AI’s Early Integration into Crypto: Opportunities and Risks

AI’s integration into the cryptocurrency industry offers efficiency but also opens doors for scams. A recent Elliptic report highlights how AI is aiding scammers in accelerating and expanding their crypto scams.

AI has various use cases in the crypto world. It can enhance legitimate crypto ventures by generating text, images, websites, videos, and other content. However, it also enables bad actors to exploit these technologies for illicit activities, posing a substantial threat to both AI and the cryptocurrency industry.

Scams Involving Social Media Influencers and Crypto Websites

Crypto influencers can manipulate prices by leveraging their following and personality to promote specific crypto products. This tactic, known as “pump and dump,” involves promoting a cryptocurrency to artificially inflate its price. Once the price rises, they sell off their holdings, causing the price to plummet and leaving their followers at a loss.

These influencers can also spread exaggerated or false claims, inducing fear and panic selling. They then buy cryptocurrencies at lower prices, profiting from the market’s volatility.

Crypto scammers operate cyclically, creating scam investments, airdrops, or giveaway sites widely promoted on social media and messaging apps. Once these sites gain traction, scammers execute a “rug pull,” disappearing with the victims’ funds. They then start again with a new token, a different site, and new marketing strategies.

AI tools now significantly streamline this process. AI can generate fake employee images and other marketing materials, making scams appear more legitimate and professional. This not only saves time but also enhances the sophistication of the scams, making them harder to detect.

Scam Examples

One example involves a Reddit user who encountered an AI-powered bot named Jessica. The bot claimed to offer huge returns through AI-powered crypto trading. After a series of requests for increasing Ethereum (ETH) under the guise of fees and investments, the user gave Jessica over $1300. The bot promised returns of over $6000 but never delivered, disappearing after receiving the final payment.

Another example is NovaDrainer, a crypto affiliate platform that creates scam crypto investment sites for affiliates, splitting the proceeds. It claims to use AI for processing tokens and generating SEO-optimized website designs. Despite promoting legitimate projects, it openly markets its use for phishing and draining victims’ crypto.

Over the past year, NovaDrainer has received 2,400 variants of crypto tokens from over 10,000 wallets, likely scam victims. Elliptic’s analysis reveals that NovaDrainer employs a complex cross-chain obfuscation strategy involving decentralized exchanges, cross-chain bridges, and coin swap services to manage the stolen funds.

Prevention Measures and Regulations

Addressing these challenges requires a proactive approach. The crypto industry must invest in advanced security measures and collaborate with AI developers to create technologies capable of detecting and countering scams. Additionally, raising awareness among crypto users about potential risks and educating them on identifying and avoiding scams is crucial.

The Elliptic report recommends using the DECODE (detect, educate, cooperate, defend, enforce) framework for mitigating emerging crime trends.

Detect
Use blockchain analytics to identify payments to AI-related illicit services.
Use AI-enhanced blockchain analytics to detect crime.

Educate
Raise awareness among users of crypto and AI on both existing and recent red-flag indicators of scams.
Educate users and employees on methods to identify deep fakes.

Cooperate
Data sharing to expand the capabilities of relevant stakeholders to mitigate AI-enhanced crypto crime.
Share best practices across stakeholders.

Defend
Ensure that new AI and crypto technologies are crime-proofed during development.
Equip compliance teams.

Enforce
Prioritize interventions against illicit services experimenting with AI.
Ensure that new and fast-paced innovations in AI are integrated with capacity building and training.

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