, there are various ways to secure it.

One way is to put your money into a well-known exchange, like a big one. You put the money in the bank, and you ask the bank. The bank will keep your money safe, but you only put your money into a well-known bank.

When you get a wallet, buy it from centralized exchanges, which act like banks. They will give you the wallet and allow you to put money in it, but they can control that wallet. The money is saved because they have all the security measures. 

But if you're uncomfortable with that, there are also other offline ways we call a hardware wallet. There are companies like Trezor that provide you with that. What they essentially do is that if you want to save, it's like a vault, and it's like a safe. You either put the money in the bank or you put the money in a safe. And you have the key to the safe. So, this particular safe is a physical safe that you have access to, and it is right in front of you. This hardware wallet is similar to a USB drive. You connect it to your computer, and it automatically generates a wallet for you. You stay connected, and then you can quickly put the money back into that wallet. Then you know that money is saved in the drive. You can disconnect the drive from the internet. Once it is disconnected, the drive is with me, and the money is actually stored as a currency value. 

More complex users tend to do that because the setup could sometimes be complex or a bit tricky, but there are ways for professionals to use hardware wallets. Also, when accessing your wallet, you generally need to ensure that you do not share your password or any security code. If you're sharing it with your family members, friends, etc., there is a possibility that somebody may misuse it. Also, if I save my security code for the private wallet on my phone and if my phone gets hacked, they can actually use it. So, writing down the security code and keeping it with you is always safe.

If you're in a public space, like if I'm in a Starbucks and I want to check my cryptocurrency account, don't do that. You are on a public wi-fi. If you are using a cell phone, it's okay. But if you're using public wi-fi, which is insecure, the hackers can steal the information.

Last but not least is the multi-factor authentication. It is very common these days. For example, if I want to access my wallet in Binance, I not only have to put in my user ID and password, but Binance will also send me a security code on my phone. We call it an OTP - a one-time password. I need to enter that. Only after that do I get my crypto wallet. A lot of people use that. It's called a multi-factor or two-factor authentication that provides additional security. These are some of the ways folks can secure their wallets and ensure they are refraining from getting their funds stolen or hacked.

Pauline: Could influencers like Elon Musk or others affect the crypto industry? And in what way is that possible?

Nirmal: Elon Musk and everybody else are impacting the crypto industry in multiple ways. Elon Musk is just one of the guys who is more on the tech side. He decided to put some money in Bitcoin, he put the money in Dogecoin, and he was a big proponent of it.

Practical Advice for Cryptocurrency Beginners

Pauline: What tips can you share with beginners on using cryptocurrency safely and wisely? 

Nirmal: It is you who is deciding to use cryptocurrency, so you need to start by investing time in learning about cryptocurrency. Start with the basics if you want to put the money in. What does it mean to have a wallet? Once you understand what a wallet is, move on to the next level. How do you put the money in that wallet, either through a private wallet or by going and getting help from a particular exchange? If you do use an external party like an exchange, you need to make sure that they are well known and they are not like somebody who can shut down another operation like FTX.

As you're putting the money in crypto, either as a very advanced investor or an average user, and you get restarted on social media by the bad actors, you need to make sure you do not fall prey to that. And the common sense way to do that is that any project which is an alleged project or a bad actor reaching out to you saying, 'Hey, listen, you put in a dollar, and I give you $10 in like,' you know, in a short time that's a big, big, big red flag. 

Last but not least, with traditional or crypto investment, you need to control your greed or impulses. These are some ways to stay vigilant in terms of getting engaged with the crypto process. 

If you do decide to put the money in crypto, start small. 

You're putting the money in crypto as one of your investment mechanisms, meaning you're diversifying it along with everything else you've invested. Your funds do not put in your life savings because, as an investor, average user, or professional user, you will never do that, even with your bank. Are you going to give your money to one single bank? Probably not. You will put the money in two or three different banks because you know you want to get the confidence that if some problem happens, your money will be safe in a different bank. I think it's the same concept that you need to apply with crypto.

Pauline: Thank you, Nirmal, for your expert insights. Thank you, guys, for watching this video. Don't forget to subscribe to our channel. 

Dealing with crypto scams and security issues can be challenging. What has been your experience with this digital currency? If you've been affected or have insights on protecting yourself, we'd love to hear from you. Feel free to share your thoughts in the comments below. Also, follow us on YouTube for more valuable consumer insights and tips.