SCAM-SCAM
Probably the most important thing that everyone who wants to connect themselves with the crypto industry in one way or another needs to know. Let's figure out what a Scam is in crypto and how to protect your assets!
Cryptocurrencies, due to their decentralization, are poorly regulated, which opens up a wide scope for cybercriminals. In addition, conditional anonymity* makes it difficult for the police and other services to track cryptocurrencies in transit. Because of this, many crypto crimes remain unsolved, which is actively used by attackers. (The term “conditional anonymity” is used because transactions in all cryptocurrencies except Dash, Monero and ZCash can be tracked.) So, what does scam mean in the crypto industry, how to recognize a crypto scam and protect your funds from attackers. Scam is translated from English as a scam - this is a type of fraud, the purpose of which is to force the victim to trust the attacker and transfer funds to him. The concept of a cryptocurrency scam means the same thing, with the only difference being that the fraudsters' target is digital assets. (Digital assets created with the purpose of stealing investor funds are often called crypto scams.)
In simple words
Unlike “traditional” types of fraud, such as those associated with bank transfers, the scam has a narrow focus and is aimed at deceiving investors.
Let's describe in more detail what a scam is, what it means for crypto investors and how it works. A scam involves investing in a fraudulent project or directly transferring cryptocurrency to the attacker's wallet. Accordingly, to scam means to deceive a user by stealing his money, and cybercriminals who engage in scams are called scammers.
With the advent of cryptocurrencies, scams have become more active, as it has become more difficult to find fraudsters due to the specifics of the blockchain: transactions are easy to track, but it is much more difficult to identify the owner of a wallet than the owner of a bank account. Fraudsters are coming up with new and more sophisticated ways to steal money. Let's take a look at ,
VARIETIES OF SCAMA
Depending on the method of stealing funds, there are several types of scams: fraudulent websites, phishing, financial pyramids and ICOs. During certain periods, scams associated with a specific trend gain popularity. For example, during the cryptocurrency hype of 2017, scammers created the Bitconnect platform, and during the ICO boom in 2018, fraudulent crypto startups were widespread.
Examples of large scam projects. Financial pyramids;
(PRIZM 2017-2019) - a scam project promising high passive income, despite the fact that the project coin was constantly depreciating. Technical documentation was not open to users and the available parts of the source code were cobbled together from incoherent pieces of other people's projects.
(PLUS TOKEN 2018-2019) - The largest scam that used a classic pyramid scheme, which in a year and a half collected from 200,000 to 480,000 BTC according to different versions, that is, from 1% to 2.4% of the entire Bitcoin emission at that time, as well as 790,000 ETH and 26,000,000 EOS.
Selling scam tokens and scam ICO tokens;
(LoopX-2017) - The project, which appeared during the ICO boom in 2017, raised $4.5 million.
(999-December 2019-January 2020) - a coin that briefly entered the top 30 using a pump and dump scheme, in a short time the project lost 100% of its value.
Fake USDT - projects such as Ethereum and BNB smart chan still distribute scam tokens under the guise of the real Tether token. They are not listed on any exchange, have no value and are intended only for deception, scammers sell them at the price of real USDT and gullible newbies buy them without any ulterior motive. You can list a lot, but the essence does not change!
FRAUDULENT SITES
Fraudsters create a fraudulent website that imitates the activities of a real company. A similar scheme is used by creators of financial pyramids and phishing sites, but more on that later. Fraudsters offer to buy a product for cryptocurrency at a very low price, for example, explaining that sellers do not have to pay taxes and fees for escrow and servicing bank accounts for businesses. This scheme is easy to pull off, since the cryptocurrency sector is poorly regulated. Since fraudsters create fake companies, even if you contact the police, it will be unlikely to detect real fraudsters. The practice is such that even large thefts are very rarely solved.
One of the most striking examples of fraudulent sites is Sharkdefi. The platform was disguised as a DeFi protocol similar to PancakeSwap and Uniswap. In fact, Sharkdefi turned out to be an ordinary financial pyramid.
PHISHING
Phishing is one of the most popular crypto scam methods due to its simplicity of implementation. The goal of the attackers is to get hold of private keys from the wallets of gullible users. There are two common phishing methods:
1) Phishing sites and applications. Cybercriminals create clones of well-known exchanges or wallets; users enter credentials or private keys from the wallet on the site or in the application, which then end up in the hands of the scammers.
