Cryptocurrency Exchanges Are They All Accomplices to Fraud The Reality May Surprise You

Are all cryptocurrency exchanges accomplices in fraud? It might not be as you think.
Despite actively cooperating with law enforcement and having less than 1% of illegal transactions, cryptocurrency exchanges still cannot shake off their bad reputation.
Apart from money laundering, exchanges actually play a positive role in combating fraud.
Why can’t cryptocurrency exchanges shake off their bad reputation despite actively whitewashing and cooperating with law enforcement?
Money laundering and whitewashing are both done, the original sin of cryptocurrency exchanges.
The blockchain expert for the entire Taiwan’s judiciary is an exchange that you might think is involved in fraud.
How do exchanges assist in combating financial crime?
On a rainy morning, the Fiscal Information and Investigation Service (FIOD) in the Netherlands received an urgent phone call. It was related to a fraud case involving millions of euros, jeopardizing the assets of numerous families worldwide. The mastermind behind this fraud case was a fake gambling platform called ZKasino.
ZKasino promised investors under the guise of a “blockchain casino” that they would receive substantial returns on their funds within 30 days. However, when investors eagerly awaited their returns, they discovered that it was all part of a carefully orchestrated scam.
The Financial Crime Compliance (FCC) investigation team of the world’s largest exchange, Binance, quickly began investigating this case following warnings from the community. They collected and verified a large amount of information from public sources, identified the mastermind behind the fraud, and found that the suspect was a Binance user.
As the police investigation deepened, Binance provided crucial transaction tracking information, enabling law enforcement agencies to understand the case details more quickly and comprehensively, ultimately leading to the successful arrest of a suspect involved in fraud, embezzlement, and money laundering.
This case is just a microcosm of global financial crime. However, what role do exchanges play in preventing fraud cases?
Damien Ho, a member of Binance’s Asia-Pacific team, said, “If we want to further increase the global adoption of cryptocurrencies, we need to make more people willing to enter this industry and use related services. Therefore, it is our responsibility to work with governments, law enforcement, and regulatory agencies to create a safer environment.”
What role do exchanges play in preventing fraud cases?
Collaboration 1: Cooperation with law enforcement agencies
Although the methods of cryptocurrency fraud are diverse, no matter what type of fraud it is, if fraudsters want to cash out digital assets, they ultimately have to go through exchanges to convert these cryptocurrencies into US dollars, New Taiwan dollars, or other legal tender.
In other words, exchanges play a crucial role in tracking illicit funds on the blockchain.
However, even if exchanges detect suspicious user behavior, without sufficient investigation or evidence, they cannot definitively determine if the transaction is fraudulent.
Exchanges must follow the instructions of law enforcement and judicial agencies to freeze or confiscate assets.
The Criminal Investigation Bureau stated that the “165 Anti-Fraud Consultation Hotline System” has established a mechanism for requesting and reviewing information with nine Taiwanese virtual asset exchange operators, including MaiCoin, to expedite the investigation of virtual asset-related cases.
However, due to the large number of overseas virtual asset exchanges, the police’s ability to cooperate is limited. Currently, only Binance has agreed to cooperate with domestic law enforcement agencies.
Collaboration 2: Cooperation with judicial agencies for staff education and training
Blockchain and other emerging technologies pose new challenges for staff in judicial agencies. The differences between cold and hot wallets, cross-chain bridges, and various other technical terms and technologies can be overwhelming, but they are essential knowledge for frontline personnel.
Therefore, “Blockchain Basics” and “Online Investigation Skills” have become mandatory courses for judicial personnel.
The two largest local exchanges in Taiwan, MaiCoin and BitoEX, have regularly shared their experiences in combating fraud and investigation techniques related to virtual currencies with investigative agencies, including providing educational training sessions at police units, sharing common fraudulent behaviors and cases encountered by exchanges, and how to trace the flow of funds on the blockchain to aid law enforcement.
Cheng Guangtai, founder and CEO of BitoEX, also stated that after being elected as the director of the VASP Association, his primary task is to standardize anti-money laundering and anti-fraud measures, with the hope of achieving the development of financial technology in a systematic manner to reassure regulatory authorities and the public.
Furthermore, Binance has provided education and training to staff in judicial agencies in various regions, including the Criminal Investigation Bureau’s Criminal Investigation Division, the High Prosecutors’ Office, and different district prosecutors’ offices. The content includes the basic principles of blockchain, common criminal patterns and investigation techniques, as well as introductory fund tracking to share fraudulent methods and case handling experiences from around the world with Taiwan’s judicial agencies.
Damien Ho stated, “In 2023, we responded to over 58,000 such law enforcement requests globally, including over a thousand in Taiwan.”
Is cryptocurrency all fraud?
With the rise of digital finance, cryptocurrencies have rapidly attracted the attention of global investors due to their innovation and convenience. However, as the market experiences explosive growth, related fraudulent activities have become more rampant. This situation has led many people to unconsciously associate cryptocurrencies with “fraud.”
Is it really like that?
According to data from the Chainalysis analysis platform, the percentage of illicit transactions in cryptocurrency trades was approximately 0.42% in 2022, and the latest data in 2023 was around 0.34%.
Damien Ho stated, “In traditional financial transactions, the rate of illicit activities is 2 to 5% according to the United Nations’ statistics, so the rate of illicit transactions in virtual assets is actually much lower, and the overall scale is much smaller.”
However, it is undeniable that blockchain and cryptocurrency are still relatively new concepts and technologies for society as a whole, making it easier for less knowledgeable individuals to fall victim to scams.
Ho stated, “If someone asks you online today whether you want to subscribe to a stock that is guaranteed to make a profit, most people probably wouldn’t easily accept it. However, due to the lack of understanding of cryptocurrencies, such as which channels and routes are more reliable and trustworthy, people may be scammed through over-the-counter transactions to purchase cryptocurrencies.”
Therefore, the key to preventing fraud is to raise users’ knowledge and awareness.
In order for newcomers to safely enter the cryptocurrency market and reduce the number of users falling victim to scams, both domestic and overseas exchanges offer rich online and offline educational resources to help users understand how to safely use cryptocurrencies, identify fraudulent practices, and learn to protect their assets.
Online learning resources from exchanges:
– Binance Academy
– OKX Academy
– XREX
– HOYA Academy
Offline teaching activities from exchanges:
– Maicoin School
– BitoEX Academy
Damien Ho also cautioned that new investors should pay more attention to and learn about blockchain and cryptocurrency, understand reliable trading platforms and investment projects, carefully verify transaction addresses, and ensure the legitimacy of transactions. Additionally, they should be wary of investment schemes promising high returns to avoid falling into fraudulent traps.
As cryptocurrencies gradually become mainstream investment tools, related scams have become more diverse. It is the responsibility of each exchange to protect platform users’ safety and establish secure compliance standards for the cryptocurrency industry.
Both investors and industry participants should raise their awareness of fraud prevention, enhance their knowledge and technical skills, and actively cooperate with law enforcement agencies to establish more stringent prevention and response mechanisms to safeguard the safety of funds and promote the healthy development of the cryptocurrency market.