WHITE COLLAR CRIEME : THE RISE OF CRYPTO CURRENCY FRAUD IN INDIA
Rohit Kumar
LL.B, IV Sem.
School of Law
Manav Rachna University, Faridabad
Date : 28th Feb, 2025
“With Indian investors losing an estimated ₹25,000 crore to cryptocurrency scams in just three years, the rise of digital fraud has become a ticking time bomb in the country’s financial ecosystem.”Cryptocurrency is fundamentally a digital or virtual form of currency utilizing cryptography for security, has moved from a niche concept to the disruptive force in global finance, with India being a compelling case for examining its adoption. As of 2021, India was already home to the highest number of crypto owners globally, with over 10.7 crore individuals invested in digital currencies. By 2025, the cryptocurrency market in India who is projected to generate $6.4 billion in revenue with the 107.3 million users, driven by financial inclusion and digital innovation. Cryptocurrencies provide a valuable alternative for those with limited access to traditional banking systems. However, this rapid growth is accompanied by the increasing illicit activities. The anonymity and decentralization inherent in cryptocurrencies attract cybercriminals, leading to a diversification of crypto crime and the professionalization of the illicit on-chain ecosystem. Scams, phishing attacks, and money laundering schemes are becoming more prevalent, resulting in significant financial losses for Indian investors. This surge in cryptocurrency fraud is fueled by regulatory uncertainties, the anonymity of transactions, and the increasing sophistication of cybercriminals.The absence of a clear legal framework that creates uncertainty for investors, startups, and businesses. Addressing these challenges is crucial for the long-term viability and mainstream adoption of cryptocurrencies in India.
Cryptocurrency fraud in India is on the rise, with various forms of illicit activities exploiting the decentralized and anonymous nature of digital currencies. Stolen funds have increased significantly, often due to private key compromises, with North Korean hackers playing a prominent role in high-profile thefts. Scams such as high-yield investment schemes and “pig butchering” frauds have surged, with the latter seeing an 85-fold increase since 2020. The use of AI in personalized scams, like sextortion attacks, has made these schemes more sophisticated. Additionally, criminals use cryptocurrency for money laundering, leveraging over-the-counter (OTC) brokers to obscure the origins of illicit funds. Ransomware attacks, predominantly Bitcoin-based, remain a persistent threat. The lack of comprehensive regulations and challenges in tracing transactions make combating these crimes difficult. To address this growing issue, India must strengthen its regulatory framework, enhance law enforcement capabilities, and educate citizens about the risks associated with cryptocurrency investments.
Cryptocurrency’s inherent anonymity and decentralization, coupled with rapid, irreversible transactions, create loopholes exploited by criminals in India. OTC brokers with lax KYC practices facilitate money laundering, while complex financial structures involving multiple brokers obscure transaction trails. The rise of AI enables fraudsters to bypass KYC protocols, further complicating detection. Additionally, direct, individual communication used by the scammers makes tracing fraud challenging. India ongoing efforts to combat crypto fraud are challenged by these loopholes and the need for advanced blockchain forensics. To effectively combat cryptocurrency fraud in India, several legal remedies and prevention strategies are essential. Blockchain analysis offers significant benefits, enabling faster transaction tracking and fraud detection by monitoring activities on the blockchain. This technology allows law enforcement to identify suspicious transactions and respond promptly, enhancing security for users. Due diligence is crucial for cryptocurrency exchanges, which must implement rigorous KYC (Know Your Customer) processes to verify user identities and prevent illicit activities. By conducting thorough checks, exchanges can mitigate the risks associated with fraud. Freezing funds is another effective strategy; stablecoin issuers have the capability to freeze assets linked to the illicit activities, providing a mechanism to recover stolen funds and deter future crimes. Moreover, law enforcement expertise in blockchain technology is vital. As the landscape of cryptocurrency evolves, regulators and investigators must become proficient in understanding blockchain mechanics to effectively trace transactions and enforce laws.
The GainBitcoin scam exemplifies the loopholes and legal challenges in India’s cryptocurrency landscape. This Ponzi scheme, launched in 2015, lured investors with promises of 10% monthly returns in Bitcoin, amassing ₹6,600 crore. Masterminds like Ajay.Bharadwaj diverted funds to private wallets, leaving investors empty-handed. The scheme used a multi-level marketing structure, rewarding existing investors for recruiting new ones. When new capital dwindled, payouts were switched to the less valuable MCAP cryptocurrency. The Supreme Court eventually handed the investigation to the CBI, seizing cryptocurrencies worth ₹23.94 crore. This case highlights the appeal of high-return promises, the exploitation of regulatory gaps, and challenges in tracing and recovering misappropriated funds. Despite CBI’s efforts, many investors remain without recourse, underscoring the urgent need for stricter regulations and greater awareness to prevent such scams. The ED also cracked down on a ₹600 crore fraud involving spoofed exchange.
In my opinion, combating cryptocurrency fraud in India requires robust regulations, specialized law enforcement training, and widespread public awareness. Educating investors about risks, enforcing strict KYC norms, and leveraging blockchain analysis are essential. A comprehensive approach will ensure a safer crypto ecosystem, fostering innovation while protecting investors from exploitation.
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