In the murky waters of the cryptocurrency market, a new wave of scams driven by advanced artificial intelligence is casting a long shadow. Industry experts warn that these sophisticated frauds are becoming a daily menace, leveraging AI technology to craft convincing deceptions.
Jakob-Moritz Eberl, a social scientist at the University of Vienna, encountered this first-hand. Upon visiting a crypto website, he was shocked to find his own face displayed under a fictitious name and title. Eberl’s photo appeared on two websites: InfinityStakeChain and FlexyStakes, both of which misrepresented him as a key member of their teams. “I’m not associated with crypto,” Eberl stated. “I have to honestly say I still don’t understand crypto fully.”
Despite the imprisonment of former FTX CEO Sam Bankman-Fried earlier this year, signaling a desire to move past scandals, the crypto industry remains riddled with scams. Fraudsters are using fake press releases and bogus claims of partnerships to feign legitimacy, often deceiving even reputable data sources.
InfinityStakeChain and FlexyStakes, for instance, issued press releases claiming they had secured $12 million from investors, including Binance. However, Binance and other named partners confirmed to Bloomberg that they had never engaged with these start-ups. The fraudsters even went as far as listing a false office address in Melbourne, where no trace of the companies was found.
Robert Le, a crypto analyst at PitchBook, identified InfinityStakeChain and FlexyStakes among a slew of fraudulent crypto start-ups. “It’s fraud, especially if you’re putting up these websites,” Le said. He noted that fake projects frequently release false press announcements to lure victims. “All they want to do is get you to come to the website, connect your wallet, and steal all your funds,” he added.
The rapid emergence of scams is alarming. Just hours after Tether Holdings Ltd announced a new synthetic dollar token, multiple fake websites appeared, impersonating the new product. Paolo Ardoino, Tether’s CEO, warned on social media about these scams.
Eberl was not alone in having his photo misused. He recognized other misappropriated images on the websites, including those of individuals who confirmed their lack of involvement with the projects. The unsettling experience left Eberl wary, despite his familiarity with online harassment due to his research. Concerned about his reputation and the potential harm to victims, he expressed his dismay, “I have no idea how I deserved this.”
Another case of misinformation involved Candle Labs, a company incorrectly reported to have raised $48 million in venture funding. The start-up’s founder, Sam Safahi, clarified that they had only raised $1.2 million, primarily from friends and family. The incorrect data had been widely disseminated across multiple platforms, lingering despite its inaccuracy.
The proliferation of AI technology has exacerbated the issue, making scams harder to detect. Fraudsters increasingly use AI tools like chatbots to create polished websites and white papers, which previously might have been marred by glaring errors. “They used to have all these grammar mistakes, and you could tell it was fake,” Le remarked.
Social media complicates the spread of misinformation, with bots executing trades based on false news, artificially inflating token prices. Svitlana Volkova, chief AI scientist at Aptima Inc., noted the ease with which people share unverified information, leading to viral misinformation. This poses risks not only to traders but also to venture capitalists, who have been criticized for insufficient due diligence.
Roger Royse, a partner at law firm Haynes Boone, highlighted the dangers of exaggerated claims by start-up founders. “If there’s a misrepresentation of a material fact, and that induces the investor to invest, that is the basis of a fraud claim,” he said.
As for Eberl, the ordeal remains unresolved. “On some level, I guess I feel violated by the crypto scam,” he admitted. Yet, his academic curiosity is piqued. “On the other, I just find it extremely weird, and I find this connection extremely intriguing.”
