Scams In Crypto - How To Avoid Them?
In recent years, the crypto industry market has developed rapidly. Many crypto assets have increased by thousands of percent. The total market capitalization of the crypto industry had even reached more than 3 trillion US dollars by the end of 2021. This drastic increase managed to attract millions of new investors. However, at the same time, the level of fraud or scam against crypto users has also increased dramatically. Then, what is a scam in crypto? How do millions of dollars get lost in crypto asset fraud cases ? This article will help you recognize and avoid scams in crypto.
Article Summary
Fraud or scam in crypto is a criminal attempt by a person or group by tricking, outwitting, and tricking users into taking the assets they have.
Some of the most common types of fraud found in the crypto world are phishing, mining scams, giveaway scams , rug pull, pump and dump, and airdrop of unidentified assets on MetaMask.
Each mode of fraud has different characteristics but you can see some common features such as offering large profits in a short time, suspicious links and sites, and usually requiring you to spend money.
There are many ways to avoid the fraud mode that often occurs in the crypto world. In general, you need to add a layer of security over sensitive data such as private keys.
Fraud or Scam in the Crypto World
Crypto transactions are basically guaranteed security through blockchain technology. However, that does not mean that crypto users are completely safe from the risk of fraud.
Fraud or scams in crypto are criminal efforts made by a person or group by tricking and tricking users into taking the assets they have. These scams often target new users who are tempted by attractive offers from a message or in the form of crypto assets .
Fraud crimes reached USD 7.8 billion in 2021, an increase of 82% from 2020. This increase in fraud rates is in line with last year’s bull market .
In 2022, Chainalysis’s August report describes a decrease in fraud victims as crypto assets experience a bear market . As already explained, these scams usually target passive or novice crypto investors, who usually enter when crypto prices are high. In fact, Chainanlysis predicts that this decline in fraudulent activity has followed the price of Bitcoin.
The Chainalysis report an interesting fact, the main victims of fraud are novice investors who are FOMO towards crypto assets in a bull market. This indicates that many beginners are tempted to invest in crypto assets without understanding the various risks. In a new industry like crypto, you need to understand the various modes of fraud that are usually carried out against new users. So that you can understand what a scam is in crypto, understand some of the types below.
Some Types of Crypto Scams
1. Phishing
Phishing is fraud by luring the victim to provide sensitive data such as passwords or private keys . This type of fraud is one of the most popular and most frequently occurring frauds. Phishing is carried out through various mediums such as social media, private messages, and e-mail. Apart from that, this is also one of the ways hackers steal Bitcoin from digital wallets.
Phishing scams usually come in the form of messages on behalf of an important organization or person. This message then invites the victim to follow instructions, such as entering a sent link or sending something to a certain address.
The perpetrator will hide ransomware or spyware behind the link to get important information such as crypto digital wallet data . In the more recent mode of crypto phishing , the victim will immediately lose his crypto assets when using the link provided by the fraudster.
One of the crypto scams that ever happened due to phishing was the Ronin Bridge hack from Axie Infinity. The Block reported that one of the senior developers of Axie Infinity was tricked by phishing in the form of fictitious job offers with high salaries. After that, the hacker was able to access several Axie Infinity node validators and managed to steal around 540 million US dollars.
2. Mining Fraud
Mining fraud is a type of fraud in crypto that offers huge profits from mining activities or mining certain assets. This is the most popular type of fraud in the world with the majority of its victims being those who do not understand crypto assets .
one of the victims of this type of fraud was tricked by an offer of Dogecoin mining through a third party that promised 2% profit every day. It should be understood that investment in mining equipment is never cheap and difficult to do. Mining crypto assets also usually will not provide stable profits, especially in high amounts.
In addition, many fake mining applications are circulating on the Android application store which are dangerous for their users.
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3. Fraud in the form of giveaway or airdrop
Giveaway fraud is a type of scam that gives away free crypto assets which turns out to be a drain on the crypto assets they have. This giveaway is usually wrapped in an airdrop model. Users are usually required to connect a digital wallet to a certain smart contract or follow a link provided by fraudsters. This type of scam is also common with NFT projects .
As in phishing, fraudsters usually pretend to represent the account of a popular organization or person to make you believe them. In crypto , you can verify your own digital address from a giveaway or airdrop. You can also learn how to verify smart contracts before connecting your digital wallet to an unknown address.
4. Rug Pull
Rug pull is a form of fraud where the developer or developers abandon the crypto projects they created after collecting funds from investors. The project development team made a rug pull by embedding the withdrawal mechanism into the code behind the crypto project . After a lot of funds have been collected, the deceptive developer will activate a code to drain all investors’ funds.
