While crypto trading and investing are worthwhile ways of making a profit, they do come with risks. On the one hand, investors can lose money by committing trading mistakes (like reacting out of fear or greed), while on the other, they can trust projects that turn out to be ponzi schemes or whose faulty development leaves leaky code susceptible to hacker attacks. Here is what you need to watch out for to avoid falling victim to fraud and security breaches.
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How To Identify And Avoid Crypto Scams And Fraud
In 2021, cyber scammers got away with a record total of $14 billion, according to blockchain analytics firm Chainalysis. It’s no surprise seeing as the total crypto market cap also reached new records, with millions more people getting interested in alternative finance. Whether it’s due to people being new to crypto, some projects not completely protecting themselves or just bad luck, fraud and hacks will continue to happen. So, how can individuals be more wary in 2022 to check the authenticity of a DeFi, NFT or crypto project:
1. They Promise Unrealistic Results
“Get rich quick” scams aren’t new. These tactics used throughout history involve con artists who are extremely good at manipulating your feelings and establishing a fake trust. Most crypto scams will say they can double your investment or a set percentage of earnings per week. Serious trading experts and consultants will never promise you winnings, and will also disclose a warning beforehand.
2. They Make Sketchy Requests
Oftentimes, scammers will promote a crypto giveaway as a means to get people interested, where they’ll ask crypto owners to send them some coins to validate addresses. Never send your personal data, addresses or give access to your accounts without proper research and due diligence beforehand.
3. They Pose As Celebrities Or Well-Known People
Some famous cases involve celebrity social media accounts being hacked or faked. From there, the crypto scam artists ask users to send funds, often with the promise of doubling or increasing what was sent. Needless to say, these people completely lost their money.
In 2019 and 2020, fraudsters impersonating Elon Musk and other celebrities scammed $2 million in just six months. In July 2020, the Twitter accounts of Elon Musk, Joe Biden, Barack Obama and Kanye West were hacked and posted an address where users could send money.
Scams often start with investment tips on online message boards, which lure people to fake investment websites.
4. Someone You Start “Dating” Just Wants Your Money
Love and crypto don’t always mix. There have been accounts of people on dating sites and apps, who eventually will start talking about crypto. This is not to say that someone you date who likes to talk crypto will steal your money, but it’s important to always make your own decisions and not be manipulated by a partner. Rule of thumb: Avoid talking about money until the relationship is in fact serious.
5. They Have Shady Documentation And Backgrounds, Or None At All
When looking to invest into a project, proper research is a must. This involves checking all sides of the project: whitepapers, their KYC (know your client) and anti-money laundering setup, founder information, their online reputation and track record. If the documentation they provide is missing key information and the organizers have little information about their past, it’s best to steer clear of this project. They may try to pressure you with “time is running out” scare tactics.
How To Identify Strong Cybersecurity In A Project
While fraudsters and con artists are prevalent, what’s even more dangerous are well-intentioned projects that don’t have the infrastructure in place to avoid being hacked. Hardly any projects or platforms are immune to cyber threats, and hackers are getting smarter. In fact, some projects have even offered hackers jobs as they can best identify back doors. And, what’s even more curious, some hackers will voluntarily infiltrate a system just to show its vulnerabilities, and then send the money back.
Here are some ways to avoid being hacked:
1. Be careful of hackers on Discord and other social platforms
Though the entire NFT world uses blockchain technology, which is difficult to hack, websites and platforms still make use of non-blockchain solutions that can give easy access.
In December 2021, scammers stole around $150 thousand worth of crypto from NFT projects on Discord. The Fractal Discord server bot was hacked and posted a link that users followed to get a limited-edition NFT. Instead, all the Solana cryptocurrency (SOL) in their holdings was completely transferred to the scammer’s account.
Though Fractal did compensate everyone who lost money, they did say in their official blog: “If something doesn’t feel right in crypto, please don’t proceed, even if at first it looks legitimate. We must use our best judgement as there’s no ‘undo button’ in crypto.”
2. Ensure companies have the right infrastructure in place
Companies have certain security measures in place to ensure hacks can’t happen in the first place. These include:
- 2-Step Authentication
- Storage of funds in cold storage, i.e. offline with only enough online to keep transaction rates at normal speeds
- SSL/TLS encryption
- Air-gapped devices kept offline
- Audited by trusted third party security auditors
3. Follow some healthy practices
We’re all responsible for our own funds, and with crypto, there’s a lot of different things you can do.
- Activate two-factor authentication for all your sign-ins and transactions (sending, buying, trading and withdrawing crypto, among other operations).
- Store the majority of your funds in multi-signature cold storage wallets, keeping only funds in hot wallets, i.e. connected to the internet, that you need for your active transactions and orders. A common rookie mistake is to keep all funds on an online exchange.
- Check wallet approvals often so that you always cancel access for DeFi projects if you don’t stake in them anymore. It can be easy to lose track.
- Don’t follow phishing links in malicious ads and emails that will often duplicate well-known or otherwise trusted names or identities, and try to get your personal data.
The future of blockchain technology and security
While blockchain technology, when used properly, isn’t easily infiltrated by hackers due to its decentralized nature, however, as we’re still human and dealing with very smart scammers and hackers, sometimes things can be missed. Not to mention, we still use systems and technology next to blockchain on some platforms that aren’t foolproof. That’s why one must always double-check an investment before transferring any money into it, keep an even head and avoid falling victim to fraud.
