I recently received a voice-mail from [yet another] law enforcement officer regarding a person who had fallen victim to a scam involving one of our CoinMover ATMs. Since talking with the officer, I’ve turned my response into a sort of open letter to our customers, law enforcement, and the general public in hopes that it can prevent future Bitcoin ATM scams of this nature.
If you want to understand how these things work, grab a cup of coffee and sit down to read this letter when you have some free time. It can actually get a little complicated if you’re not familiar with cryptocurrency. For you LEOs reading this, there’s a whole part for you at the end of the article.
Dear CoinMover Customers and Law Enforcement,
Unfortunately, Bitcoin ATM scams are becoming more and more prevalent these days, and they are often quite successful. In a recent case, one victim got caught up in a relatively common scam involving the supposed “Social Security Administration.” She was duped by a phone call from a scammer who insisted that she insert money into a Bitcoin ATM and send it to a designated address for payment. After the victim inserted the cash into the machine, she realized almost immediately that she had been scammed.
Common Bitcoin ATM Scams
While scams involving a fake Social Security Administration or the IRS scam are common, it doesn’t have to be a threatening government entity that’s requesting you send money. We’ve also heard about scams involving a victim’s “electric company” in which an anonymous person called and completely convinced a man that his wife hadn’t paid their electric bill in six months. The scammer then convinced him that his power would be cut off at the end of the day if he didn’t go to a Bitcoin ATM and pay $500.
Sounds crazy, right? But it happens. You’ve probably received one of these random phone calls yourself. Ideally, you’re not answering your phone if you don’t know the number, but we all have friends or relatives who will. Sure, most people never answer, but all a scammer needs is one to make it worth his while
This is typically how it works: Imagine a call center somewhere in the world – nearly all of them are located outside the US – with ten people each making thousands of automated phone calls per day. If a small percentage of them answer and one (or even a handful of them) are convinced to send money, it’s a payday for the scammers. The next day, these criminals will be back at work making thousands more calls.
Read more about how to know if it’s really the IRS that’s contacting you.
The Fraudulent Transaction
In the case at hand, the victim inserted a large amount of cash into one of our CoinMover ATMs, used it to purchase a certain amount of Bitcoin from the machine, and then sent it to a destination address dictated by the scammer. We can see all of this on our records. In fact, anyone can view any transaction on the public blockchain. You can see the fraudulent transaction right here. Whether it makes any sense to you, however, will depend on how much you know about cryptocurrency.
Most people don’t realize that cryptocurrency like Bitcoin is exactly the same as cold hard cash.
I wish I had better news, but sadly, there is nothing we can do in instances like this. That’s why it’s important to be vigilant and remain skeptical of calls, texts, or emails that you receive from unknown sources.
Most people don’t realize that cryptocurrency like Bitcoin is exactly the same as cold hard cash. There’s no difference between buying cryptocurrency and sending it to someone you don’t know and handing $20 to a stranger. If in a few hours, you decide that you want your money back, there’s nothing you can do. The recipient of that $20 is long gone, and you’ll never see them again – you’ll never even know who they were.
After looking at the blockchain wallet of the scammer in the case at hand, however, it appears that someone else fell victim to the same scam at almost the same time (although thankfully not using a CoinMover machine). The victim sent $8,400 to the same wallet address within 30 minutes of our victim sending her funds. It’s very unfortunate, but on a positive note, we have blacklisted this scammer wallet address so they cannot receive funds from our machines in the future.
Past, Present, and Future Scams
Let’s set the bar: Scams aren’t new. Before cryptocurrency, scammers used Western Union, MoneyGram, and even iTunes gift cards. Some of those techniques are still being used today.
Billions were handed over to Bernie Madoff without so much as a second thought, and Ponzi schemes are still being taken down by the big three-letter government agencies each week. Check fraud was huge in the 1980s and 1990s. Bank wires have been used for fraud since they were invented, and at the moment, they are next to impossible to stop.
From the moment that money was invented, scammers have been creating new ways to relieve you of your hard-earned cash. Crypto and Bitcoin are just the new kids on the block. With new, “border-less” transactions that can irreversibly move money from New York to Mozambique in seconds, we’ve encountered a whole new set of issues.
First off, it is important to remember that in the grand scheme of things, only a tiny fraction of cryptocurrency transactions are fraudulent or nefarious.
The issue that we have with “Internet money” like Bitcoin is that it’s new and easily accessible to everyone. Literally anyone can buy it online and send it anywhere in the world.
