Increase Web3 Security & Recognize Common Crypto Scams

• Jun 24, 2024
Increase Web3 Security & Recognize Common Crypto Scams

Cryptocurrencies are a great opportunity to create a more democratic and fair financial system, helping people achieve real financial freedom. However, full sovereignty over our own assets requires careful implementation of Web3 security best practices to prevent common crypto scams.

Since the crypto market is not highly regulated yet and pseudonyms allow for partial anonymity, scammers are always ready to exploit users’ ignorance about Web3 security. In this detailed article, we will explore the most common crypto scams and analyze how to implement security measures effectively. So, what are the most common crypto scams we will explore?

  • Crypto romance
  • Ponzi schemes
  • Pump-and-dump manipulations
  • Fake ICOs
  • Influencer Impersonation
  • Address poisoning attacks
  • Phishing attacks
  • Fake exchanges
  • Fake job offers
  • Smart contracts breaches
  • Rug pulls
  • Exchange Hacks

After suggesting the best practices to enhance Web3 security, we will analyze every scam listed.

Web3 Security: Best Practices for Peace of Mind

First of all, let’s take a closer look at the necessary best practices to implement Web3 security efficiently. As previously said, full sovereignty over one's funds brings higher responsibility than relying on centralized intermediaries such as banks. Before starting to explore Decentralized Finance (DeFi) and the unlimited opportunities that blockchain tech offers, we will focus on education and implement security measures to prevent hacks and scams.

Education and Learning

Web3 security may be challenging, but the secret is never to stop learning about it. Cryptocurrencies are a tool to create a more inclusive and fair financial system, and it’s necessary that everyone is willing to learn more about them to gain their own financial freedom.

A secure wallet

Whether using a custodial or non-custodial wallet, you must rely on the most reputable providers. If you’re applying a long-term strategy based on a few selected cryptocurrencies, it’s advisable to store them in a hardware wallet. Instead, if you’re using advanced crypto trading and you need to operate on a platform, always choose based on liquidity, compliance, and, most importantly, security.

Safe storage of seed phrase

If you’re exploring DeFi, you probably utilize a wallet that can be used only through private keys: the seed phrase. Be sure to keep the seed phrase securely stored offline in a safe place that only you (and maybe one parent/partner) know.

Two-factor authentication (2FA)

Two-factor authentication is the standard for enhanced security of one's accounts. This means that attackers must hack at least two of your access methods (email and phone number, for example) to enter your account.

Update the software regularly

Don’t be the first to install the latest update, but don’t be the last. It’s advisable to be among the first users to test the first updated version of the software, but at the same time, you should not keep it un-updated for a long time.

Careful verify addresses

Always double-check the addresses before making a transaction. On the blockchain, transactions cannot be stopped nor reverted. Ensure the address is correct, and consider that scammers use advanced tactics to manipulate you.

Always DYOR (Do your own research)

Before making any investment or payment, carefully research the company behind it, do your own research, and try to recognize the common red flags. This means performing fundamental and technical analysis, researching the team, the market, the whitepaper, the token economy, and more.

Watch out for crypto scams

Scammers are always ready to exploit users’ vulnerabilities. It’s time to learn about the most common crypto scams to be ready to recognize them and act preventively.

Most Common Crypto Scams

Sadly, there are a lot of scam attempts in cryptocurrencies. Here, we provide a list of the most common ones because the best way to avoid being a victim of a crypto scam is to be educated and instantly recognize a malicious scam attempt. Remember also to implement the most advanced security standards listed previously.

Crypto romance scams

One of the most evil scams is the crypto romance. The scammer targets single people on dating apps, social media, or communities and starts a first contact with the victim, usually sending a message via DM. Scammers are very expert in progressively obtaining users’ trust and often present themselves as attractive girls who operate in crypto trading. Once the user falls in love after a few weeks or a few months and gives complete trust, the scammer introduces the user to crypto investing and asks for money to invest on his behalf. That’s obviously a trap because the scammers will never invest the money but present fake trading dashboards while continuing to steal money from the unsuspected victim. This social engineering attack is very manipulative and evil because it exploits users’ vulnerabilities. (Did you know that scammers are often not single malicious actors but prisoners of criminal organizations that force them to commit online scams, for example, in KK Park? This doesn't justify the scammer, but it makes us think that on the other side of the screen, it’s plausible there is another unlucky person.)