2) Direct appeal - attackers often operate in crypto services chats, posing as company managers or technical support and offering users free help. Often users voluntarily give pivotal information!
FINANCIAL PYRAMIDS
With the advent of cryptocurrencies, the popularity of financial pyramids has increased. Pyramids are based on the Ponzi scheme: early investors receive income due to the arrival of new ones. Gradually, fewer and fewer new funds come in, and at a certain point the pyramid “collapses”, and its owners take the collected funds for themselves. Bitconnect has become the largest crypto pyramid in history. The creators passed off the project as a real blockchain platform. Moreover, they were so good at it that for a long time Bitconnect was on the list of the well-known monitoring service Coinmarketcap and was among the top 10 largest cryptocurrencies. Since then, Coinmarketcap has been auditing platforms more carefully so as not to risk its reputation.
ICO
During the ICO (Initial Coin Offering) boom, many of the projects were scams. According to a study by New York-based consulting firm Satis Group LLC, . And only 5% of them were of real value. Fraudsters collected investors' funds, promising to release a super platform that would make everyone rich. After collecting funds at the token sale, the unscrupulous creators of the platform either abandoned the project or launched a "dummy", deceiving investors' expectations.
Cryptocurrency Scams: List of the Biggest Frauds
OneCoin
The OneCoin cryptocurrency, created in 2014, was positioned as a “Bitcoin killer,” and its creator Ruja Ignatova managed to convince users that this new digital currency would be used all over the world.
Upon inspection, OneCoin turned out to be a large financial pyramid, the peak of which occurred just during the crypto boom of 2017. In three years, the owners managed to collect more than $4 billion, and according to experts, the total damage could reach $15 billion. The founder and "crypto queen" Ignatova managed to escape and her location is still unknown.
It is noteworthy that users were not confused by the impossibility of mining: cryptocurrency could only be generated by the company, and the accounting of transactions was only in its hands. Since 2015, the OneCoin project began to increasingly attract the attention of regulators in different countries, and then, based on the results of investigations, the company's activities were banned.
Bitconnect
The project was created in 2016 and existed for 2 years. The project worked on the principle of staking Proof-of-Stake or PoS): users bought BCC cryptocurrency and blocked a certain amount in the contract, receiving a guaranteed 40% per month for this. The larger the blocked amount, the earlier it could be withdrawn along with the profit.
It turned out that Bitconnect was a pyramid with more complex mechanics. The fact that the project has signs of a financial pyramid was already mentioned by the founder of Ethereum Vitalik Buterin and the creator of Litecoin Charlie Lee. According to experts, the damage to investors amounted to more than $3.5 billion.
PlusToken
This project is similar to Bitconnect, with the difference that the profitability varied depending on the amount of investment. PlusToken was able to attract more than 4 million, mainly Chinese, Japanese and European investors, and the attackers stole more than 200,000 BTC, 789,000 ETH and 26 million EOS. Even at the exchange rate at that time, this amount would have exceeded $2 billion, and when converted to the current rate, PlusToken claims the title of the largest crypto scam in the history of cryptocurrencies.
Pincoin and IFan
These are two ICO projects launched by the same Vietnamese company. In total, both projects managed to raise about $660 million. Pincoin resembled the Bitconnect project and also offered its investors 40% profit monthly. Both platforms were focused on marketing and promised to revolutionize the field of online advertising.
How to recognize a scam and its causes
There are several main signs of scam projects that will help you quickly detect unscrupulous creators. Let's highlight the obvious criteria of a crypto scam.
(Important: It is important to understand that sometimes attackers carefully disguise a project and it is not always obvious that you are dealing with a scam. If you doubt a project, find as much information about it and user reviews as possible. Forums such as Bitcointalk or Cryptotalk will help you with this. Experienced users can detect what the scammers are trying to hide.)
Promise of high returns
This is one of the first signs of a scam. The creators of the project guarantee gullible users a stable high profit from investments, while saying nothing about the risks.
Don't confuse scams with real DeFi projects, the profitability of which can be even higher and can even exceed 1000% per annum. The difference is that such projects warn about the risks associated with volatility and earnings on cryptocurrency.
