This FTC Group Wants To Keep You Safe from Blockchain Scams
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But keeping up with criminals' tech innovation can be challenging.
New technology can be tough to navigate, and the Federal Trade Commission is out to make sure conmen don’t use blockchain to steer you in the wrong direction.
As cryptocurrency rebrands from anarchist fantasy to mainstream finance, the FTC is assembling an internal group of experts to help regulators crack down on people exploiting consumers with blockchain technology. Publicly launched last month, the blockchain working group aims to supply the technical know-how to fight the deceptive and unfair practices that often arise in fledgling industries.
“When there’s a new technology that people are excited about but they don’t necessarily understand how it works, you see a lot of fraudsters jump into that space to take advantage,” said FTC Chief Technology Officer Neil Chilson, who started the working group. As cryptocurrency grew more prominent amid skyrocketing Bitcoin prices, regulators were “not surprised” to see scammers reworking old tricks to cash in on the hype, Chilson told Nextgov.
In fact, he added, “we expect to see more of it” in the coming years.
The goal of the working group is to explore the ways blockchain technology could impact the agency’s mission to protect consumers and promote competition, Chilson said, and its open for all FTC employees to join. The group advises investigators and attorneys in consumer fraud cases while working to build greater expertise within the agency as a whole.
Since 2015, FTC has charged two groups with blockchain-related fraud—a retailer that rarely delivered the Bitcoin-mining equipment it sold and an app developer that secretly commandeered customers’ phones to mine various “altcoins.”
Though both instances involved cryptocurrency, they were both cases of “straight-up product fraud,” and neither required regulators to examine the blockchain itself. But as the FTC begins pursuing more technical cases, Chilson sees the need for the agency to take a more authoritative stance on the emerging tech.
Legally, the technology falls well within the agency’s scope, but Chilson said blockchain presents “more of a resource and technical challenge” than traditional fraud cases.
One of the biggest issues Chilson said regulators run into is one that’s plagued law enforcement officials for years—ascribing specific payments on the blockchain to real-life people. Though Bitcoin doesn’t provide as much anonymity as some people thought, he said it’s tough to figure out which individuals are involved in cryptocurrency transactions.
“In many ways, cryptocurrency is still more difficult to transact in than getting a Western Union money order,” Chilson said. While most scams FTC encounters involve Bitcoin, many cybercriminals have switched to more anonymous cryptocurrencies, and he said going after them will require FTC to stay on top of the latest strategies for law enforcement—and law evasion.
“There’s a lot of innovation going on on both sides,” he said.
Still in its early stages, the group is primarily focused on consumer fraud, but Chilson said he hopes it may one day address “bigger picture questions” of how blockchain could affect privacy and the internet ecosystem.
“These technologies promise some interesting benefits to consumers and the economy overall,” he said. “That’s another reason it’s important for law enforcement to address problems when they come up—so the technology as a whole doesn’t get a black mark because of bad actors in this space.”