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Rug Pulls, Fake NFTs, Insurance: What Will Be the Next Crypto Scam?
History comes in many flavors. The history of money, the history of civilization, and so on. But when it comes to the history of fraud and scams, people seem to be lacking in knowledge.
Cryptocurrency is infamous for headline-worthy scams, but scams don’t come from nowhere. The scam attempts with cryptocurrency use the same means of trickery (the scam) with a new medium (cryptocurrency). So by educating ourselves about the history of fraud as a field, we can become more alert cryptocurrency investors.
Insurance
One of the oldest recorded instances of fraud comes from 300 BC, when a Greek sailor by the name of Hegestratos took out an insurance policy on his boat. The policy was such that if his boat did not make it to the designated port by the agreed upon date, he would receive a payout with interest. Hegestratos’ plan was foiled by his crew who caught him in the act trying to sink the boat.
Just as Hegestratos did in 300 BC, be wary of anyone cold calling about insurance on cryptocurrency. The process for having any sort of financial insurance at a financial institution these days is a long and arduous one and usually comes with some certificates and branding that indicate that a party holds the correct certifications to be an insurance provider and to offer customers some amount of financial insurance at their institution. Insured cryptocurrency sounds like a very secure service, however it doesn’t really exist in the cryptocurrency space if you’re self-custodying your funds.
Insurance on cryptocurrency is offered by certain exchanges who have met the requirements set by regulators. These exchanges typically have an about page that contains all of their certification details. When in doubt about whether or not a given cryptocurrency exchange or platform has insurance, don’t trust, verify.
Social Engineering
In the digital age, social engineering attacks are common and sometimes effective. One such method of attack involves the attacker impersonating a young relative of an older individual. This impersonation involves a panic and they need to be sent cryptocurrency right away.
Attacks like this are common in the world of traditional finance and big data, and given the electronic nature of cryptocurrency, they are popular in the crypto space as well. Always verify the identity of any individual or institution you intend to send money to.
Social engineering may also become more of a threat as AI chatbots develop and would-be scammers can make use of the language models to impersonate a loved one at a higher capacity than ever before. These scams come in every flavor, romance, lost relatives, Nigerian princes (less commonly known as an advance-fee scam), and investment fraud. The sky’s the limit with social engineering. However, there is a silver lining, social engineering can be easy to catch and thwarted with a close eye. Double check the sender address of any emails you suspect of being suspicious and make yourself aware of the common tactics a scammer may use.
Investment Fraud (AKA Rug Pulling)
Investment fraud is by far the most rampant in the field of cryptocurrency. A series of social media accounts (sometimes bots) promote a newly released cryptocurrency that has some particular use-case that has seemingly developed a lot of traction with early investors. It comes to be that the token doesn’t do anything and the developer takes all the investment money and disappears.
This may be harder to pull off in the near future as legislation around cryptocurrency is put into law. For now though, these kinds of scams are most commonly found on decentralized exchanges that hope to swindle new investors that haven’t yet had time to do their research or to swindle venturous investors who think they are taking a gamble on a high-risk high reward asset.
Be careful to do your own research before investing in cryptocurrency, especially for new assets with either anonymous development teams, or newly emergent development teams. A proven track record and years of experience might be the less attractive investment, but it’s probably the investment that’s actually real.
Conclusion: Be Wary All the Time
We know from history, that we do not learn from history. But we can make a difference a little bit at a time by learning from the mistakes of people that fell for fraudulent scams in the past.
The next big crypto scam will probably be a scam that’s been tried and successful before. There’s plenty of cases throughout history, but what is common to a scam is some means of fraudulent exploitation of either not being aware of something, or trying to make something happen in a space without many observers.
As cryptocurrency legislation continues to pass in the coming years, it’s possible that some of the scams may reduce in scale, as it becomes easier to determine what and who is legitimate and not legitimate. Social engineering as a tactic is likely here to stay with us due to the presence-less nature of digital communications, so make sure to verify the identity of anyone you send or receive money of any kind from.
