- The FBI has reported a sharp rise in cryptocurrency-related fraud in 2023, with losses surpassing $5.6 billion
- The record losses are an indicator of why crypto adoption lags behind expectations
- Many people have found the risks of managing cryptocurrency outweigh the benefits
The FBI’s Internet Crime Complaint Center (IC3) yesterday reported a sharp increase in cryptocurrency-related fraud in 2023, with record losses of over $5.6 billion. This gargantuan level of theft, which accounted for half of all internet-based financial crimes reported to IC3, goes a long way to explaining why cryptocurrencies have not taken off with the general populous. Simply put, the risks of looking after one’s own money are not worth any benefits derived from doing so, and the risks of loss are now too high for many to even consider switching.
Lack of Recovery Spooks Newcomers
One of the primary barriers to widespread adoption is the responsibility that comes with securing one’s cryptocurrency. Unlike traditional banking systems, where funds are insured and can be recovered in the event of fraud, crypto users must manage their own digital wallets and private keys. This is one of the selling points of the technology, but it comes with a huge risk: if coins are stolen, they are often never recovered.
As the FBI report highlights, criminals are exploiting the decentralized and anonymous nature of cryptocurrencies to quickly move stolen assets, often making them impossible to trace. Michael D. Nordwall, Assistant Director of the FBI’s Criminal Investigative Division, noted that “once an individual sends a payment, the recipient owns the cryptocurrency and often quickly transfers it overseas.”
Level of Responsibility is Daunting
For the average person, this level of responsibility is daunting. The risk of losing one’s life savings due to a phishing attack, scam, or a simple mistake is a significant deterrent, as the report emphasized:
Criminals are constantly evolving their tactics, and the speed and irreversibility of cryptocurrency transactions make it incredibly difficult for victims to recover their money.
This contrasts with traditional financial systems, where banks and credit card companies offer fraud protection, making it easier to prevent fraudulent loss and recover lost funds when such incidents occur.
Ultimately, the potential advantages of cryptocurrency—such as faster transactions and lower fees—are outweighed by the risks for most people. Until the industry can offer better security measures and more robust protections for everyday users, the mass adoption of cryptocurrency will likely remain slow, as people continue to prioritize safety over convenience.
