Crypto assets worth $428 million were stolen or wiped out due to hacks and scams in the third quarter of 2022 alone. As the industry beefs up its defences, fraudsters continue to come up with new ways to siphon off funds. Every new token in the crypto market is an added opportunity. But these opportunities come up with ever-increasing challenges. The more the number of tokens, the more challenges one faces in verifying the authenticity. Further, events like the FTX fiasco make due diligence extremely difficult. Therefore, one must master the art of identifying crypto scams to make it big in the industry.
Making money is easy but losing it is easier. This is because scammers are getting smarter, and they have the capability to siphon off funds before one gets a hint of any wrong. Events like the FTX fiasco, the BNB chain hack, and the Ronin Network hack are eye-openers. They highlight the importance of research and verification before putting your money into any platform while dreaming of unrealistic gains. It is impossible to make a fortune in crypto and sustain it without understanding the risk of crypto scams and preparing yourself to tackle them.
Latest Crypto Scams 2022
Axie Infinity Hack: Axie Infinity hack is one of the biggest crypto scams of 2022 in terms of money lost. Hackers used an exploit in the Ronin Network, the Ethereum-based sidechain that $AXS runs on, to steal funds worth more than $615 million. Shockingly, the exploit was the result of a temporary change by Sky Mavis, the company owning Axie Infinity. The change lowered the security protocols of the network, making it easier for hackers to break into Axie’s defences.
FTX Fiasco: It is one of the most recent crypto scams involving FTX, the world’s third-largest cryptocurrency exchange. It was an insider job involving CEO Sam Bankman-Fried (SBF). At the centre of the scam is Alameda Research, another company owned by SBF, whose balance sheet revealed that the majority of its holding was $FTT, the native token of FTX. Now, both FTX and Alameda Research have filed for bankruptcy, and investors who held their funds with the exchange can only cry. FTX users have lost at least $1 billion in total. To make the matter worse, some hackers targeted the exchange after the bankruptcy filing, siphoning off funds worth millions.
BBC’s £50 To Millions Story: A reputed news organization like BCC running an unverified story is a rare phenomenon. But a ‘rags to riches’ story excites everyone. That is probably why the UK-based media giant ran a story about Hanad Hassan, a Birmingham-based crypto investor. BBC claimed how Hasan made millions from literally peanuts by investing in crypto and that he planned to dedicate a chunk of his earnings to community betterment. Thanks to social media, it was revealed that Hassan scammed people by launching a charity token called Orfano.
Raccoon Network Exit Scam: The scam involves the transfer of BUSD worth more than $20 million from Raccoon Network and the Freedom Protocol in July 2022. According to security firm PeckShield, it was an insider job. Contrary to the early impressions, it turned out to be a rug pull by the people running the network.
After the Racoon Network scam in July, there were more than 33 rug-pull crypto scams in August. Combine this with the exploits in the industry, and the picture is really scary. Thus, it all boils down to identifying crypto scams.
How To Identify Crypto Scams
Promise Of Guaranteed Returns: An exchange, wallet, website, or influencer claiming guaranteed returns is a red flag. Volatility is the only certainty in the crypto market. If you see any exchange running ads like “guaranteed profit or returns”, you should do proper research about the exchange, the team running it, headquarters, liquidity, and other critical factors before putting your money in their wallet. It is after the due diligence that Binance backed out from the FTX deal. When it is your money at stake, act like Binance.
Anonymous Team Members: You can never trust an exchange or protocol that intentionally hides the identity of the people building it. Even for VCs investing in crypto startups, transparency is a must. To minimize your risk of getting caught in a scam, you must research a protocol as VCs do. When a company is run by anonymous employees, you will be deserted if they disappear with all the funds one random day. The background, education, and past experience of those building a crypto company play a major role in its performance.
Excessive Marketing Without Groundwork: Marketing tactics could be decisive. Those behind Ponzi schemes can easily get a few popular influencers on their side in exchange for a few thousand dollars. But that’s no guarantee of authenticity. The Squid Game coin is an example of such fraud projects. The project disappeared overnight after looting millions of dollars worth of investors’ money.
Be Watchful Of Clon Websites: Hackers have been using clones of popular websites to scam people for decades. Unfortunately, it is still a very common way of scamming people. Every time you go to an exchange or wallet’s website, make sure you are entering the correct URL. Double-check factors like HTTPS and domain names to avoid depositing funds on a fake website.
Platforms Demanding Money For Charity/Verification: Another tactic scammers use is asking users to send a small amount for verification before an airdrop or for charity to win rewards. With a reward in sight, people often fall prey to such scams. Remember, an authentic exchange will never ask you to deposit money for verification. Trusted exchanges like Binance and Kucoin have KYC requirements for users to verify their identity. Any exchange asking for money for verification or airdrops is most likely a scam.
Non-existent Whitepaper: A whitepaper is mandatory for any business related to software. A crypto protocol’s whitepaper comprises vital information like tokenomics, burn mechanism, distribution process, team, vision, roadmap, etc. All these factors are critical to building a transparent ecosystem. If a project lacks a whitepaper, you can avoid investing in it. As they say- prevention is better than cure.
Final Word
While fewer people have fallen to crypto scams in Q3 in comparison to Q2, the number of scams for this year is nearly 100. On top of that, there have been tens of massive hacks or exploits, allowing hackers to siphon funds worth billions of dollars. As the crypto industry welcomes more new investors, the risk of people falling into such scams will also increase. Therefore, it is extremely important to beef up your defences against this evil force and avoid these scams like a pro.