Crypto scams are as old as the broader Web3 ecosystem; however, eradicating them has proven to be a hassle for developers and regulators. Solving this menace might require a new and unique approach.
Traditional investors’ key fears regarding adopting digital currency include hacking and scams. Major crypto exchanges, platforms, and individuals have suffered financial loss from high-profile crypto scams.
Since Bitcoin’s inception in 2009, malicious actors have devised means to steal from platforms and individuals holding crypto assets. In the early days, fraudsters used simple scams to target new entrants into the crypto market space.
The 2011 MyBitcoin scam is widely regarded as the first recorded crypto scam. The scammers simply offered users a Bitcoin wallet service as a way to keep their assets. However, users were shocked in July 2011 when the site shut down abruptly, claiming it had been hacked. The scammers made away with approximately 154,406 BTC, worth about $2 million back then (over $9.14 billion at the current rate).
Brief History of Notable Crypto Scams
However, with the industry’s rapid growth and profit margins soaring, fraudsters have evolved more sophisticated techniques and tools. Their primary target remains dispossessing unsuspecting individuals and entities of their financial assets. These malicious actors employed tactics, including phishing and fake wallets, Ponzi schemes, investment scams, DeFi rug pulls, hacking, fake airdrops, and giveaways.
Phishing scams remain the oldest and most popular among scammers. In the early days of Bitcoin, scammers created fake wallets or exchanges and lured users with different offers to deposit their funds. Many users fell for these tricks due to their limited knowledge and the tempting returns offered. As more genuine exchanges sent out security alerts and educated users on safeguarding their assets, the volume of phishing scams dropped considerably.
Another crypto scam in the space is Ponzi schemes, which generally operate by promising high returns on new projects. These schemes masquerade as revolutionary crypto projects that would surpass existing cryptocurrencies. A notable example of this operated between 2016 and 2018: BitConnect.
Satish Kumbhani, the founder of the Ponzi scheme, promised investors a 120% return on investment. BitConnect also created a referral program, which early investors shared on social media, urging people to join. However, the native BCC token crashed in early 2018, and Kumbhani was charged with a $2.4 billion crypto Ponzi scheme.
In 2020, with the Decentralized Finance (DeFi) boom, fraudsters saw another window of opportunity to defraud investors. Given the anonymous nature of DeFi platforms, scammers leveraged this to carry out “rug pulls.”
That is, the scammers pose as genuine developers to launch a token, attract liquidity, and suddenly withdraw all funds, crashing the token price. A notable rug pull scam occurred in 2022 when Dragoma, a Polygon-based web3 application, plunged to almost zero after the scam.
#PeckShieldAlert #rugpull Dragoma $DMA on polygon rugged. $DMA has dropped -99.7%.
The website https://t.co/2OJWlGqBtQ seems down and the social media channel deleted. The stolen funds seem like deposit into centralized exchanges. pic.twitter.com/ksJifCo0GH— PeckShieldAlert (@PeckShieldAlert) August 8, 2022
Modern Scams and High-Profile Hacks
Interestingly, despite users in the cryptocurrency space’s awareness of scammers’ activities, these malicious actors have struck repeatedly. For instance, the $625 million Ronin network hacking-related scam shocked the crypto world in March 2022.
Investigators later traced the theft to the Lazarus Group. The group breached the Ronin network and made away with Ethereum and USDC worth $625 million. Only $5.7 million of stolen assets were recovered some weeks later, with investors leaving with heavy financial losses.
Other notable malicious attacks on exchanges with huge financial costs include the $25,000 BTC loss Mt. Gox suffered in 2011. The crypto exchange suffered another $473 million loss in 2014 in a different attack. There is also the $534 million theft orchestrated by scammers on Japanese exchange Coincheck in January 2018.
In 2024 alone, malicious actors have exploited security loopholes to perpetrate scams and made away with assets worth millions of dollars. In July of this year, scammers were able to target WazirX, India’s largest crypto exchange, resulting in a $230 million security breach. The scammers transferred the crypto assets from the exchange’s multisig hot wallet to new addresses.
These malicious actors have been known to target celebrities and their social media handles to scam unsuspecting people. In June, American rapper and businessman 50 Cents lost his X account to hackers.
However, within that duration, before he could recover it, the hackers promoted a scam coin, GUNIT. Subsequently, within half an hour, they conducted a rug pull and made away with about $300 million.
Will Crypto Scamming Ever End?
Although various exchanges have scaled up their security measures and regularly issued alerts to prevent attacks on users’ funds, fraudsters continue to devise newer methods. Their tactics continue to evolve and shift added layers of protection, tending to render most preventive tips obsolete or useless.
Scammers will likely engineer these to their advantage in the rapidly developing world of Artificial Intelligence (AI) and Deepfakes. Last year, an AI-generated deepfake of MicroStrategy’s Michael Saylor circulated on YouTube.
In the fake video posted, the scammers perfectly reproduced Saylor’s voice, mannerisms, and office environment. The AI-powered Saylor was seen wooing viewers and potential investors to double their Bitcoin assets by scanning a QR code and visiting a phishing site.
Developments such as these will make detection of crypto scams difficult to eradicate. The scammers leveraged Saylor’s personality and support for Bitcoin accumulation to attempt to defraud.
Protective Measures for Users Against Crypto Scams
While eradicating crypto scams may not be readily achievable, strict regulations could help reduce their occurrence.
For instance, cyber security experts believe YouTube could have done better with Michael Saylor’s video on its platform. This includes taking it down immediately, alerting users that the content was AI-generated, and possibly tracing the account that posted it to report it to the authorities.
Similarly, stricter regulation of crypto exchanges might spur them to invest more funds in securing their platforms.
On the part of investors in the crypto space, staying vigilant and informed at all times is one way to protect their assets. When there are giveaways, celebrity promotions, and other too-good-to-be-true offers, especially those that involve ridiculous profit, they should verify from their exchanges.
It is also important for users to keep their private keys secure offline or use hardware wallets when possible. Additionally, users must avoid downloading apps from untrusted sources, which usually serve as sites for scammers to distribute malware that can compromise their devices.
Beyond the role of individuals and regulators, developers would also need to devise new strategies to make their platforms foolproof to scammers.
Disclaimer: The information provided in this article is solely the opinion of the writer is for informational purposes only. It does not constitute investment, financial, trading, or any other sort of advice. You should not treat any of BGECrypto’s content as such. BGEcrypto does not recommend that any cryptocurrency should be bought, sold, or held by you. Do your due diligence and consult your financial advisor before making any investment decisions.
