You could be falling for a crypto scam, and you wouldn’t even know it. They have become brazen and elaborate and have stolen billions from unsuspecting victims.
In the latest video, Coin Bureau, a famous Youtube Channel focused on crypto, has summed up the top 6 worst scams to avoid in 2022.
Giveaway Scams
One of the most common scams out there is the giveaway. These are so prolific that they permeate nearly every corner of the internet. These scams appear central to the conversation around bot spam on Twitter.
It’s a scam where free crypto is being given away. The main MO here is that if you send a small amount of crypto to a certain person online. They will send you to double, triple, or 10x your investment.
The scam is not new to crypto. The main MO was that someone wanted to send you a lot of money but needed you to first send them a wire to confirm the bank account.
You’ll usually be told to go to some link that will show you a website or landing page detailing the giveaway steps. There’ll be fake transactions that you can see going through as they try to convince you that people are indeed getting paid.
Most of these scams usually have a timer to make you think you must act quickly. This means people tend to make decisions without considering them. These scams are pervasive on Twitter, Youtube, Instagram, etc.
In the case of Youtube scams, they’re usually simple live streams, where you’ll have a famous person or group of people who’ll be participating in a talk.
How these channels can get so many subscribers or the verified status? That’s because they are hacked channels. Hackers commandeer these channels delete their content, and run the live streams in their place. The scams sometimes actually buy ad space on social media platforms.
The best way to eliminate these and all other scams is for people to stop falling for them. The reason that they’re so prolific is that they are profitable. It’s incredibly important to understand no one on the internet is going to give you something for free
Rug Pull
Rug pull is the next scam that can be as damaging as giveaway scams. Rug pull is when someone else pulls the rug from under your back. They rob your funds disappear, and leave you holding the bag.
Rug pulls are quite prevalent in the NFT and DeFi spaces. In the case of NFTs, the creators will usually get someone to create pretty bog-standard images, issue them in a mint, promise some exciting road map or pay some influencer to shill them.
Once the mint is completed and the people have their NFTs, the project creators delete all websites, socials, and digital communications. They pull the rug and leave you on your behind.
These rug pulls don’t have to happen all at once. Sometimes you have what is called a slow rug. In this case, the project developer slowly extricates themselves from the project over several weeks or months. Their goal is for the buyers to eventually lose interest and abandon their hopes of moons.
The slow rug is more common than the quicker one and can be harder to zone in on. You can’t be 100% certain that the intent was to defraud.
You’ll need to be more discerning in the types of NFTs you buy or the mints you participate in. There are around 5% that could be highly valuable in the future, and if you want to try and find those, you have to be particularly discerning in your criteria.
You also have the rug pools that are going on in the DeFi space. These are a bit different from an ICO or NFT. Instead of sending protocol money, you have to supply liquidity to the protocol. This liquidity is usually used in a decentralized exchange, and you can get pretty attractive returns from supplying. During this time, the creators will hype the project so that there’s a lot of demand and liquidity in the pool. This is done using the same paid shill methods for the rug pull NFTs. As more investors buy the hyped cryptocurrency, they progressively exchange it for cryptos like stablecoins and ether.
When the project is live for a few hours or days, liquidity pools can run into tens of millions or even hundreds of millions of dollars. This is when the developers then strike and extract all the liquidity from the pool, leaving investors holding the bag for these tokens. The devs can do this because they’re not locked in the liquidity in the pool. They still control the smart contracts and hence what can be done with the funds in the pool.
To avoid a rug pull, you must ensure that you’re not locking your funds up in some random protocol. You’ll also want to ensure that the smart contract authors don’t still have control over it. This would allow them to extract the liquidity and run off with your funds.
Phishing Scams
The phishing schemes have evolved to target users directly through their cryptocurrency wallets. One of the most damaging of these is when they’re able to successfully fish your private keys. This could happen because the scammers have exfiltrated the keys from your device, but it’s more likely when you have voluntarily given over your private keys.
There are 2 types of phishing scams. One of the most common ways is for the hacker to fool you into handing over your seed words. These are usually used to recover your wallets, and they are never requested unless you’re resetting your wallet. There are several ways in which this can be done. Perhaps, one of the most common is when you’ll visit a website of some sort where it’ll ask you to insert your seed phrase to access it. This is a scam as you should never need to insert your seed phrase to send funds from a wallet.
