This Week in Web3: Crypto Scams and Payments Surge
Cryptocurrencies were created to address supposed pain points across the financial system.
By decentralizing transaction verification and record-keeping through a distributed ledger, blockchain-based digital assets remove the need for intermediaries to enable digital transactions while simultaneously preventing issues endemic to other digital currencies, like double-spending, by maintaining transparency.
On paper, this works great. In practice, hurdles — including, regulatory, behavioral and even technological — remain for crypto to truly gain mainstream acceptance and unlock greater payments utility.
Still, vertically driven use cases could be one answer. Findings in the PYMNTS Intelligence report “Can Blockchain Solve the Cross-Border Payments Puzzle?” revealed that blockchain’s ability to streamline processes and lower costs could transform cross-border payments for businesses and consumers.
And while the presidential debate Tuesday (Sept. 10) paid scant attention to the crypto sector, despite a crypto industry that remains on the edge of its seat regarding the 2024 U.S. presidential election, there was plenty of Web3 news to cover this week outside of politics.
Crypto Has Become a Top Payment Method for a Variety of Scams
Despite crypto’s promise, its longstanding illicit reputation continues to hamstring acceptance as the landscape matures.
This week alone, a London man was charged for operating several unlicensed crypto ATMs, the U.K.’s Financial Conduct Authority (FCA) announced Tuesday. The man processed $3.4 million in cryptocurrency transactions at multiple locations. The U.K. has no legal crypto ATMs.
The FCA’s announcement came as regulators on both sides of the Atlantic warned about crypto ATMs. Last week, the Federal Trade Commission (FTC) released data showing that the amount of money consumers lost to scams involving bitcoin ATMs jumped to $114 million last year, a tenfold increase since 2020.
At the same time, the FBI announced Monday (Sept. 9) that the number of crypto-related complaints made up 10% of all financial fraud complaints last year, but half of the total losses. In all, losses to financial fraud involving the use of cryptocurrency jumped 45% in 2023, climbing to $5.6 billion. The FBI’s Internet Crime Complaint Center received 69,468 complaints from the public related to the use of crypto.
That is due, in part, to the use of crypto in investment scams that see victims accumulating “massive debt” to cover their losses, the FBI said.
Meanwhile, hundreds of thousands of investors in the United States and Canada were harmed by their investments in the GSB Group companies, which sold products like token-based ownership in a skyscraper, investments in the metaverse and a cryptocurrency, leading to an investigation launched in October 2023 by the Texas State Securities Board and agencies from Alabama, Arizona, Arkansas and Georgia.
On Monday, the five states settled their actions against the organizations collectively known as GSB Group and their chairman of the board Josip Heit. As part of the settlement, Heit and the GSB companies will refund all eligible U.S. customers in the settling states.
Crypto in the Court System
A proposed class action lawsuit brought against Coinbase by shareholders is reportedly moving forward, after the crypto exchange’s bid to have the suit dismissed was rejected Thursday (Sept. 5). The shareholders alleged that Coinbase downplayed the likelihood that it would be sued by the Securities and Exchange Commission (SEC).
Thoma Bravo founder and Managing Partner Orlando Bravo said Thursday that while blockchain technology has promise, he and his firm are steering clear of companies and products in that space. Bravo said this about three years after his private equity investment firm helped lead a $900 million investment in cryptocurrency exchange FTX, which later went bankrupt and whose founder, Sam Bankman-Fried, is now in prison.
Caroline Ellison, the star witness in the U.S. government’s fraud case against Bankman-Fried, is scheduled to be sentenced Sept. 24 after pleading guilty to her own role in the fraud at FTX and Alameda Research. She is reportedly asking for no jail time.
But it was not all bad news, legally speaking, for crypto. On Tuesday, tZERO Group announced in a press release that it joined Prometheum as one of two licensed U.S. special-purpose crypto broker-dealers.
Crypto Firms Are Still Chasing Broader Payments Utility
PYMNTS Intelligence found that a positive checkout experience keeps customers coming back to a merchant — and crypto keeps trying to throw its hat into the commerce ring with payments innovations.
Mercuryo launched a euro-denominated debit card Thursday that allows users to spend bitcoin and other cryptocurrencies directly at over 100 million merchants using Mastercard’s network. The move shows it is getting easier for people to use their crypto to pay for things in the real world.
PYMNTS dug into the ways the introduction of an easy-to-use crypto debit card could accelerate the mainstream adoption of cryptocurrencies by making them more accessible and convenient for tech-inept users.
Elsewhere, as of Tuesday, U.S. users of PayPal and Venmo can enter Ethereum Name Service (ENS) names to send crypto, The Block reported. The payment platforms will automatically identify the wallet addresses linked to the ENS, eliminating the need to copy and paste wallet addresses.
In other news outside of the U.S., crypto payments in Singapore using stablecoins reached a record high of almost $1 billion in the second quarter, led by transactions at merchant outlets, Bloomberg reported, citing Chainalysis.
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