The Federal Bureau of Investigation (FBI) warned investors about the dangers of fraudulent cryptocurrency apps last week, saying that over 200 victims have lost a total of $42.7 million since October.

"Cyber criminals are creating fraudulent cryptocurrency investment apps to exploit legitimate cryptocurrency investments, defrauding U.S. investors and causing reputational harm to U.S. investment firms," the agency said. "The FBI has observed cyber criminals using the names, logos, and other identifying information of legitimate USBUSs, including creating fake websites with this information, as part of their ruse to gain investors. Financial institutions should warn their customers about this activity and inform customers as to whether they offer cryptocurrency services."

The FBI issued a second warning later in the week of a crypto liquidity scam that was responsible for over $70 million in losses. Rather than assuming the identity of a legitimate crypto exchange, criminals conducting liquidity scams often approached victims in a more personal manner. Scammers would chat with victims through direct messages, building rapport while dropping hints of a "crypto hustle" of sorts that has impossibly steady returns, before convincing victims to link their wallets (or create and fund a wallet, if they do not have one).

Cryptocurrency fraud has been around for much of the time that blockchain currencies have existed, but the COVID-19 pandemic and the greater exposure crypto received among regular consumers caused fraud to explode.

Regulators have been steadily ramping up oversight of the blockchain, however. This is beginning to result in more litigation against scammers, such as the 2021 indictment of BitConnect founder Satish Kumbhani for operating a crypto "Ponzi scheme", or the more recent indictments of My Big Coin founder Randall Crater and EminiFX founder Eddy Alexandre for cryptocurrency fraud.

The FBI, U.S. Securities and Exchange Commission (which expanded its crypto enforcement unit in May), and Department of Justice putting their attention towards cleaning up fraud on the blockchain will be immensely beneficial to investors, however, there are still many vulnerabilities with the blockchain that leave the door open to fraud.

A lack of security and regulations regarding consumer safety has left theft a regular occurrence in the crypto space. One needs to look no further than the relative ease that hackers have enjoyed when hacking the now-infamous Bored Ape NFT collection again, and again, and once more for good measure. Government interference in this realm can only go so far, however, without legislation to establish oversight of the blockchain, and allow regulators to set the same security standards of the defi space as in traditional finance.