Is XRP The Bitcoin For Banks?

Social engineering scams are on the rise, and these exploits have particularly targeted Coinbase users throughout the first quarter of 2025. According to a series of investigations by ZachXBT, users have lost over $100 million in funds since December 2024, while annual losses reached $300 million. 

After sorting through the complaints made by different users, BeInCrypto spoke with Coinbase Chief Information Security Officer (CISO) Jeff Lunglhofer to understand what makes users vulnerable to these kinds of attacks, how they happen, and what’s being done to stop them. 

Gauging the Seriousness of Scams Affecting Coinbase Users

Throughout the first quarter of 2025, several Coinbase users fell victim to social engineering scams. As the leading centralized exchange in a sector where hacks are becoming more sophisticated with time, this reality is no surprise. 

In a recent investigation, Web3 researcher ZachXBT reported on several messages he received from different X users who had suffered major withdrawals from their Coinbase accounts. 

1/ Over the past few months I imagine you have seen many Coinbase users complain on X about their accounts suddenly being restricted.

This is the result of aggressive risk models and Coinbase’s failure to stop its users losing $300M+ per year to social engineering scams. pic.twitter.com/PjtX7vmjqc

— ZachXBT (@zachxbt) February 3, 2025

On March 28, ZachXBT revealed a significant social engineering exploit that cost one individual close to $35 million. The crypto sleuth’s further investigations during that period uncovered additional victims of the same exploit, pushing the total stolen in March alone to more than $46 million.

In a separate investigation concluded a month earlier, ZachXBT revealed that $65 million was stolen from Coinbase users between December 2024 and January 2025. He also reported that Coinbase has been quietly grappling with a social engineering scam issue costing its users $300 million a year.

While Coinbase users have been particularly vulnerable to social engineering scams, centralized exchanges, in general, have also been significantly impacted by these increasingly sophisticated attacks.

How Does The Broader Context Reflect This Situation?

Public data regarding the evolution of social engineering scams in recent years is limited and somewhat outdated. Yet, the numbers in the available reports are staggering.

In 2023, the Internet Crime Complaint Center (IC3) under the US Federal Bureau of Investigation (FBI) released its first-ever cryptocurrency report. Investment fraud constituted the largest category of cryptocurrency-related complaints, representing 46% of the nearly 69,500 complaints received, or approximately 33,000 cases.

Investment fraud, or pig butchering, involves false promises of high returns with low risk to lure investors, especially crypto newcomers driven by a fear of missing out on significant gains.

According to the IC3 report, these schemes rely on social engineering and building trust. Criminals use platforms like social media, dating apps, professional networks, or encrypted messaging to connect with their targets.

In 2023, these investment scams resulted in losses of $3.96 billion for users, representing a 53% increase from the previous year. Other social engineering scams, like phishing and spoofing, further constituted $9.6 million in losses. 

These scams have extensively affected Coinbase users over the past few years.

New Scam Tactics Targeting Crypto Users

Coinbase scammers tend to create fake emails that appear legitimate using cloned website images and false Case IDs. They then contact users through spoofed calls, leveraging private information to build trust before sending them these deceptive emails.

Once scammers have convinced users of the interaction’s legitimacy, they exploit the situation to persuade them to transfer funds.

The increasing sophistication of these scams illustrates both the emotional manipulation involved and the particular vulnerability of the victims. They demonstrate that centralized exchanges are often the primary platforms for these exploitations.

ZackXBT’s investigations and user reports on X reveal a gap between the extent of social engineering scams and Coinbase’s apparent management effectiveness.

Public discussions indicate that Coinbase has not flagged theft addresses in common compliance tools.

Victims of scams and users whose funds were frozen are urging Coinbase to take stronger action against this growing and costly issue. Understanding how these scams take place is essential to effectively addressing them.

How Are Coinbase Users Made Victims?

In January, a victim contacted the investigator after losing $850,000. In that instance, the scammer contacted the victim from a spoofed phone number, using personal information likely obtained from private databases to gain their trust.  

5/ They then sent a spoofed email which appeared to be from Coinbase with a fake Case ID further gaining trust.

They instructed the victim to transfer funds to a Coinbase Wallet and whitelist an address while “support” verified their accounts security. pic.twitter.com/pOTQpnMfCz

— ZachXBT (@zachxbt) February 3, 2025

The scammer convinced the victim that their account had suffered multiple unauthorized login attempts by sending them a spoofed email with a fake Case ID. The scammer then instructed the victim to safelist an address and transfer funds to another Coinbase wallet as part of a routine security procedure. 

Last October, another Coinbase user lost $6.5 million after receiving a call from a spoofed number impersonating Coinbase support.

The victim was coerced into using a phishing site. Eight months earlier, another victim lost $4 million after a scammer convinced them to reset their Coinbase login. 

ZachXBT raised concerns about Coinbase’s lack of reporting the theft addresses in common compliance resources and their perceived inadequate handling of the escalating social engineering issue.

In a conversation with BeInCrypto, Jeff Lunglhofer, Coinbase’s Chief Information Security Officer, shared his version of the events.

Coinbase CISO Addresses Social Engineering Scams

Despite Coinbase’s clear understanding of the widespread harm caused by social engineering scams affecting its users, Lunglhofer stressed that the broader crypto community should address this problem collectively rather than entrusting the responsibility to a single entity. 

