CRII: SaTC: Identifying Fraud in the Cryptocurrency Ecosystem

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This project will advance understanding of how cybercrime has been able to flourish in the emerging cryptocurrency economy. Research has revealed cybercrime in the cryptocurrency economy, and the rate of fraud has seemed to increase. By understanding the incentives for crime and by modeling effective regulation, this research will make progress towards upending cryptocurrency-based crime. The project will collect data towards understanding how the underlying incentives work to cause fraudulent behavior and how the ecosystem perpetuates fraud. This work aims to influence public policy on cryptocurrencies, making the cryptocurrency ecosystem safer for consumers. The project will train students in this research area and produce course materials. The project seeks to correct the information asymmetry in the current cryptocurrency ecosystem, whereby consumers cannot tell the difference between a fraud and a legitimate business. There are two parts to this project. The first part will analyze one particular sector of the ecosystem that seems to be rife with speculation: alternative currencies and the corresponding currency exchanges listing the currencies. Each needs the other to be profitable: currencies need to be listed on an exchange to be worth money, and exchanges need currencies to be listed on them to extract fees from their users executing trades and (often) listing fees for each currency. The second part will collect social network data on cryptocurrency-related services at large in order to learn which services have a high probability of being scams and what indicators are correlated with this. The work will compare the propagation of information about legitimate industries and frauds to work towards differentiating the two. The project will take a longitudinal approach towards modeling how the cryptocurrency ecosystem has evolved into its current state, and it will continue to adapt the models as criminals adapt.This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.