While cryptocurrency is a great investment and one of the best inventions in the past thousand years (in my opinion), people aren’t quite sure what they’re buying just yet. Regardless of its actual intrinsic value, it’s easy to send, almost untraceable, and instantly transferable. Those same convenient attributes are the reasons scammers and criminals will ask you to buy it and send it to them.
Value Transfer: How It Works
You can literally send $5 or $100,000,000 instantly, to anyone, anywhere, on the other side of the world… in seconds. And you can do it anonymously.
The primary value in cryptocurrency is in its utility: the ability to transfer value. It really doesn’t matter if Bitcoin (BTC) is worth $11,000 or $24 or $835,000 or $0.27, it’s all about the amount you purchase and your intent with the receiver. If you want to send $500 from San Francisco to Moscow in two seconds on a Sunday evening at 11PM when every bank, store, and physical business around you is closed, it’s not a problem with cryptocurrency. For the uninitiated, here’s how it works:
Say you buy $500 worth of BTC at a crypto ATM like CoinMover. Regardless of its price, you will instantly get X amount of BTC in your crypto wallet within seconds. If you want to send it to someone, you just message them with the code for X amount of BTC. That person then goes to their local crypto ATM, holds their phone up to the screen, and out comes cash in their local currency – no matter where in the world they are. There are no forms, no questions, no waiting in line, and no restrictions on banking hours. Backed by math and cryptography, the bitcoin and its blockchain network run 24x7x365, forever. It runs with zero downtime, zero interruption, and zero “regulation” from gatekeepers, banks, or anyone else who would want to freeze an account.
There is value in all of that, which is the reason this industry is growing at an exponential rate. You can literally send $5 or $100,000,000 instantly, to anyone, anywhere, on the other side of the world… in seconds. And you can do it anonymously.
Crypto ATMs and Scams
Customers go in person to put cash into our CoinMover ATMs primarily for two reasons: Either they see crypto as an investment for themselves, or they use it to send money overseas to friends or family. In the latter scenario, they can send a couple hundred dollars through our machine instantly instead of paying Western Union (or their bank) $30, $40, or even $50 and then waiting three days for the transaction to go through.
Statistics have shown that while Bitcoin was initially used for illegal purposes, nearly all transactions today are used for completely legitimate reasons.
As a side note, did you know that all Coinstar machines – the ones you dump your change into at the supermarket – will now give you a Bitcoin voucher in exchange for your jar of coins? Yep. You don’t get your Bitcoin right then, but you get a receipt that you can redeem at Coinme.com. Of course, you’ll have to create an account and verify your identity before you can receive and spend your Bitcoin. My point here is that Coinstar is now basically an everyday, physical machine that’s become a conduit to an online exchange.
As for cryptocurrency ATMs, there are 5,589 of them in the world today, and 3,501 of those are located in the United States. CoinMover has a dozen of our own ATMs in operation at the moment. You can actually check the location of every crypto ATM in the world (along with the coins they’ll allow you to purchase and transfer) at CoinATMRadar.com.
When it comes to fraudulent transactions, scammers prefer to use crypto ATMs because asking the victim to buy cryptocurrency online would take too much time. For instance, if you use a service like CoinBase, Gemini, or Kraken, it could take up to 21 days to verify a user’s identity, set up an account, and clear funds from a bank account. Instead, the scammer uses a convincing story to encourage urgency and then pushes the victim to find the nearest Bitcoin ATM to send cash.
Refunds? Sadly, not possible.
Things like bank accounts and credit cards typically have some form of recourse if something goes wrong. When you have an unknown debit from your account or an unauthorized charge on your card, you call your bank or card issuer and they credit you the amount in dispute.
Bitcoin, however, is effectively digital “cash.” In the case of cryptocurrency, there is no issuer. Nobody can reverse a transaction because there’s never been a third party in the middle of your transactions. The exchange is all between two people, and everything is irreversible and one-way.
Crypto currency transactions are all instant and irreversible. These are simply its features, not its downfall.
It can be hard to wrap your head around it all. Breaking down cryptocurrency can feel like trying to explain how Netflix works to a person in Blockbuster renting an Independence Day VHS back in 1996.
The best analogy is “e-mail to Uber.”
Imagine for a moment: You’re trying to explain Uber or Lyft to someone in 1988 who’s sending their first e-mail via dial-up on CompuServe, Prodigy, or even the best experience on the market at the time: America Online (AOL).
