February 10, 2025 | Read Online

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"If only one man dies of hunger, that is a tragedy. If millions die, that's only statistics."

— Joseph Stalin (attributed)

Crypto confidence scams lead to financial slaughter

The new phenomenon of "pig butchering" is a bigger, more frightening evolution of the classic confidence scam.

It used to be email cons in which gullible recipients were duped into sending hundreds of dollars to a Nigerian prince who's temporarily short of cash.

Now it's romance cons in which lonely victims, groomed over social media (like pigs fattened in a sty), are duped out of tens of thousands, if not millions.

These have become so commonplace that pig butchering schemes are estimated to have extracted tens of billions of dollars from victims over the last few years, mostly in the US.

But the magnitude of the damage done may not hit home until you listen to the account of a single victim, such as Karina, a 46-year-old Californian who spoke to The Economist about her ordeal of being conned out of $150,000.

It's easy to imagine Karina's pain in losing so much money, especially as much of it was borrowed from family, and she lost it in such a humiliating way.

To really understand the scale of the problem, however, you have to multiply that pain by the tens of thousands of people who experience it every year.

This is already inconceivable to me, but the problem is likely to get worse.

A New York City prosecutor investigating online fraud finds the situation so overwhelming that when asked by The Economist about the potential outcome, she responded, "no one in America is going to have any money left. That's what it feels like sometimes."

That is hyperbole, of course, I don't think we're all lonely, desperate or greedy enough to be taken in by romance and investment cons.

But The Economist podcast series that features Karina is titled "Scam Inc." because it details the professionalization of the fraud business, which now operates at a hitherto unimaginable industrialized scale.

The preferred medium of exchange for that new industry is crypto.

The enabler

Crypto is so much the lingua franca of modern confidence scams that the DOJ considers "pig butchering" to be synonymous with "crypto confidence schemes."

Whatever you choose to call them, the most disturbing aspect of these schemes is that they're typically carried out by people who have been kidnapped, trafficked to Myanmar and forced to work in industrial-scale scam operations.

One trafficking victim told The Economist that upon arrival in Myanmar, her kidnappers informed her that there was only one way out: "You need to convince people to invest in crypto."

To do so, she and her fellow hostages were instructed on how to use social media to win the confidence of a prospective target (perversely referred to as "customers" by the organizations they work for).

That done, they were tasked with persuading the target to send dollars to a crypto exchange, convert the dollars into USDT and then send the USDT to a second exchange where they'd be shown how to make money trading crypto.

That second "exchange" is controlled by their kidnappers, the Myanmar scam organization.

In Karina's case, she downloaded an app that looked exactly like Kraken but with fake trading results: "A sham dashboard on the platform will show the victim booking impressive profits — encouraging continuing deposits," as a USIP study explains it.

When Karina tried to cash out of her fake profits, she was told she had to deposit additional funds to make her total available.

Tragically, she complied, borrowing tens of thousands more dollars from family.

(If, like me, you're thinking you'd never fall for that kind of thing, consider that Karina is 46 years old, works in biotech, runs triathlons in her spare time, and is almost certainly smarter than both of us put together: She has a doctoral degree in chemistry and a post-doctoral degree in neuroscience.)

Karina finally knew for sure she had been conned when she called Kraken to ask about withdrawing her money and was told that the exchange had no record of her account — she later found out she had sent her USDT to wallets controlled by a Myanmar-based scam organization.

From there, the USDT would have been promptly laundered, most likely by dispersing it to several thousand addresses (to make it harder to track) and then exchanging it for cash with East Asian money changers, or even for USD held at an unwitting bank.

This is all trackable onchain, of course, and sometimes law enforcement is successful in recovering victims' funds before they can be taken off-chain.

In 2023, for example, Tether announced that, at the request of law enforcement, it had frozen $225 million related to pig butchering schemes.

But that appears to be an exception that proves a rule: ChainArgos recently found that Tether had managed to freeze only about 0.5% of funds sent to blacklisted addresses.

It's not hard to see why there's a struggle to keep up: That haul of $225 million was the result of a "months-long investigative effort" and crypto generally moves far too fast for that.

The fact that onchain transactions move so fast — and that they're instantly final — is why the pig butchers continue to prefer crypto.

Make yourself useful, how about

Financial innovation often enables new sorts of crime.

The innovation of paper money enabled the crime of counterfeiting, stock markets enabled insider trading, offshore banking enabled tax evasion, credit cards enabled credit card fraud, and online banking enabled phishing attacks and identity theft.

So crypto is in good company and its use in new types of crime does not mean that the industry should be debanked or even discouraged — no one ever suggested shutting down the stock market to put an end to insider trading.

But is Tether freezing 0.5% of criminal funds good enough?

If not, is it enough, as crypto advocates often say, to only regulate crypto's on- and off-ramps into the banking system?

I'm not sure.

My emotional reaction when listening to The Economist podcast series is that we should not only debank crypto, we should debank everybody — the only solution to pig butchering may be to go back to a physical cash economy.

Or, better yet, a barter economy.

I don't really mean that, of course, because money and banks are clearly a net benefit to society.

But to convince people that crypto is too, the industry will have to either 1) figure out some way to better combat the crime it enables or 2) make crypto so useful that the crime it enables is a small fraction of its societal benefits.

The industry seems to be resisting efforts at regulation, so we had better be all in on utility.

If not, crypto might someday find itself being kidnapped by law enforcement.

— Byron Gilliam

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R🐮 @Ren_gmi

I wonder how much SBF would be up right now if he survived that late November 2022 week

> Solana position (Estate owned 10% of total supply)
> Lead anthropic seed round & owned 5-10%
> 890m Sui tokens + equity (>$3.5B)
> Compounding FTX revenues
> Taking advantage of US… x.com/i/web/status/1…

2:29 PM • Feb 10, 2025

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