What is the worst way of starting an investment? Jumping in because of peer pressure, FOMO or without conducting proper due diligence. This has always been a thumb rule of various seasoned investors out there. However, its importance has just grown multifold in the cryptoverse. Why? Because it is an unregulated, decentralized territory. This means if something were to happen to your funds, there was very little you could do about it. Sad but true. This is the flipside of the general narrative around removing the middlemen from your financial transactions completely. While everything seems to be in place and Blockchain technology has stood against the test of time, every now and then we hear about some incident which leaves thousands of unknowing retail investors bankrupt. So today, with an intention to level up our crypto game, we are going to discuss top crypto scams you should be aware of.
According to the Federal Trade Commission (FTC) Consumer Sentinel, from October 2020 through March 31, 2021, reports of crypto-related scams skyrocketed to nearly 7,000 people reporting losses of more than $80 million. These figures reflect a 12-fold increase in the number of reports compared to the same period a year ago and a nearly 1,000% rise in reported losses.
We would go ahead and mention that it is easier to execute a scam in crypto than in other industries. This is because the hype often overshadows the rationality in this space currently. Secondly, as we mentioned that you do not have anyone’s back. You are pretty much on your own. Which makes it extremely important to develop a knack to catch these scams before putting in your hard earned money somewhere.
Types of Crypto Scams:
Crypto scams can be broadly divided into two types. These are essentially the ways these scammers try to dupe you.
In the first method, scammers will try to gain access to your digital wallet like Metamask using some sort of manipulative trick. If you want to experience this, go to Twitter right now and make a random tweet about Metamask. Almost immediately, you would get a comment on your tweet saying that the person is from Metamask support and you need to fill a form for the team to help you out. The form would have a column that asks for your 12 word key phrase.
In the second method, scammers will try to ask you to transfer money to their wallet using different means. Since crypto transactions are irreversible, they have a fair chance of running away unharmed after scamming you.
Let us explore specific scams in this industry now.
A. Blackmail or Extortion Scams:
A few weeks ago, one of our writers got an email in his inbox that said, the account has been compromised. The hacker claimed that he has had access to the contacts, emails, browser history and webcam of the victim. Due to that, he now possesses some intimate moments which were captured through the camera.
The threat revolves around leaking those images and the browser history if the attacker is not paid $500 worth of Bitcoin at a given address. We personally checked the address on the blockchain explorer and the attacker had managed to siphon off $458 worth of BTC from someone.
B. Imposter and Giveaway Scams:
This is yet another famous type of scam plaguing the crypto industry. In this kind, scammers impersonate a famous celebrity and tries to share across a message wherein they are conducting a giveaway. But in order to be fair and legit (and to avoid bots) in terms of giveaway, they would only send some free crypto (usually a large amount) to the people who send an X amount to them first.
And no surprises for guesses that once you send them money, it is gone for good. This method gains extreme traction as every now and then these scammers manage to hack the accounts of famous celebrities.
Don’t believe us? Here is the scam that happened early last year.
Even if these scammers are not able to hack into the actual accounts of these celebrities’, they try their best to replicate each aspect of their profile so that an unwitting eye falls for it.
C. Phishing Scams:
This is something that has been borrowed from web 2. Phishing has always been the most common form of scam attacks. The scam starts with creating a web page with a URL similar to the original website of a popular Crypto application. The contents of the web page are also mimicked to ensure that user falls for it.
Finally, you are asked to put in your sensitive information like ID/Password/Wallet key phrase. Once you do that, it is stored in the background and hackers can now access all the crypto in that wallet.
Here is list of websites released by Binance (world’s largest cryptocurrency exchange) to flag off websites that are trying to look like Binance.
D. Cloud Mining:
If you have not done your research and do not understand how cryptocurrency and Blockchain works, it is rather easy to fall prey to these kinds of scams. This scam is very common on social media platforms like Instagram and Telegram.
Attacker will reach out to you and try to begin a conversation. Once you start showing some interest, they would present you a business opportunity where you stand a chance to make decent returns each day. How, you ask? Well, it is through something called ‘Cloud Mining‘. If you have not done your homework so far, let us tell you that this is completely made up. Cloud mining does exist but you can assume that those platforms would never reach out to you. Especially through Instagram or Telegram.
Anyway, the scam involves asking you to pay an upfront deposit which will be used to open up your account with them. Once account is opened, you can start earning your mining rewards. The modus operandi involves asking you to login to their account and then loading their wallet with the ‘registration fee‘.
Obviously, once you make the payment, everything vanishes in a trice. Yes, including the agent who was in touch with you.
E. Rug Pulls:
With enormous growth of Decentralized Finance, a new age scam is emerging out of the blue. And it has been only gaining momentum since. One of the most common attacks in DeFi is called Rug Pull. As the name suggests, it is when project owners abandon the project and run away with the investor’s money.
There are three types of Rug Pulls prevalent in the market:
E.1: Sucking Liquidity
Before we understand what is meant by sucking liquidity, a quick overview of how Automatic Market Makers work.
Once you create a token, the entire supply is in your wallet. You could send it to anyone but it’s still not available for trading on public platforms and exchanges like Uniswap, Pancakeswap.
For enabling that trading, you need to provide liquidity in certain pairs. That means that developer takes the token he developed (which has no value initially) and supplies it along with a valuable token like ETH, USDT, BNB etc. in equal proportion.
That means if I supply a liquidity of 1000 coins for 20 USDT, each of the coin would be priced at $0.02.
Now when someone comes along with USDT and tries to exchange it with the newly minted token, price of the token will keep on increasing. This also means the quantity of token present in the pool (1000) is constantly decreasing and the quantity of the valuable token like USDT (20) is constantly increasing.
It’s pretty simple from here on. Once the pool has sufficient valuable currency, you simply withdraw the liquidity. Not only you can take the entire quota of valuable tokens, but others won’t be able to trade using this pool anymore. Bummer!
E.2: Selling Stake:
If you convince the masses about the value your project has, they are going to buy it. And guess what are they paying in order to buy? Yup. Valuable currencies like ETH, USDT etc.
At this point, you could slowly sell your own holdings of your worthless token and accumulate more and more value. Easy right? That’s why you need to do a thorough DYOR.
E.3: The Code Scam:
‘Code is the law‘ in cryptoverse. Everything is being governed by self executing smart contracts. While it is a perfect solution in the ideal world, what about the flipside?
One could also program the crypto token in a way that no one can sell it. They could only purchase it and when they come back on a DEX to sell it, they just can’t.
Source code for all major tokens is available in open source. But general unsuspecting people can’t understand that.
So What Can I Do About It?
Learning is your best friend in Cryptoverse. DYOR is not just an abbreviation, but a way of life when you are working in cryptoverse. Got questions?
Got questions? Want to take it to the next level? Reach out to me using your preferred platform from the links below
Until next time..
For our beloved “non readers”, I also do quick carousels on these topics over Instagram. Come join the fun. Hit me up here.