Another method of fishing your funds involves the attacker giving you their seed word in this instance. You’re usually duped into going to a fraudulent website when trying to download a new wallet. When you go through the process on this fraudulent site, the attacker will give you a seed that you think is yours, but is theirs.
You’ll then use this seed to set up a new wallet under the scammer’s control, unbeknownst to you. The moment you have sent funds to the wallet, the scammer makes off with them. These fake wallet phishing schemes are able to also buy ad space on Google so that their links are presented before those of the real wallets.
To avoid phishing scams, you have to be careful about which dApps you’re giving authorization to. You need to make sure that before you sign any transaction. You are on the official website of the dApp and not a malicious one. It’s also wise to make sure that you’ve not approved some dodgy smart contracts in the past. You can easily check this, thanks to tools like this one on Etherscan.
Impersonation
This is when a scammer will try to get you to part with your crypto by impersonating someone else. There are thousands of impersonators out there trying to rip off some famous person’s followers.
These scams can be quite successful because they try to take advantage of someone else’s reputation, a reputation that inspires trust in others. These impersonators are everywhere and on nearly every social platform. These scammers are a real problem because some people do fall for them.
Anyone in the crypto or investment space who has a decent-sized following will have impersonators trying to fleece their followers.
Ponzi Scheme
You create a system where you sustain payouts from an investment scheme by bringing more money in from a stream of new investors. Ponzi’s have been around in the traditional financial system for over a century and have sometimes led to some of the biggest tradify losses.
These Ponzi schemes have taken on new life in the crypto space, and thousands have come and gone over the years. These can grow so quickly in this space because of the opaque nature of the markets.
People tend to believe that there is a cloud mining package lending scheme or trading bot making the money daily and tends to pay out pretty believable returns. This is part of the design. The more believable the stream of daily returns, the more likely people are to invest, as all good Ponzis do. These people are initially paid, which further creates, the perception that it has to be true.
These Ponzi schemes also rely on current members, referring them to their friends and family for additional rewards. These are called multi-level marketing or MLM schemes. However, with the advent of DeFi, the line between a Ponzi scheme and legitimate lending protocol sometimes becomes blurred.
To avoid falling for a Ponzi scheme, It helps to take these guaranteed return investment opportunities with healthy skepticism. You need to ask yourself how these potential returns compare to the market average. If they’re above that, then it should attract suspicion.
You should also make 100% certain that you know exactly how this project or protocol is generating those returns. Sometimes, the more complicated it sounds, the more likely there’s something fishy going on. Some of the biggest Ponzi schemes had investment theses that were incredibly hard to understand or pin down. In these cases, the most likely explanation is that it’s a Ponzi.
Pump & Dump
When insiders or other market participants will attempt to pump a token and increase its price until a point at which this starts gaining attention. This will create the perception that it’s a token of interest on the market, and others will jump in. Once that occurs, those who bought before will dump that token. It’s a form of market manipulation sometimes used in the penny stock space.
This pump is usually set to happen on a particular day at a particular time. These participants will also try to coordinate off of Telegram and show the token on other social media platforms. It’s worth pointing out that it’s not always unsuspecting users that get burned by these pump and dump scams. Sometimes, those late to the pump will be dumped on the participants themselves. It’s completely illegal, and you should avoid all of these types of groups.
How do you spot some pump and dump action in the wild? There are several rules.
- Firstly, these pumps tend to happen in low altcoins. These are usually easier to move, given that smaller buying pressure is more likely to push them up.
- Secondly, you’ll want to observe exchange listings. if it’s on shady sexes or is on dexes, then it’s more than likely easy to pump. Moreover, those taking part are less worried about getting busted because they may not have been required to complete KYC.
- Thirdly, if you notice that there’s some sort of pump in the price taking place in a relatively unknown token and you can’t find an exact reason why this could be happening, then.
There is another strong giveaway, something could be a pump and dump, and that’s previous volumes and trading activity. If the token has been in the doldrums for months, but the volume has slowly begun to pick up over the past few days, this could be a clear sign of earlier accumulation.
The pump operators will have to buy these tokens before they pump them, and these accumulation waves are what you need to be looking out for. So if you see a coin moving and meets all of these characteristics, don’t FOMO in unless you want to get wrecked.
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