Cryptocurrency has evolved from a niche application developed by activists to a wide-scale form of payment. This trend is likely to accelerate because of banks’ interests, UK government support, and industry initiatives to embed cryptocurrency payments in popular applications.
Nevertheless, cryptocurrencies have also drawn considerable attention from criminals who want to steal digital currency from cryptocurrency users. According to the UK National Fraud and Cyber Crime Reporting Centre over £146 million was lost to cryptocurrency fraud in 2021, a 30% increase since 2020. Santander reports an 87% increase in the volume of cases of this type of fraud in 2022, compared to 2021. In the UK, victims in the age range of 18-25 account for the highest percentage of reports related to cryptocurrency fraud.
The harm resulting from cryptocurrency fraud is not unique to the UK. In the US, the Federal Trade Commission suggested that more than 46,000 people reported losing over $1 billion in cryptocurrency to fraud, from January 2021 to March 2022 with 34% of the victims in the age range of 18-29. The true cost of cryptocurrency fraud often extends beyond the immediate financial loss, including law-enforcement time and dealing with the emotional fallout of the fraud. Unfortunately, there have been reports of suicides committed by victims of cryptocurrency fraud.
Currently, we do not have any scientific (technical) mechanism that helps victims of cryptocurrency fraud receive reimbursement for their financial losses to this type of fraud. Even (cyber) insurers have had little appetite to cover cryptocurrency.
This research project will address the above critical limitation by developing a decentralised fraud recovery mechanism.
First, the research will develop a new model to establish a scientific formal foundation for the core security guarantees that a mechanism must offer to reimburse cryptocurrency fraud victims.
Second, the research will develop a new security protocol that matches the model and allows cryptocurrency fraud victims to receive compensation. The scheme will mirror the insurance facility in traditional payment systems, which are paid for by customers through transaction fees, whereby banks will in certain circumstances reimburse fraud victims.
Third, the research will implement the devised protocol, find optimal parameters of the protocol, and conduct a rigorous cost analysis to understand how the protocol executes in both the lab and real-world environments.