There’s a lot of background information to explain: You’d have to discuss hand-held cell phones in general, mobile data networks, mobile internet connectivity, touch-screen smartphones, “apps” and the “app store”… oh, and if you got all that through to them, and they understood, there is one last thing to explain to make Uber or Lyft work:
GPS. Because the entire GPS satellite network, which was still used only by the military in 1988, was primarily unknown to almost every citizen until the late 1990s. If this were the 17th century and this discussion happened in my neck of the woods (Boston, Massachusetts) we would hold some old fashioned witch trials and you’d be burned at the stake because that’s just sorcery.
That’s what is happening right now with cryptocurrency and bitcoin. A few of the smartest people on the planet actually figured out a solution to a decades old issue (the digital “double spend” problem) and put dollar bills and real cash on-line in a digital format. Back to scams.
Public Education at CoinMover ATMs
Before allowing our customers to make any transactions on our Bitcoin ATMs, we try to educate the public on potential scams and dangers. Above you’ll see an advisory label that appears on our machines. In addition, throughout the entire purchase process, we have screens that display educational warnings. As you can see, we even have a statement specifically aimed at the scam the person in our case fell victim to. To ensure that customers have read the warnings on the screen, we make all users wait ten seconds before they can press YES to proceed with their transaction.
Of course, this doesn’t always work. People tend to fall hard for these very convincing scams, and they may fail to read the information that’s in front of them.
Remember: Once you send money, it’s gone.
Asking someone to send you cryptocurrency through a Bitcoin ATM is no different than asking you to walk into the post office, place several $100 bills in an envelope, and mail it to a random address somewhere in the world.
The only difference is that while the post office may take two or three days to get the envelope to its destination, cryptocurrency like Bitcoin will arrive in a few seconds. In either case, there is no way to get the money back, except requesting that the recipient return it. Sadly, in most of these scams, the recipient is either out of state or – 98% of the time – out of the country.
What can CoinMover do about scams?
My company and I have zero interest in seeing people fall victim to scams – especially scams that utilize a new technology which we believe will revolutionize the way people transact over the coming decades.
I’m happy to refund each victim the fees we charge and profit we make from the transaction (approximately 8% to 12% of the gross amount in general), but in those instances where we’ve offered, that amount often feels like an insult to the victim. Many people look at the digital transmission of money and assume that we, like a credit card company or bank, have some sort of “hold” over the money. They often believe we can reverse a transaction and make them whole. Unfortunately, that’s not the case.
One last anecdote to explain. If John Smith from Boston puts $20,000 into our machine, and we offer him $2,000 back because the fake “IRS” scammed him, he feels insulted. He believes that we have $18,000 somewhere in a vault like Bank of America or Wells Fargo. In reality, the scammer has his entire $20,000 in a secure, untraceable, anonymous, digital wallet, somewhere in Argentina, Tanzania, Estonia, Munich, Las Vegas, Mexico City, or even in a five story walk-up in Brooklyn.
With cryptocurrency, the reality is that we can’t know where that money is, we can’t get it back, and we can’t even begin to guess who took it.
Law Enforcement Crypto Education
As part of our ongoing effort to engage and educate the law enforcement community on this new technology, my colleague and I will be presenting at the International Association of Financial Crimes Investigators (IAFCI) in Burlington, Massachusetts on November 7th.
I also regularly sit down with law enforcement agencies to go over the basics of cryptocurrency to discuss how it works and what we as a company can and can’t do about scams and fraud.
Most recently we sat down with a group of about a dozen Stoneham, Massachusetts officers, detectives, and even the chief of police who came because he wanted to hear about this “bitcoin” thing. Many people are fairly new to these concepts and find the additional information valuable. As an industry, we keep in contact with local law enforcement in the places where our crypto ATMs operate. This has helped both sides recognize fraud attempts and victims before these crimes occur, and it also help us maintain open lines of communication.
I am well aware that smaller departments often do not have the time, budget, and personnel to send their officers out for training on every new technology as it arises, so I offer up my resources for free when I can. At CoinMover, we are always open to discussing how to help people in our communities avoid scams and learn red flags to look out for. I make a personal visit to the machines at each of our locations from time to time every couple months just to ensure everything is on the up-and-up with the location, so I can easily block off a couple hours to make time for nearby departments, to come sit down with whomever they would like, at their convenience.
To law enforcement as well as our customers, I am available to answer any questions you may have regarding how to avoid scams at any of our Bitcoin ATMs. Just remember the one primary rule with cryptocurrency: Like cold hard cash, do not send it or give it to anyone unless you actually know them, or you have personally initiated a transaction to purchase something.
President & CEO, CoinMover
CoinMover is a U.S. Department of Treasury Registered FinCEN MSB #31000136090594 issued November 2018.