Raleigh police have confiscated hundreds of thousands of dollars in cash from cryptocurrency ATMs following successful scams at these locations. However, this issue extends far beyond just one city in North Carolina. According to the FBI's Internet Crimes reports, the number of crypto-crime victims reported to law enforcement in North Carolina increased from nearly 1,000 in 2022 to almost 1,500 in 2023.
Considering the growing threat, here's what you need to understand about ATMs, cryptocurrency, and how to protect your money.
A LARGE NUMBER OF CRYPTO ATMS
Similar to traditional ATMs, crypto ATMs are physical kiosks where people can conduct financial transactions. However, with crypto ATMs, users can convert U.S. currency into bitcoin and other digital assets.
These ATMs typically accept cash and credit cards and offer a variety of cryptocurrencies for purchase, including bitcoin, ethereum, litecoin, and more. Some kiosks only allow the purchase of cryptocurrency, while others enable both buying and selling. Users usually need to log into an account, select the type and amount of crypto they wish to buy or sell, and provide identification. This identification process might involve entering a code sent to a mobile device or having the kiosk take a picture of the user with their driver’s license. Many kiosks also include "scam checks" during transactions, displaying warnings about potential scams on their screens.
Over the past decade, cryptocurrency ATMs have proliferated across the U.S., appearing in convenience stores and gas stations. According to Coinatmradar, cited by the Government Accountability Office in a 2022 report, North Carolina alone has over 1,000 crypto ATMs. Raleigh has at least 360 such kiosks, though exact numbers are not available. The Financial Crime Enforcement Network, a U.S. Treasury Department branch that regulates these ATMs, does not require operators to report the location of each machine.
WHY SCAM WITH CRYPTOCURRENCY?
Unlike dollar bills or personal checks, cryptocurrency is virtual cash not supported by any central organization like a government or bank. Users store cryptocurrency in "wallets," which are associated with ID codes that often do not reveal any information about their owners. According to Ari Redbord, global head of policy at TRM Labs, a blockchain intelligence company, cryptocurrency offers "cross-border value transfer at the speed of the internet." Scammers exploit this feature, he noted.
"Bad actors can receive crypto quickly and in large amounts, which has significantly escalated the scale of the problem," Redbord said.
Cryptocurrency transactions are also challenging to reverse, according to Georgia Tech Professor Brendan Saltaformaggio.
“There isn’t a central authority responsible for the transaction,” he explained. “So there’s no one to approach and say, ‘That transaction was fraudulent — you need to reverse it.’” Kim Grauer, head of research at Chainalysis, another blockchain research firm, mentioned that there have been rare instances where cryptocurrency users collectively decided to reverse entire ledgers, as happened with Bitcoin in 2010 and Ethereum in 2016. Additionally, cryptocurrency exchanges may occasionally freeze assets, Grauer noted. However, such reversals are uncommon, Saltaformaggio added. Scammers can also utilize international cryptocurrency exchanges that do not cooperate with U.S. law enforcement or maintain their wallets individually.
“In these situations, there is no authority that can be compelled to return the funds,” Saltaformaggio said.
DIFFICULT TO CATCH SCAMMERS
When cryptocurrency is transferred, these transactions are recorded on a decentralized ledger known as the blockchain. Due to their programming, these ledgers are both public and immutable. This transparency can assist in fraud investigations, according to Grauer and Redbord.
“All of the transaction evidence is accessible in one location,” Grauer said. Companies like TRM can analyze these transaction records, flagging wallet IDs associated with scammers, criminals, and terrorists. Researchers such as Saltaformaggio also use machine learning to link wallet IDs to their owners. This information enables law enforcement to attempt to apprehend the scammers or recover the stolen funds. However, Redbord noted that recovering the funds is usually a more achievable goal.
Typically, scammers seek to quickly convert cryptocurrency into traditional currency, Redbord explained. Law enforcement often races to intercept fraudsters as they process stolen cryptocurrency at exchanges. Nonetheless, scammers can evade detection by moving funds through multiple cryptocurrency wallets, some of which are not easily traceable, said FBI Special Agent James Kaylor, who supervises white-collar crime investigations in Raleigh. Additionally, cooperation from foreign governments or companies is not always assured, Saltaformaggio added.
“It’s not hopeless,” he said. “But it’s very challenging.”
PREVENTION OFFERS THE BEST PROTECTION
Preventing scams is crucial, according to Redbord. Here are some strategies to keep yourself safe:
Avoid sending cryptocurrency to unknown individuals, report any suspicious solicitations or threats, and remember that governments and businesses will not pressure you to send cryptocurrency. If you suspect you’ve been scammed, notify law enforcement. Only invest in cryptocurrency what you can afford to lose.
When purchasing cryptocurrency, use exchanges with robust account verification and anti-money laundering measures. Also, use software that identifies and blocks suspicious cryptocurrency wallet IDs. Ultimately, cryptocurrency ATM scams are an old tactic with new technology (similar to the Nigerian Prince scam).
“The same red-flag indicators of a scam that apply in the financial world also apply to cryptocurrency,” Grauer said.
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