According to the Chainalysis report, this rug pull scam is an innovation that has just been widely used in 2021. Thodex, a crypto exchange in Turkey, took around 2.6 billion US dollars in user funds. The easiest way to avoid projects like this is to check their smart contracts on platforms like BSCscan and Etherscan.
5. Pump and Dump
Pump and Dump is a crypto fraud mode that is carried out by a group of people by campaigning to buy an asset, push up its price, and immediately sell it. After successfully pushing the price, the fraudster immediately sells in large quantities, trapping and harming investors who have already bought it. The pump and dump fraud mode often occurs in crypto asset projects with little liquidity.
One way to recognize pump and dump is to see the social media activity of a crypto asset suddenly skyrocket in a short time. If the contents of the activity are only promotions to buy and are carried out by similar accounts, it is most likely a pump and dump attempt . The pump and dump scheme is one of the reasons why investing in small altcoins is so risky.
Do not invest or trade into crypto assets with little liquidity and suddenly become popular for reasons that are not clear. If you are a beginner, you better start investing in clear crypto assets for example Bitcoin or Ethereum.
6. Airdrop Unknown Assets on MetaMask wallet
One of the scams that is quite common in MetaMask wallets is the sudden appearance of large amounts of unknown crypto assets. This is a form of scam for you to interact with the asset and sell or exchange it. But, when you try it, the assets in your wallet can suddenly disappear because it is a scam to steal assets in MetaMask.
you will suddenly have a lot of new tokens, like getting an airdrop . MetaMask advises never to interact with crypto assets that you don’t buy. Currently, MetaMask is developing a token detection feature that will check whether you have counterfeit assets or not.
Airdrop is a method of distributing crypto assets to some people or communities that are given free of charge. This is usually done as a marketing strategy for new crypto assets, such as following social media, retweeting Twitter , giving referrals to friends, and so on.
How To Know A Scam In Crypto
Unreasonable profits : This is a common characteristic of scams in the crypto world where the profits offered are unreasonable. For example, you can’t possibly get thousands of dollars worth of crypto assets for free.
Suspicious sites and links : Sites created by fraudsters usually have different links even though they look the same as the site they are impersonating. This is a fraudster’s way of spoofing , namely disguising a site or link as closely as possible to the original. You can check the extension at the end of the site link .
Request Money First : Many scams start by telling you to send certain money or assets before getting the big prize. Legitimate airdrops or sweepstakes will usually not ask for funds of any kind.
How to Avoid Scams in Crypto
1. Using Cold Wallet
A cold wallet is a piece of hardware that stores all the data about your crypto assets , such as wallet addresses and private keys . Cold wallets are also commonly called offline wallets or hardware wallets because they are physical and are not connected to the internet. Having a cold wallet is considered essential for experienced crypto investors . This type of crypto wallet has a high security system because it is separated from the internet network.
2. Not Giving Private Key to Others
This is the most important principle of crypto security . Just like you are not allowed to give your PIN or password, a private key is also data that cannot be known by other people. If you lose it or give it to someone else, your digital wallet can be accessed and all the assets you have can be drained. Most phishing aims to gain access to the private key that you have.
The private key is a number that allows users to access their funds, sign transactions, and generate recipient addresses. The private key is usually written as a long combination of letters and numbers.
3. Using Additional Security Applications
The world of crypto assets is closely related to the internet network. Considering that almost all the devices we use are connected to the internet, you need to pay attention to the security of personal data. Therefore, you can add a layer of security using various available applications. This additional layer of security is commonly called two-factor authentication (2FA).
After using 2FA, you need to authenticate with another application or device before you can access your account. This is very useful when your password has been stolen. Fraudsters who steal cannot access your account without additional authentication from your smartphone, e-mail, or authenticator apps such as Google Authenticator.
Therefore, adding 2FA is very important, especially if you have quite large crypto assets.
4. Always do DYOR before investing
The most important ammunition against fraud in the crypto world is knowledge. This is why the word “DYOR” or do your own research is often said by many people. Every crypto investor must have an understanding of the assets he is buying. Therefore, always look for information before deciding to buy crypto assets , especially if these assets are small and not yet popular projects.
This reading before buying strategy can prevent you from rug pull and pump and dump fraud projects. By knowing the person who created it, reading the whitepaper, and looking at the project’s activity, we can evaluate whether a crypto project is safe or not. This is also known as fundamental analysis.
5. Ignoring Unrealistic Offers
The crypto world is often considered to be able to provide instant big profits. Many investors have made a lot of money investing in projects that have skyrocketed in price. However, this notion of ‘instant profit’ is often used by fraudsters to lure their victims. You need to understand that even though the profit potential of crypto assets is huge, they are not obtained instantly.
Therefore, avoid projects or businesses related to crypto assets that provide the lure of big profits in a short time. Especially if the project is still small.