The Crypto Adviser
The Crypto Adviser

How Do Crypto Scammers Hide And Launder Stolen Funds?

Adam Smith
How do scammers launder stolen bitcoin
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Dozens of new crypto scams spring up every week and the methods the fraudsters use to hide and launder their proceeds are evolving rapidly too.

Concealing stolen cryptocurrencies and laundering it into fiat cash is a vital stage in digital fraud and the scammers go to great lengths to stay one step ahead of the law and crypto recovery companies, which are developing ever more sophisticated methods of tracking stolen crypto.

The meteoric growth experienced by the cryptosphere and its unique decentralised financial system over the past few years has opened the floodgates for scammers to capitalise on the perceived by which people can get rich with crypto and their lack of understanding about how it works and what is a legitimate investment opportunity or not.


The ultimate aim of a crypto scammer is to turn their stolen digital coins into traditional money without being traced and they use several methods to do this.

Here, I’ll explore some of the most popular methods used by scammers to launder and hide their ill-gotten gains.

Concealing stolen crypto using Bitcoin mixers or tumblers

Crypto mixers, also known as tumblers, are platforms which essentially shuffle crypto transactions across multiple addresses to obfuscate their origin and make it virtually impossible to trace a path back to the original theft.

It’s a technical process but in short, the ultimate aim is to break the link between the original crypto being stolen and the final transaction where the stolen coins are sold for cash.

Despite crypto mixers being often associated with criminal activity, there are legitimate reasons why people use them.

For example, wealthy individuals might wish to keep their crypto transactions private from those who would potentially target them for extortion or theft.

Others might simply want to be allowed to carry out transactions away from the prying eyes of authoritarian governments, staying true to the origins of cryptocurrency.

However, it’s fair to say that many people who use Bitcoin mixers are likely to be doing so for nefarious reasons and may well be involved in scamming people online.

Decentralised crypto trading exchanges

Centralised exchanges are a weak point for scammers because creating an account involves increasingly stringent checks as part of Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations which are aimed at tracking transactions and preventing money laundering.

Scammers have been known to recruit friends, family and even strangers to open accounts to help them launder stolen crypto into fiat currencies.

However, the authorities are increasingly working with exchanges to block these accounts if they’re proven to be associated with criminal behaviour.

To circumvent these ID checks scammers often used decentralised exchanges, also known as DEXs.

The permissionless nature has seen DEXs soar in popularity as they enable anyone to trade cryptocurrencies without proving their identity.

Scammers exploit this by converting stolen digital assets into other cryptos through DEXs before the next stage in the laundering process, making tracing the stolen coins even harder.

The Dark Web and hidden crypto marketplaces

The Dark Web has a reputation for being a hotbed of illegal activity, even though not everything on there is nefarious.

That said, scammers are known to use stolen cryptocurrencies to buy illicit goods which can then be sold in the real world for fiat cash.

They also utilise anonymous crypto marketplaces to exchange stolen crypto for other digital assets via multiple transactions making it virtually impossible to trace the stolen coins due to the added layers of encryption and anonymity offered by the Dark Web.

P2P platforms

P2P platforms offer another form of decentralised and unregulated crypto trading.

Here, scammers can connect directly with individuals to trade their crypto and receive alternative digital coins in exchange, or even fiat cash.

They often offer the stolen crypto at a significant discount to encourage buyers, who then may use a crypto tumbler to ensure the coins are ‘cleaned’ so they can use them without fear of being linked to any illegal activity.

Smurfing crypto transactions

Smurfing is another popular technique used by crypto scammers to disguise stolen coins.

It involves breaking up large chunks of stolen crypto and facilitating multiple transactions across a variety of platforms to make it incredibly difficult to follow the trail.

They often combine smurfing with some of the other techniques listed here to make it virtually impossible for anyone to follow the coins.

Crypto ATMs

The growing popularity of crypto ATMs around the world has created another opportunity for scammers to offload their stolen coins.

While ATMs are traditionally associated with withdrawing money, crypto ATMs are often bidirectional meaning people can sell coins through them as well.

Authorities have been increasingly cracking down on crypto ATMs, with most now requiring KYC compliance, including proof of ID and an account.

The UK’s Financial Conduct Authority (FCA) even went as far as banning all cryptocurrency ATMs in 2022 due to the fact that none of the operators had registered with the agency.

Non-compliant crypto exchanges

Not all crypto exchanges are created equal and there are still some that don’t require the usual AML/KYC checks.

This is ideal for fraudsters looking to offload stolen crypto, especially when they provide on and off ramp facilities which enable coins to be converted to cash.

Having access to an active crypto exchange which doesn’t require the use to provide any personal identification is the perfect place for scammers to trade their stolen coins.

Over-the-Counter brokers (OTC)

OTC trading is generally a legitimate part of the cryptosphere that facilitates large crypto transactions and is often used by large financial institutions and platforms.

However, specialised money laundering services providers exploit this by creating ‘nested’ services using multiple deposit addresses from legitimate cryptocurrency exchanges.

Many mainstream OTC brokers run as a nested service and money launderers take advantage of this, often without the knowledge of the broker.

However, there are certain OTC brokers which cater specifically to the requirements of criminals and facilitate money laundering with the full knowledge of that they’re doing.

Shell companies and layered transactions

Shell companies have long been used to launder illicit funds and it’s no different when it comes to cryptocurrency.

Scammers are increasingly setting up shell companies and fake businesses to give a semblance of legitimacy to the origin of their illicit funds.

Combine this with the use of layered transactions as I’ve already mentioned, and it creates a convoluted web of financial connections which make it difficult for authorities or crypto tracing companies to follow the digital trail.

Final word

Scammers are constantly trying new methods of staying one step of the law, but governments and dedicated crypto tracing firms are rapidly catching up.

Bitcoin, which was once thought to be anonymous, is easily traceable especially if you have the right suite of forensic tools which is why scammers go to create lengths to hide their transactions using the methods above.

There are so-called privacy coins – Monero being one of the best known – which offer a much higher level of anonymity.

But despite all the techniques listed, crypto scammers still see centralised exchanges as the main way of offloading stolen coins after using services such as mixers.

However, they’re finding it increasingly difficult to ‘wash’ their stolen crypto now that authorities across the globe are tightening the rules around crypto and cracking down on unregulated platforms and practices.

Exchange compliance teams are increasingly being charged with spotting illicit transactions and blocking accounts of those believed to be involved in trying to launder stolen crypto.

While progress is being made, for now the best way of stopping the scammers is to avoid being scammed in the first place.

If you’re still stuck and would like some advice and help navigating the world of crypto and avoiding scams, then check out the services we offer.

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Disclaimer: Nothing on this website constitutes financial advice. The information provided is for educational purposes only.

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