2022 is on course to become the worst-ever year for crypto security. Since January, hackers have stolen over $3 billion worth of cryptocurrencies from DeFi applications. However, the industry’s security challenges transcend protocol exploits. According to a recent FTC estimate, crypto scams accounted for 25% of all fraud in 2021, totaling over $1 billion in losses. Typically, hackers apply technical expertise to obtain access to sensitive data, whereas scammers trick victims into handing over personal information or cash.
The popularity of cryptocurrencies, paired with widespread misconceptions about how they work has created a fertile environment for fraudsters, making it imperative to take necessary precautions to avoid falling victim to scams.
Crypto-related fraud can be broadly classified into investment scams and social engineering fraud. In the first scenario, fraudsters target individuals with “get-rich-quick” schemes, while the latter involves manipulating individuals into divulging sensitive information. In this article, we’ll examine a few of the most common examples of investment and social engineering scams in the world of Web3.
Investment Scams
As with any groundbreaking technology, cryptocurrencies have pulled in legitimate innovators and investors looking to solve problems and create value. However, the hype has also attracted a host of bad actors looking to exploit others. Investment scams take various forms, but they typically involve individuals or groups posing as experts or running legitimate crypto projects. They may offer to manage investment portfolios or solicit funds for their project. Below are some common investment frauds:
- Fake ICOs
One of the most prevalent crypto investment scams is a fake Initial Coin Offering (ICO). This might entail an exit scam, a pump-and-dump scheme, or a plagiarized white paper implemented under a different project name. In ICO scams, victims are lured into investing in exciting new projects by the promised product or service. Instead, the scammers abscond with the invested funds, leaving the victims devastated.
Fraudulent ICOs target inexperienced crypto investors who may need help identifying a scam. They usually guarantee astronomical returns, which should be a red flag for potential investors.
Perform due diligence before investing in an ICO. Verify that the team behind the crypto project is credible and that a genuine product or service is being created.
- Ponzi schemes
Ponzi schemes are another prominent type of crypto scam. These are fraudulent investment schemes in which participants are promised high returns, but money from new investors is used to pay off older investors. Unlike ICOs, Ponzi schemes existed long before cryptos, but the technology’s relative transactional privacy and lack of regulatory oversight have made the crypto Ponzi an attractive medium for fraudsters. Similar to fraudulent ICOs, Ponzi schemes frequently target new investors who do not know better.
- Fraudulent exchanges
Cryptocurrency exchanges are platforms where you can buy, sell, or trade cryptocurrencies. Many cryptocurrency exchanges provide a safe experience; however, scammers often set up fraudulent exchanges to exploit unsuspecting traders. These exchanges often have shallow trading volumes and prices manipulated by fraudsters. Additionally, they may impose exorbitantly high fees, making it difficult to withdraw funds.
Social Engineering Attacks
Social engineering attacks use trickery, coercion, or greed to get users to take actions that are not in their own best interests. Social engineering is a common cybersecurity threat and has emerged as a major threat in the crypto space as well. Some common social engineering attacks in crypto include the following:
- Phishing attacks
Crypto investors have become frequent targets of phishing scams. Fraudsters typically pose as legitimate crypto exchanges or well-known companies to trick users into providing their login credentials or wallet private keys. Once they access the victim’s account, they can appropriate the crypto holdings. There are numerous phishing scams, but they all have the same objective: to steal cryptos from unsuspecting victims. Check out this post for a more detailed breakdown of the various phishing scams and how to protect against them.
- P2P payment scams
In this type of fraud, an individual will pose as a cryptocurrency trader and offer to send payments to another person in exchange for cryptos or fiat. However, the funds are never actually sent, leaving the victim without compensation. P2P payment scams can be challenging to spot, as scammers often use fake profiles and websites to fool their victims. However, there are some red flags that you can look out for, such as offers of unusually high rates or requests for upfront payments.
As the blockchain industry grows, security takes on added significance. Protecting against hackers and scammers is essential for establishing a secure decentralized economy. Halborn’s blockchain security experts provide world-class solutions for Web3 security across a deep product suite. Secure your infrastructure today by contacting our Web3 security experts at halborn@protonmail.com.