The crypto industry has undoubtedly revolutionized the financial sector. However, there are many shortcomings in the space. A major source of concern is the widespread scams surrounding crypto and Defi (Decentralized Finance).
Although the percentage of crypto scam declined over the years, humans still fall prey to vicious attackers. In addition, Defi hacks make up a majority of the exploits happening in the industry. In 2021, as much as $12 billion was stolen from the Defi sector due to poorly designed/programmed smart contracts. Scams have been responsible for destroying many innocent lives.
One of the main problems with decentralization is that the code is available to everyone. As such, people with malicious intent can see the same, making them aware of any flaws in the system.
A third party can view the code, there is no doubt about it. However, this process is expensive and many young projects do not have enough money to carry out extensive audits. That’s where the first step begins in how a crypto scam takes shape.
Let’s take a look at some of the most common cryptocurrencies scam and how we can protect ourselves against it.
Most Common Crypto Scams
pulling carpet: A Rug Pull is one of the most common scams in the crypto industry. A carpet puller begins when developers start promoting a new “revolutionary” product and then rake in millions or even billions of funding from investors. And then one day, out of the blue, the developers sell the tokens and they disappear.
Anyway, pulling a rug is relatively easy spot, and you just need to pay attention to the details. If a project does not speak of a lock-up period for tokens, especially for the developers, they are free to do with the tokens as they please. This is the first red flag.
It is advisable to align with projects with a lock-up period, so that developers do not walk away. Projects that are open to the community, with constant updates and a long-term plan, are what you look at.
The chart below shows what a carpet-drawn project looks like.
The Squid Game carpet draw is one of the biggest carpet draws in crypto history and the token grew 33,600% before its creators disappeared.
In addition, a pump-and-dump scam is very similar to a carpet puller. However, it is not exclusive to Defi.
Social Media Scams: Impersonation to defraud others is an age-old tactic. This practice has moved into the digital realm today – numerous reports of people being scammed by someone impersonating someone else. Attackers usually approach unsuspecting prey with an offer or giveaway, then ask their target to send some tokens to a specific address.
These scams are numerous and also relatively easy to spot. The attacker’s account usually gives it away. They don’t have many followers and usually try to impersonate a famous figure.
Such scams may seem crazy, but they happen on a daily basis. Many innocent people fall prey to such scams every day.
phishing: Phishing scams are as old as the internet. Scammers pose as part of a legitimate business to collect personal data and information. In Defi, this is done via email. The attacker can send a message that the user’s account has been hacked. And that’s why they have to share their credentials with the other. This leads to the victim unknowingly sending their data to the attacker.
Most companies never send such emails. Many companies have a message that reads, “We will never email you.” And even if they do, it won’t happen until after the user has messaged the company first. Plus, checking the sender’s email address is essential, and even a small change in spelling should set your alarm.
Some Precautions
Aside from the scams mentioned above, there are some steps that we should always keep in mind.
First and foremost, one should do their research before investing with hard-earned money. This step itself will save many from harm.
Second, it is advisable to use a hardware wallet. When attackers also hit exchanges, the only place your cryptocurrency is safe from scamming is with yourself.
Another way to protect yourself is to use multi-factor authentication on your wallet.
With this in mind, we hope you will be vigilant and keep your eyes open. People with bad intentions are everywhere, not just in crypto. And it is of the utmost importance that we are never on our guard.