The Rise of Approval Phishing: A Growing Threat to Cryptocurrency Users

The Rise of Approval Phishing: A Growing Threat to Cryptocurrency Users

Cryptocurrency users are facing a new scam tactic known as “Approval Phishing” which has gained prominence in recent years. This deceptive approach initially targeted victims through the distribution of fraudulent crypto apps. However, it appears that romance fraudsters, commonly referred to as “pig butchering scammers,” have now adopted this method as part of their strategies. This alarming trend has prompted blockchain analysis firm, Chainalysis, to investigate and raise awareness about the growing threat.

According to Chainalysis, they have identified 1,013 addresses engaging in a deliberate form of approval phishing. They initially compiled a list of recognized approval phishing addresses that utilized romance scam tactics. Through analyzing transaction patterns, they were able to uncover additional addresses linked to those on the initial list. Based on these findings, the firm estimates that victims, including those identified through distinct activity patterns, have collectively suffered losses of around $1 billion due to approval phishing scams since May 2021.

It is important to note that this $1 billion estimation may underestimate the true extent of the losses due to the notorious underreporting of romance scams. Additionally, Chainalysis’ analysis was conducted using a limited dataset. Consequently, it is highly likely that the actual losses from approval phishing scams are far greater than what has been reported so far.

The revenue generated by suspected approval phishing scammers, as monitored by Chainalysis, reached its peak in May 2022. During that month alone, victims lost an estimated $516.8 million to approval phishing. This staggering figure reflects the success and profitability of this criminal activity. However, it is crucial to recognize that a small number of highly successful actors drive the majority of approval phishing theft.

In fact, Chainalysis has identified the most lucrative approval phishing address, which is believed to have stolen $44.3 million from thousands of victim addresses. This address alone accounts for 4.4% of the total estimated stolen funds during the studied period. Furthermore, the top ten approval phishing addresses collectively contributed to 15.9% of all stolen value, while the top 73 accounts were responsible for half of the total value stolen. These statistics highlight the concentrated nature of this criminal enterprise.

Approval phishing entails tricking users into approving a malicious blockchain transaction. By obtaining approval, scammers gain permission to spend specific tokens within the victim’s wallet, enabling them to deplete the victim’s address of those tokens at their discretion. Chainalysis has observed that approval phishers typically send the victims’ funds to a separate wallet from the one granted approval, facilitating transactions on behalf of the victim.

The typical sequence of events in an approval phishing attack involves the victim address signing the transaction to approve the second address to spend its funds. Subsequently, the approved spender address initiates transactions to transfer funds to a new destination address. This deviation from the expected transaction pattern, where the victim address should initiate the transactions, indicates a case of approval phishing.

In the context of decentralized apps (dApps) on smart contract-enabled blockchains like Ethereum, approval phishers exploit the familiarity of many crypto users with signing approval transactions. The key factor lies in the nature of permissions granted and the reliability of the party receiving those permissions. This vulnerability makes crypto users particularly susceptible to approval phishing attacks within the decentralized ecosystem.

Protecting Against Approval Phishing

As approval phishing scams grow in sophistication and prevalence, it is crucial for cryptocurrency users to take proactive measures to protect themselves. Some recommended steps to mitigate the risk include:

1. Educating oneself about approval phishing techniques and staying informed about the latest scam tactics.
2. Exercising caution when downloading crypto-related apps, particularly from unverified sources.
3. Verifying the authenticity of the receiving address before granting approval for any transactions.
4. Utilizing hardware wallets and multi-factor authentication for added security.
5. Being vigilant about unusual transaction patterns and promptly reporting suspicious activity to the relevant authorities.

By adopting these preventative measures and maintaining a high level of awareness, crypto users can significantly reduce their vulnerability to approval phishing scams and safeguard their digital assets.

The rise of approval phishing presents a grave threat to cryptocurrency users worldwide. With estimated losses reaching $1 billion and highly successful scammers exploiting unsuspecting victims, urgent action is required to combat this digital menace. By maintaining a proactive approach, staying educated, and implementing robust security measures, crypto users can fortify themselves against approval phishing and ensure the safety of their funds in this rapidly evolving landscape.

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