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3 Popular Crypto Scams (and How to Avoid Them) | Smart Change: Personal Finance

3 Popular Crypto Scams (and How to Avoid Them) | Smart Change: Personal Finance
Written by publishing team

Rob Curran

The cryptocurrency blockchain was supposed to be fraud-proof, but someone forgot to tell the scammers.

Nearly $14 billion in fraudulent transactions occurred in the cryptocurrency world in 2021, an increase of 79% over the previous year, according to data firm Chainalysis. Israeli software and cybersecurity are related to Check Point Software Technologies, which tracks fraudulent activity, and expects that number to rise this year.

Check Point researchers document the most common scams, and they recently shared their findings. “There is currently a huge gap between crypto consumers and security,” said Oded Vanunu, head of product vulnerability research at Check Point, noting that fraudsters understand the technology behind cryptocurrencies and where they are traded much better than most crypto users. .

Unlike victims of traditional finance fraud, victims of the crypto wild west cannot rely on deposit insurance or any other means. Instead, bad guys take off into the sunset with loot, and credits roll.

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The new scams take advantage of cryptocurrency investors’ lack of technical expertise and desire to reap significant returns. Some of the biggest fortunes in the cryptocurrency world were made by those who bought in their infancy unknown digital tokens. Scammers are taking advantage of this appetite for new cryptocurrencies. In some of the most popular schemes, hackers create their own coins embedded with hidden computer code that renders them worthless.

In another common pattern of fraud, hackers exploit vulnerabilities on websites that crypto investors use to buy, sell and store tokens.

Here are three of the most common coding scams and how to avoid them:

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New cryptocurrencies with hidden fees

Just like scammers in the physical world, cryptocurrency scams prey on unsuspecting buyers using fine print in contracts.

Thanks to the success of the Ethereum platform and others, many cryptocurrencies these days can be linked to “smart contracts.” To read and write smart contracts, a basic knowledge of computer coding is required, according to Check Point researchers.

“Most people can’t really understand what’s really in this smart contract,” Vanunu says.

It is also relatively cheap and easy for someone with computer programming knowledge to unlock their cryptocurrency. So the hackers started selling new cryptocurrencies with a clause in the smart contract stating that any resale would transfer to the inventor huge portions of the value of the token as a fee.

Recently, Check Point identified one coin, MetaMoonMars, which changed its fee to 99% shortly after its launch.

This scam takes advantage of the crypto community’s obsession with the next big thing. In the past year, investors in brand-new tokens like Shiba Inu have seen their holdings rise several times in a matter of days, aided by massive hype and short-term momentum. Now investors are searching for top gainers or “trading assets” on sites like Coinbase, Coingecko and CoinMarketCap for newly minted coins, hoping to spot the next “meme” before the price starts.

To avoid being scammed in this way, Vanunu recommends users to purchase a small amount of any new token that catches their interest. By buying as much as $1, and then selling shortly thereafter for roughly the same price, the user will know if the exorbitant resale fees were programmed into the token.

The New Cryptocurrency You Can’t Resell

In the rapidly developing world of cryptocurrency, everyone is tracking the fastest movers. The biggest daily gainers are listed at the top of many websites. This is a perfect setting for the kind of “pump and dump” scheme familiar to cash-equity investors that ran in cryptocurrency Squid Game over the course of two weeks in late October.

In this type of fraud, the hackers write into the smart contract a clause that says that their new cryptocurrency cannot be resold at all. This gives the hacker complete control over the price of the new token. To start rolling the ball, scammers simply buy the token themselves at steadily increasing prices. Any investor who joins the game will find themselves unable to sell, which means that the price cannot be pushed down. Eventually, sites like CoinMarketCap.com will start featuring the new cryptocurrency among the biggest daily gainers – scam free marketing.

This is exactly what happened with the cryptocurrency Squid. The creators of this coin relied on the popularity of the South Korean broadcast program “Squid Game” despite the lack of official links to the show. The coin was launched in late October on the PanCakeSwap exchange, and it caused a stir online, especially when its price started to skyrocket. Due to the design of the coin, it wasn’t immediately obvious to the people who bought the Squid that they couldn’t sell their holdings, and so, buyers kept piling up for several days.

By the time the scammers “pulled the rug” on the Squid Game, on November 1, its value had increased 230,000%, according to Bloomberg.

A simple way to defend against such scams is to avoid newly launched cryptocurrencies. By sticking to the top 50 or 100 digital currencies, investors can be sure that they are dealing with known volumes.

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NFTs with hidden code

If there is one thing more risky than buying an untested cryptocurrency, it is shopping for new, unredeemable tokens. To purchase these popular digital artifacts, crypto enthusiasts have to transfer some of their holdings from web-exchange sites like Coinbase to “marketplaces” like OpenSea, the larger. While exchanges are aligned with traditional financial websites, the free-trading nature of NFTs means that markets are like a “buyer’s wary” experience, such as eBay.

Hackers have become adept at exploiting vulnerabilities in these platforms, according to Check Point.

In September, Check Point researchers noticed a lot of Twitter complaints from OpenSea users who suddenly lost all of their holdings in their digital wallets. Vanunu and his colleague discovered that someone was posting NFT art that contained “malicious code”. If users click on the NFT, and accept a “gift” from the hackers who designed it, the code immediately cleans up the user’s balance.

After it alerted Check Point to OpenSea, the company immediately fixed the vulnerability. But Vanunu soon received emails from other crypto users who had fallen into similar scams. Once one of the vulnerabilities was fixed, the hackers discovered another.

“This is the game now,” Vanunu says.

The only way to defend against this type of fraud is to be very careful when clicking.

“It’s not really the money, what hurts is the humiliation,” said Matt Borchert, a YouTuber who said he was duped into buying worthless NFTs on OpenSea in a recent video. Someone just sits there, and says ‘I can’t believe they signed up for it. “

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