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What is crypto? -

Crypto or cryptocurrency is any type of digital or virtual currency that uses cryptography to provide secure transactions. This digital payment system has a peer-to-peer, decentralized element to it and the currency is stored in digital wallets.

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Who uses crypto? -

While almost anyone could use cryptocurrency, 63% of Americans say that they don't have much confidence in cryptocurrencies as a reliable and safe option.

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Cryptocurrency examples -

While there are thousands of cryptocurrencies, there are several that stand out as the most popular. These include Bitcoin, Ethereum, Litecoin, and Ripple.

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Introduction to NexFundAI -

NexFundAI was introduced in May 2024 by the FBI as an Ethereum-based cryptocurrency token. It was created for Operation Token Mirrors and served as a tool to identify and trap scammers within crypto markets.

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Operation Token Mirrors -

This particular operation attempted to lure individuals and organizations who were engaged in pump-and-dump scams. Doing so meant the FBI could gather real-time evidence on tactics to manipulate the market.

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The mechanics of pump-and-dump schemes -

NexFundAI targeted crypto manipulators who were involved in schemes where they inflated token values to attract investors and then would sell off for profit, leaving the investors empty-handed.

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Designing the NexFundAI token -

The FBI crafted NexFundAI to appear extremely legitimate. It had realistic branding, tokenomics, and an online presence, thus making it enticing to fraudsters in crypto markets.

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Luring market manipulators -

With this official-looking setup complete, fraudsters would be drawn to the token for its potential for manipulation-driven profits and its legitimacy. 

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Wash trading tactics -

Then, fraudsters performed wash trades on NexFundAI, which is where trades are made between controlled accounts in order to create a false impression of high demand.

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The FBI’s evidence collection -

Evidence on 18 individuals was gathered by the FBI and it ultimately implicated firms such as Gotbit and ZM Quant.

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Success in July 2024 -

By July 2024, there was a strong case built, which led to charges and arrests of key individuals and companies that were involved in fraudulent crypto schemes.

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Seizure of assets -

Thanks to the sting, over US$25 million in fraudulent assets were recovered and it uncovered a new method for scammers to manipulate crypto markets.

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Evolution of crypto sting operations -

Crypto stings have evolved from physical undercover setups to more sophisticated digital operations, where the FBI works to fight online scams and financial crimes.

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Early crypto crime investigations -

In 2013, the FBI targeted the Silk Road and focused on black markets and illegal transactions, thus paving the way for digital sting operations.

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The role of Bitcoin -

In the early 2010s came the rise of Bitcoin, and with it came the possibility for criminals to use a decentralized currency. The FBI soon realized they needed to develop new strategies to counter any crypto-related crimes.

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Operation Phish Phry -

In the late 2000s, there was Operation Phish Phry, which resulted in nearly 100 people being charged. This particular operation signaled the beginning of law enforcement's focus on online financial crime.

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Operation Cryptosweep in 2018 -

US and Canadian authorities worked together in Operation Cryptosweep in 2018. They found over 200 fraudulent ICOs and recovered millions from worldwide crypto scams.

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Bitconnect Ponzi scheme exposure -

In 2018, the FBI exposed the Bitconnect Ponzi scheme and demonstrated how digital stings could unmask large-scale crypto fraud. 

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Setting up NexFundAI for a sting -

NexFundAI was designed with features typical of real crypto projects, from a branded website to tokenomics, making it seem like a legitimate investment.

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Collaborating with market-makers -

To strengthen its facade, the FBI interacted with firms that specialized in price manipulation and used wash trading and pump-and-dump schemes.

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The “honey pot” tactic explained -

The trap token helped the FBI lure fraudsters into illegal activities without them even realizing they were actually under surveillance. 

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Evidence collection through on-chain data -

The FBI tracked on-chain data from suspicious wallets, including a known manipulator linked to the SAITAMA cryptocurrency, to monitor fraudulent trading actions.

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SAITAMA manipulation case -

Evidence showed that a wallet manipulated SAITAMA and profited over US$11 million by exploiting wash trading techniques similar to those used on NexFundAI.

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What is wash trading? -

Wash trading is where trades between accounts controlled by the same person or organization occur in order the create the illusion of liquidity.

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Digital communications and contract evidence -

The FBI brought in additional evidence, including digital communications and contracts from the firms that participated in the fraudulent market manipulation.

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Insights from NexFundAI -

By integrating into the crypto ecosystem, the FBI gained insights into fraud tactics, recording fraudsters in real time.

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New era of proactive crypto enforcement -

NexFundAI marks the beginning of a proactive approach, where enforcement agencies are enabled to go beyond observation and actively participate in crime prevention.

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Red flags for spotting trap tokens -

If you are an investor then you should beware of unrealistic promises, anonymous teams, and suspicious market activity, which can be indicative of a potential scam.

Sources: (Reuters) (The Verge) (The Register) (Cointelegraph) (The FBI)

See also: The biggest cyber attacks in history

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