Why Predictive Analytics are Needed to Combat Blockchain Transaction Scams

Blockchain has revolutionary potential to change not only person-to-person transactions but organizations, industries, and entire social structures. The concept of the immutable decentralized ledger is currently being used to alter sectors ranging from healthcare to Hollywood. Some web pundits have called blockchain the central technological platform for Web 3.0.

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There’s lots of mainstream interest in blockchain right now, and lots of exuberance and innovation within the blockchain community. The current hubbub isn’t just over blockchain’s technological capabilities, but the amount of money flowing through blockchain entities. Telegram shattered previous ICO records in early 2018 by raising $1.7 billion in token sales. A casual crypto enthusiast who bought $100 in Bitcoin in 2011 would own almost $3 billion in Bitcoin if they held onto that original purchase.

And like virtually any other environment in human history that’s experienced a sudden influx of money and excitement, the cryptocurrency space has become a prime hunting ground for thieves and scammers.

Exit Scams and Phishing

The ICO world is rife with exit scams, in which individuals or groups go through the motions of running a real ICO–building a website, falsifying a staff roster, releasing a white paper, etc.–and then pocket the profits from their token sale and disappear. A recent report concluded that a shocking 80% of ICOs are scams. A company called Modern Tech recently pulled an exit scam and made off with $660 million.

Phishing, however, might be an even bigger problem in the cryptocurrency community. Phishers pose as legitimate crypto providers and services, such as wallets and promising new ICOs, and then harvest log-in credentials and crypto transactions. Phishing diverts about 10% of all funds investors give to ICOs. Phishers stole almost $1 million from Bee Token by acquiring investor emails and luring investors to a false token sale.

Phishers may pretend to be famous figures–one scammer masqueraded as Elon Musk on Twitter, tweeted a giveaway of Ethereum in return for a small deposit, and had a network of bots amplify the tweet, so it seemed popular and legitimate. Phishers took impersonation even further by hacking the actual official Twitter account of Vertcoin and offering a similar fake “giveaway,” using a wallet address unassociated with the company. Telegram raised massive funds through private sales to investors but has yet to announce a public ICO. Scammers took advantage of Telegram’s silence to the press and public over the token sale to launch websites claiming to offer Telegram tokens.

Phishing Limits Blockchain’s Potential

Scamming is such a threat to the blockchain world in part because it threatens the democratic underpinnings of cryptocurrency transactions. Many crypto enthusiasts turned to blockchain in the first place because it provided a revolutionary way to handle transactions without the oversight of a third-party overseer.

Because blockchain relied on a technological platform with no central ownership rather than a third party overseer such as a bank or a payment processor to verify transactions, it became an ideal technology for free thinkers and entrepreneurs who could build and thrive in the space without getting crowded out by Visa or Bank of America. The blockchain world doesn’t just boast a technology, but a community of entrepreneurs sharing ideas. It’s no coincidence that the two most prominent cryptocurrencies (Bitcoin and Ethereum), as well as many others, are open-source. Cryptocurrency enthusiasts are often pleased to collaborate with one another and willing to take a chance on supporting new ideas.

Blockchain is sometimes called a trustless technology, but the presence of phishing and other scams shows that there’s still plenty to distrust in the cryptocurrency world. Bad actors who create doubt and fear through scams and theft stifle the cryptocurrency world’s democratic spirit, discouraging collaboration between entrepreneurs and convincing hesitant newcomers of crypto to go back to centrally controlled fiat currency system. If someone at the other end of a cryptocurrency transaction could easily be a crook, then why participate in cryptocurrency at all?

There’s may be no way to banish scammers from the cryptocurrency world completely, but there are companies developing tools for detecting and eradicating them as they emerge, generating peace of mind for individual crypto traders and making the entire field harder for thieves to exploit. Predictive analytics is one such powerful toolset.

Predictive Analytics

Many crypto scams require sending cryptocurrency rather than fiat cash. It’s common practice in the ICO world to sell new tokens in return for Ethereum or another popular cryptocurrency. Giveaway scams such as the fake Elon Musk claim they need a small cryptocurrency transaction to establish addresses for distributing the giveaway.

Predictive analytics use wallets’ transaction history to assess whether they have a pattern of trustworthy behavior. Coral is using blockchain to provide predictive analytics scores to help protect crypto consumers continuously. Coral continuously builds a database of malicious or suspicious phishing scams and associated addresses. Whenever a crypto trader who uses Coral considers a transaction with a wallet, they can run through Coral’s decentralized blockchain crawler, called the Trawler. The Trawler assesses the wallet’s associations with fraudulent behavior and assigns an Anonymous Blockchain Trust Score (ABTS). A low ABTS indicates that the Trawler has detected a suspicious situation in the wallet, such as a transaction history that involves a large number of funds from the growing database of phishing scams.

Coral integrates into most wallet and exchange user interfaces, which means it could, for example, spring in to warn ICO investors before giving crypto to a facetious ICO website. Coral can also be used to enhance KYC/AML practices that fight money laundering and other illegal uses of funds; scoring identity-verified wallet owners and supporting challenge deposits ensure KYC-verified entities are in fact associated with wallets claiming to belong to them.

Phishing is a big problem in the crypto community, but predictive analytics will prove a powerful tool for detecting and eliminating scammers. Coral and its partner companies are making this toolset available for everyday crypto traders.