“In the context of the broader social engineering challenge that’s out there, of course, Coinbase customers are impacted. We’re keenly aware of it. We’ve been rolling [out] a number of control improvements to help protect our users, and, I think more importantly, we are working with the broader industry to bring these ideas and these control uplifts across the industry, across all crypto exchanges, across everything,” Lunglhofer told BeInCrypto. 

Coinbase’s CISO referenced the exchange’s collaborative efforts with other platforms to combat this problem in his reply.

Specifically, Lunglhofer pointed to the “Tech Against Scams” initiative, a partnership with industry players like Match Group, Meta, Kraken, Ripple, and Gemini to fight online fraud and financial schemes.

Lunglhofer also added that Coinbase takes a similar approach when flagging theft addresses.

Why Coinbase Handles Theft Addresses Differently

When BeInCrypto asked Coinbase why it doesn’t publish theft addresses across popular compliance tools, Lunglhofer explained that the exchange has a different procedure for these scenarios.

“We will communicate with other exchanges directly [and] let them know the addresses that we’ve seen where assets have been withdrawn,” he said, adding that “when we see that there’s, in fact, fraudulent [activity], we will pull back all the wallets that are associated with the fraud and we’ll push those out to the other exchanges that we have communications with,” he said.

Lunglhofer also mentioned Crypto ISAC, an intelligence and information-sharing group established by Coinbase in collaboration with various other crypto exchanges and organizations to distribute information related to scams.

When it comes to spoofed emails, phone numbers, or phishing sites, Coinbase delegates the responsibility to external service providers. 

Coinbase’s Struggle Against the Flood of Spoofed Content

Lunglhofer admitted that the number of spoofed emails Coinbase identifies or receives in the form of reports far exceeds the exchange’s capacity to take them down.

“Regrettably, they’re a dime a dozen. I can open ten of them in five minutes. It’s super easy to do. So there’s not a lot we can do about that. But, when we identify them [or when] a customer reports them, we do have them taken down,” he said.

Coinbase uses vendors to eliminate circulating spoofs or phishing campaigns in those instances. 

“We have several vendors that we use to do takedowns. So anytime we see a fraudulent phone number pop up, anytime we see a fraudulent URL [or] a fraudulent website get established, we will issue those for takedown. We’ll use our vendors to work with the DNS providers and others to bring those down as quickly as possible,” Lunglhofer told BeInCrypto.

Although these preventative measures are essential for the future, they provide minimal recourse for users who have already lost millions of dollars to scams.

Whose Responsibility Is It? User vs. Exchange

Coinbase did not respond to BeInCrypto’s inquiry about developing an insurance policy for users who lost savings to social engineering scams, leaving their approach in this area unclear.

Yet, social engineering scams are complex, relying on significant emotional manipulation to build trust. This complexity raises questions about the degree of responsibility that falls on user vulnerability versus potential shortcomings in the centralized exchange’s user protection measures.

The broader cryptocurrency community generally agrees that more educational materials are necessary to help users distinguish between legitimate communications and scam attempts.

Regarding this issue, Lunglhofer clarified that Coinbase will never call users out of the blue. He also noted that Coinbase has recently implemented different features that act as warnings for users potentially interacting with a scam.

Furthermore, the CISO cited a ‘scam quiz,’ an educational tool that appears as a real-time banner when a user is about to undertake a transaction flagged as suspicious by the exchange.

Though this feature is an advantage, its ability to protect users is hard to quantify, especially regarding how efficiently it flags suspicious activity. Coinbase did not respond when BeInCrypto asked if the exchange internally tracked data related to social engineering scams.

A similar issue arises with Coinbase’s ‘allow lists.’

The $850,000 Coinbase Loss

Coinbase offers a feature that enables users to create a safelist of approved recipient addresses to help prevent transactions to unfamiliar or unverified addresses. Lunglhofer strongly urges Coinbase users to adopt this measure.

“We offer every retail customer the ability to create ‘allow lists’ for wallets that they’re permitted to transfer assets to. On my personal account on Coinbase, I have ‘allow listing’ turned on, and I only have three wallets that are allowed,” Lunglhofer detailed.

However, the $850,000 scam loss suffered by a Coinbase user in January, as revealed by ZachXBT, shows a critical limitation of safelists.

Even after a victim adds a theft address, manipulation leading to this addition can still occur, thereby neutralizing the intended protection.

Can Coinbase Do More to Protect Users?

Sophisticated social engineering scams are a growing threat, creating significant challenges for crypto users. Coinbase users and centralized exchanges in general are particularly affected.

Despite Coinbase’s outlined efforts, the significant financial losses highlight the limitations of current industry-standard measures against determined scammers.

While cooperation is crucial across the board, Coinbase, as a leading platform, must also put more proactive efforts and resources into educating its users.

Social engineering is predominantly a user-driven issue, not a security failure for any exchange. Yet, platforms like Coinbase have the critical responsibility to lead industry-wide initiatives to address these threats.

The millions lost are a stark reminder that vigilance and collective action are paramount in safeguarding users against these increasingly refined and frequent attacks.

The post Coinbase CISO Talks Scam Prevention Amid $300 Million in Annual Losses appeared first on BeInCrypto.