By Austin Denean
A House oversight subcommittee is pushing federal regulators and some of the biggest cryptocurrency markets to address scams and fraud that are ripping off Americans.
The Economic and Consumer Policy subcommittee sent letters to the Department of Treasury, Securities and Exchange Commission, Commodity Futures Trading Commission and Federal Trade Commission this week asking what they are doing to protect people.
“As stories of skyrocketing prices and overnight riches have attracted both professional and amateur investors to cryptocurrencies, scammers have cashed in,” Rep. Raja Krishnamoorthi, D-Ill., wrote in a letter to federal agencies. “The lack of a central authority to flag suspicious transactions in many situations, the irreversibility of transactions, and the limited understanding many consumers and investors have of the underlying technology make cryptocurrency a preferred transaction method for scammers.”
An FTC report found the annual amount of cryptocurrency lost to fraud is on track to surpass $1 billion this year. The FBI sent out a warning earlier this week that criminals are exploiting vulnerabilities on decentralized finance platforms to steal cryptocurrency.
“Cyber criminals seek to take advantage of investors’ increased interest in cryptocurrencies, as well as the complexity of cross-chain functionality and open source nature of DeFi platforms,” the FBI’s warning says.
Several cryptocurrency companies were asked to submit documentation to Congress on what they are doing to combat scams, protect consumers on the platforms and what actions the federal government could take to help crack down on the problem.
The federal government has taken steps to figure out if or how digital currencies should be regulated but rules and legislation haven’t been released. President Joe Biden signed an executive order in March requiring several federal agencies to examine how they can regulate digital assets within 180 days.
Part of Congress’ challenge in regulating the relatively new industry is figuring out which finance laws apply to what online transactions.
“It’s a new technology that is disrupting the finance industry, like that’s its pitch. While the finance industry is regulated by a bunch of different people, because there’s a bunch of different parts to it,” said Bryan Routledge, associate professor of finance at Carnegie Mellon University. “Which one are you disrupting? And if you ask your blockchain, it’s all of it. And so that’s where it’s hard.”
FILE – The mobile phone icon for the Coinbase app is shown in this photo, in New York, Tuesday, April 13, 2021. (AP Photo/Richard Drew, File)
How often the technology develops or creates a new investment opportunity also adds to issues for Congress, which rarely moves quickly to pass new legislation.
“The main question that comes into place is which laws apply?” said Nicolas Christin, a professor at Carnegie Mellon University who studies cryptocurrency and online crimes. “So, there’s quite a lot of uncertainty in general and sometimes those which have occurred, there is sometimes like an uncertainty related to whether something is regulated or not.”
Part of Congress’ role could be helping federal regulators clarify which finance laws already on the books apply to which parts of digital marketplaces rather than creating a new set of laws around them.
A bill proposed by Sens. Kirsten Gillibrand, D-N.Y., and Cynthia Lummis, R-Wyo., would create legal definitions of digital assets and currencies, and make a distinction between which are commodities or securities, which would help clarify how they are regulated by existing laws.
FILE – The Bitcoin logo appears on the display screen of a cryptocurrency ATM in Salem, N.H., Feb. 9, 2021. (AP Photo/Charles Krupa, File)
Some of the crypto marketplaces have taken steps to help consumers understand the risks they are facing or the dangers of investing. But like scams involving traditional forms of currency, it isn’t always possible for a marketplace or government watchdog to prevent people from being scammed.
Prompts that warn users and increase security through two-factor authentication protect from some scams, but others have still been effective to take money.
It’s really case-by-case, it goes from people who are really trying very hard to be as clean as possible to people who are pretty sleezy, and it’s still very much the Wild West,” Christin said.
When expanded to firms that are based outside the U.S., internal policies and attempts to safeguard consumers can get even more varied.
