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Will Cryptocurrencies Ever Be Something You Can Bank On. Why Are Banks Wary Of Cryptocurrencies?


What do rich guys talk about when they get together for a chat?

Amazon founder Jeff Bezos once asked Warren Buffet, America’s most prolific and successful investor, this question:

“You’re one of the richest guys in the world, and your investment thesis is so simple – why doesn’t everyone just copy you?”

To which Buffet replied, “Because no one wants to get rich slow.”

In today’s “buy now with one-click” world where gratification is expected to be instant, these words could not be more accurate.

Everyone wants to make money quickly and easily – which is exactly why they’re such easy prey for cybercriminals. It’s like a weird, modern-day sequel to the gold rushes of the mid-1800s – people are falling over themselves trying to take advantage of the seemingly incredible investment opportunities offered by cryptocurrencies.

Unfortunately, cybercriminals will always follow the money and right now, it’s in the largely unsecured and completely unregulated world of digital currencies. The unwitting, susceptible or simply plain greedy people and businesses who play in this space are walking targets for unscrupulous criminals.

Difficult to regulate and subsisting largely on hype, cryptocurrencies are particularly prone to scams and form a very happy (and lucrative) hunting ground for scammers.

As the U.K.’s Financial Conduct Authority recently warned, people who invest in cryptoassets “should be prepared to lose all their money.”

Of course, there are countless people who have made millions with cryptocurrencies – but many of them got in early and got out fast, before it all became such a fertile breeding ground for the bad guys.

Many, many more have not been so lucky. Globally, tens of millions of Dollars are lost to crypto scams every single day. And, unlike in many other instances of fraud, they are nearly impossible to recover, thanks to the decentralised and virtually untraceable nature of cryptocurrency exchange.

Spotting A Crypto Scam

There are sadly almost as many types of cryptocurrency scams as there are cryptocurrencies, but these are some of the most common:

Social Media Scams

Social media is a huge societal force, so its choice as a target for crypto scammers is unsurprising. Scammers create fake social media accounts and then use them to try and solicit Bitcoin from followers.

A favourite trick is to hack prominent people’s accounts and ask that person’s followers to send money to a specific blockchain address.

One of the more recent – and definitely most high profile – examples of this happened in July 2020 when the Twitter accounts of many well-known people and companies were hacked. These included Bill Gates, Elon Musk, Floyd Mayweather Jnr, Warren Buffet, Uber and Apple.

The hackers convinced followers of these accounts to send money by promising it would be doubled and then returned as a goodwill gesture. Within minutes, over 300 people had responded, and the hackers got away with over $120 000 in Bitcoin. The breach wiped $1 billion off Twitter’s market value.

Exchange and Wallet Hacks

Online crypto wallets are also becoming lucrative targets for hackers. One of the biggest examples happened just a month before the Twitter incident. Hackers breached the email and marketing databases for Ledger, a France-based crypto wallet company, and stole one million customer email addresses, along with the personal details for 9,500 customers. They then published 242,000 of the email addresses on a website for hacked databases.

Six months earlier, Poloniex cryptocurrency exchange experienced a similar breach and was forced to ask all its customers to reset their passwords.

DeFi Rug Pulls

Decentralised Finance (DeFi) Rug Pulls are one of the more recent scams to plague the cryptocurrency markets. DeFi platforms were developed with the aim of decentralising finance by removing the gatekeepers for financial transactions.

DeFi is known for being something of a magnet for innovation within the crypto ecosystem, but it is not without problems – and lots of them.

Smart contracts that lock in funds for a specified period of time are a firm favourite among scammers on these platforms. Once the contract expires, or reaches a pre-determined threshold limit, developers swoop in and steal the Bitcoin.

Scamming or Phishing Emails

The danger of these emails is that they usually look exactly like the legitimate emails you might receive from a genuine cryptocurrency company.

There are always, however, subtle differences, so take the time to look at the mail properly before thinking about investing your digital currency.

Is the email address correct, for example, and are the logo and branding right? If you any have doubts at all about an email, ask someone who works there. This is why it’s so important to invest with a company that has actual, traceable people working for it.

And never, ever, EVER click on a link in a message to get to a site.

Why Are Banks Wary of Cryptocurrencies?

Banks have been with us, in some form or another, since around 2000 BC, when merchants started giving grain loans to traders and farmers who carried goods between cities. They have not survived over 4 000 years by being irresponsible with money.

In my humble opinion, therefore, the fact that banks are not moving swiftly to embrace cryptocurrencies, speaks volumes.

There are, of course, many who speculate that cryptocurrencies are on the verge of going mainstream after Tesla made international headlines by investing $1.5 billion into bitcoin. The company also announced it will soon begin accepting this as a form of payment.

The announcement sent the value of Bitcoin into the stratosphere.

Rumblings of “mainstreaming” are getting louder following investments by organisations such as PayPal, Visa and Mastercard. Visa has even launched branded bitcoin credit and debit cards.

Yet despite this, commercial banks as a whole are resisting the pressure to take the plunge into the digital asset space.

This is a good thing.

According to a recent article in, “[if] big banks join the party, hackers will become more incentivised to attack than ever before.”

The article goes on to say, “Indeed, 2021 may very well be the year hackers shift their sights from crypto exchanges to commercial banks that begin handling crypto. One thing is certain: hackers will try to exploit the “learning curve” that banks will inevitably go though as they enter a new domain that requires very different security protocols and technology that those currently employed in banks’ IT infrastructure.”

Stephen Ryan, COO of financial crime prevention and anti-money laundering compliance company CipherTrace, says that according to their research, the typical top 10 U.S. bank unknowingly facilitates approximately $2 billion in illicit cryptocurrency transactions each year.

“As crypto-assets become increasingly entangled in traditional financial services, anti-money laundering and counter terrorism financing compliance risks are on the rise,” he said. “Virtual assets are now pervasive in bank accounts and payment networks, and banks must find ways to deal with the risks.”

Writers of the Nasdaq article agree: “2021 has great potential for going into the books as the year in which crypto enters the official mainstream, with banks becoming major players in this market. But the premise for this rosy prediction is that bankers learn from the painful lessons that 2020 hacks taught us. Otherwise, they will find themselves as the targets of cyberattacks that will bear catastrophic consequences, in direct financial loss, reputational damage, and loss of goodwill.”

So, what happens now?

As of January 6 this year, the UK’s Financial Conduct Authority (FCA) banned the sale and marketing of financial products that track popular cryptocurrencies such as bitcoin, amid fears investors are being exposed to scams.

And in South Africa, in November 2020, the Financial Sector Conduct Authority (FSCA) published a draft declaration declaring crypto assets to be financial products. This means that any person giving advice or rendering intermediary services relating to crypto assets must be authorised as a financial services provider and comply with the Financial Advisory and Intermediary Services Act.

It’s an encouraging move, but as long as we remain lured by the promise of quick, easy money, we’re always going to be at risk of unconscionable crypto scammers.

So please, in the words of Sgt Phillip Esterhaus from the iconic 1980s TV police drama, Hill Street Blues, “Let’s be careful out there.”