Doubling is very popular in the crypto industry. The idea is that you send a certain amount to a crypto wallet, and they supposedly give you back double the amount. If you think about it, the very idea of this scheme is absurd and clearly indicates fraud. There was a well-known precedent when and on their behalf, they asked users to transfer them cryptocurrency, promising to double the funds. Even such famous people as Tesla and SpaceX creator Elon Musk, investor Warren Buffett and US President Joe Biden were hit. In just three hours, hackers managed to steal about $120 thousand in Bitcoin.
Concealing information
Often, crypto scam authors point to well-known partners, as well as publications in major media, but do not provide real links. In reality, if you try to google them, you will find very little information about them.
Primitivism
Another clear sign of a scam project is the lack or scant amount of technical components of the project. If you pay attention to well-known platforms such as Bitcoin, Ethereum or Dodgecoin, you will notice an abundance of information about how the blockchain works, how to work with it and a lot of other information. In addition, independent companies and bloggers regularly write about them.
Low social activity
Social networks of fraudulent projects are aimed exclusively at making money. Their content mainly consists of promises of big profits and guarantees of financial freedom. The amount of useful information and user activity are usually low.
Team anonymity
As in any other field, reputation plays a major role in the crypto industry. The creators of Ethereum, for example, are known all over the world. Any self-respecting team in the crypto community willingly talks about their experience and reveals the names of their members to gain trust. Scam projects either do not disclose any names or provide fake identities. (The exception is Monero (XMR), where anonymity and privacy are what the cryptocurrency is based on. Transactions are untraceable, other people's balances are impossible to check, and developers and participants publish under pseudonyms.)
Fraudsters profit from inexperienced users who are not very familiar with the basics of crypto security.
Hacking attacks are difficult and expensive, but can bring in millions of dollars. For example, the hack of the Japanese crypto exchange Coincheck in 2018, from which the XEM cryptocurrency was stolen, brought the hackers about $400 million, and they were never caught. Although scam projects are aimed at stealing cryptocurrencies, in fact, users themselves give their assets to the attackers. Therefore, it is enough to follow simple rules of digital hygiene and be attentive to protect yourself from the actions of scammers.
Scam Checking Services
Project analysis takes a lot of time and requires experience. Special services will help to facilitate and speed up the verification, with the help of which you can quickly find and recognize a scam.
Scamadviser
A popular service for searching scam projects. The site regularly updates the list of fraudulent sites that can be quickly detected.
Coinmarketcap
– the most popular site for monitoring capitalization, rate and other data on cryptocurrencies. As a rule, interesting projects are quickly published in the site's list and carefully checked, preventing the appearance of a crypto scam.
MetaMask
The MetaMask extension is a popular wallet for storing Ethereum and ERC-20 tokens. This wallet has a blacklist that includes malicious projects and suspicious sites. If the extension is active, MetaMask will warn you about it when you go to a fraudulent or phishing site.
Recommendations on how to protect yourself from scam
Don't rely solely on verification services. To protect yourself from scammers, follow simple recommendations and your funds will most likely always be safe.
Do not share your private keys and passwords with anyone.
Even if they are requested by a person who introduces himself as a company manager. No one except you should know your seed phrase, authentication keys and passwords. If you give this information, you will most likely lose your funds.
Do not enter the seed phrase on the website: it is only needed to restore access to the wallet. For example, neither the employees nor the wallet website will ever ask users for such information - this is an indicator of reliability. Non-custodial crypto wallets do not store or request confidential user data.
If you are completely new to the crypto sphere, then it is recommended to study everything thoroughly before working with cryptocurrencies!
If you are not sure at first whether it is a scam or not, experiment with small amounts that you do not mind losing. This way you will not lose all your funds if the project turns out to be a scam.
It would not be a bad idea to use a separate wallet for each project. At the beginning of the article, we talked about the scam cryptocurrency exchange and DeFi platform Sharkdefi, whose creator not only stole users' money from a smart contract, but was also able to withdraw funds from wallets interacting with the contract, since the users themselves granted him such a right.
Conclusion
Now you know what a crypto scam is and how to protect yourself when investing in cryptocurrencies. By following simple recommendations, you can avoid fraud and save your funds. Take care of yourself and your savings!
