Crypto P2P scams in India demonstrate the importance of digital asset education

Due to multiple police complaints and bank account suspensions, scammers have made it hard for Indian crypto traders to conduct P2P deals.

Peer-to-peer (P2P) cryptocurrency trading has been a mainstay of the cryptocurrency ecosystem since its inception. 

P2P trading is the exchange of cryptocurrency between two users without the need of intermediaries. P2P exchanges connect buyers and sellers while also providing additional protection via an escrow service. P2P exchanges provide several advantages over centralized exchanges, including global accessibility, a range of payment options, and no transaction costs.

Furthermore, in locations where governments are unfriendly to traditional cryptocurrency exchanges and service providers, P2P markets have become critical for crypto dealers and fans.

When India's central bank enforced a banking ban on cryptocurrency businesses in April 2018, they became a lifeline for many crypto merchants.

Although the banking prohibition was eventually removed by the Supreme Court in March 2020, P2P platforms continue to play an important role because banks are still hesitant to offer services to crypto exchanges owing to regulatory uncertainty.

During the 2021-2022 bull market, India saw a huge increase in crypto trading volumes and crypto platforms, leading the government to take note of the budding ecosystem.

While industry leaders have been calling for a robust regulatory framework since 2019, India's finance minister has promised a 30% tax on crypto revenues beginning in 2022.

The high tax, along with the ongoing lack of legal certainty, has been the scourge of the nascent Indian crypto economy, discouraging Indian investors from entering the market.

While major crypto exchanges suffered, P2P networks experienced a surge in activity. 

source: coindance

How do P2P frauds occur?

This increase in P2P trading volume has also resulted in an increase in P2P frauds. These scams frequently employ stolen banking data or deceive customers with false promises of large returns before using their banking information to defraud P2P users.

Two persons were arrested earlier this month in the Indian city of Ujjain in connection with a Binance P2P incident. The police found multiple false bank accounts, ATM cards, and documents from the accused, who allegedly purchased fake IDs and personal data for 1,500 Indian rupees ($18) in order to defraud Binance P2P users.

P2P scammers create bogus crypto-centered Telegram channels that promise large earnings or airdrops to steal user data. Many naive people seeking a quick profit frequently join these channels and submit their personal banking information. Many times, the scammer merely purchases or steals the user's personal information.

The stolen data is then utilized to open a P2P account on any popular P2P site – in India, Binance and WazriX are popular.

The scammer then places a buy order on the P2P platform in search of unwitting vendors. When they find a match, they send the money to the merchant using the victim's account. As a result, they complete the P2P transaction on the platform, in which the buyer receives bitcoin and the seller receives money in their bank account.

The buyer (scammer) then vanishes with the cryptocurrency, and the victim whose bank account was used to transmit the money discovers it only after the money has been deducted from their account.

The victim then files a complaint with the authorities, who immediately block all bank accounts with which the victim has communicated during the scam phase.

This move by the police results in an extended account freeze for unsuspecting P2P platform sellers who only realize they were part in the fraud after receiving a call from the police or receiving notification from their bank that their account has been stopped.

In one case, a vendor who preferred anonymity received a "bank account frozen" notification when attempting to pay for a taxi. After calling the bank, the seller discovered that the halt was ordered by the police's cyber division, which is in charge of investigating internet crimes.

When the seller followed up on the police complaint and inquired about the account block, they were greeted with threats of legal repercussions from India's economic intelligence agency, the Enforcement Directorate, for a $40 P2P completed transaction on WazirX in October 2022.

A woman submitted the police report after being duped out of $30,000 between September 2022 and June 2023. The police launched an inquiry and froze any bank accounts that connected with the plaintiff's accounts throughout the time period specified, including the sellers in the October transaction.

The vendor attempted to explain to the police officer that they had completed the P2P transaction and hence had no involvement in the scam. Despite this, the police rejected their concerns, incorrectly asserting that crypto transactions are prohibited and requiring the complainant to pay $40 or risk additional legal action.

With no other options, the victim deposited the $40 to the plaintiff's account, and the police issued an order to unfreeze the account.

The police did not react to a request for comment from Cointelegraph.

The bank account restrictions restrict unidentified victims' access to funds, and the complexity involved in resolving the problem are enormous. The vendor, who is frequently ignorant of the scam until the last minute, could face a legal investigation or be compelled to submit evidence.

Several such P2P scams have occurred in the last year, with victims expressing their fear of authorities, with police frequently threatening legal action. The anonymous seller told Cointelegraph that their account was frozen with 50,000 rupees in it, and that they are terrified of approaching authorities and facing legal ramifications.

Some people advise against P2Ps

Due to a lack of defined laws on crypto-related crimes, as well as a lack of understanding of the technology underlying cryptocurrencies, police investigations frequently begin with the freezing of the accounts of anyone engaged in the matter.

According to Pushpendra Singh, a renowned crypto celebrity and instructor in the Indian crypto ecosystem, scammers take advantage of the police's lack of understanding of how crypto works:

According to Singh, Indian police officers must be actively instructed on how these scams operate. He stated that "lack of awareness around the nascent tech also leads to victim harassment, with many victims being told by police that crypto transactions are illegal in India."

P2P frauds have become so widespread and worrying that the majority of cryptocurrency specialists in India have now advised traders to avoid P2P trading. According to Sumit Gupta, CEO of CoinDCX, a leading cryptocurrency exchange in India, crypto traders should avoid peer-to-peer transactions.

He claimed that many people in India received notices from various government agencies simply because they unintentionally transferred money to someone who wasn't the correct person to deal with.

Other crypto personalities have warned traders to be cautious and to ensure that the P2P account with whom they are communicating has a strong track record.

What began as a crypto revolution has evolved into a vulnerability for the Indian crypto industry.

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