Ponzi schemes

Ponzi schemes have existed for a long time, sadly, but cryptocurrencies, for a certain period, spread this type of scam. They are based on giving returns to early investors through the funds invested by new investors without creating value, only inflating the bubble. It is often hidden by pyramidal affiliate market networks, in which organizations earn from subscribers instead of products or technologies. Once the organization cannot find new investors, the scheme dumps on itself, and the bubble bursts. The only ones who earn from crypto Ponzi schemes are the team and maybe the early affiliates, but most people lose all their money. Always be careful to verify the team’s reliability, whitepaper, token economics, and other additional factors to be sure not to be trapped in a Ponzi scam.

Pump-and-dump manipulations

The pump-and-dump crypto scam is similar to Ponzi schemes since the only ones who benefit from it are the organizers (the scammers). In a pump-and-dump scam, the team, quite always anonymous, creates hype over the launch of a crypto project that promises high returns on investments and revolutionary plans. Once the hype and FOMO grow, the team launches the token and then sells all its holding, dumping on the new investors who lose all their money in most cases. In this scam, you must carefully verify all the possible red flags. Remember: If it’s too good to be true, then it’s too good to be true. Never trust who promises implausible ROIs in the short term, and never trust an anonymous team.

Fake ICOs

In fake Initial Coin Offerings (ICOs), scammers often duplicate a legit ICO’s website, changing just a little detail, like a letter in the website’s URL. It’s not easy to recognize these fake ICOs because scammers are usually very accurate in replicating legitimate websites. Always double-check the URL and never click on suspicious links. If you doubt the website’s legitimacy, you can use some websites that offer scam detection tools. 

However, in some more cases, fake ICOs are unique projects created only to make users interact with malicious smart codes, trying to drain their wallet’s assets. Be careful and double-check both the URL and the reliability of the project.

Influencer impersonation

A famous crypto influencer impersonation scam was promoted in YouTube ads some time ago, and it's crazy! The scammers bypassed YouTube ads security and promoted a fake video representing Brad Garlinghouse, CEO of Ripple, speaking about a giveaway. “All the people who send XRP to this address will receive double the amount they send. It’s an exclusive giveaway!”. Of course, it was a scam: Through AI tools, the scammers replicated his voice and inserted it into an existing video. Sadly, a lot of people are victims of this crypto giveaway scam, who sent their money to that address but never received the funds back. As always, if the offer seems too good to be true, it likely is, no matter who appears to be promoting it.

Address poisoning attacks

This is a very perverse scam. In this case, the scammers scrape transactions on blockchain explorer, looking for users who make large transactions and usually send them to the same address. The scammers identify the victim, replicate the address with which the victim usually interacts, and change just a number of the address. 

Then, with a similar fake address, the scammers send a small amount of cryptocurrency to the victim, placing their address among the victim's last transactions. In this way, the victim, who often interacts with an address very similar to the scammers’, will probably copy and paste the scammers’ address in the next transaction, sending the money to the wrong address. Sadly, in address poisoning attacks, where the scammers manipulate the victim’s perception in a sophisticated way, the money is impossible to recover.

Phishing attacks

These attacks are often performed through malicious mail in which the scammers try to gain access to the user’s private information, such as passwords and crypto wallets’ private keys. The emails often replicate legitimate platforms and contain an urgent request or enticing offer, such as the opportunity to claim bonuses, participate in a special offer, or resolve a security issue. As you can imagine, these emails are fake, and you should not click on any of their links or provide personal information. Scammers are always ready to use users’ information and personal data to steal funds and sell users’ information. Be aware and never provide personal information and passwords. If in doubt, do not click on any links or attachments but contact the platform directly using official contact information.

Fake exchanges

Scammers replicate legitimate exchanges and platforms and, as often happens with fake ICOs, change just a small minor detail, like a letter in the URL. Replicating legitimate websites, the scammer tries to get users’ credentials to access the legitimate exchange and steals users' funds. Sometimes, they also try to convince users to deposit their money in a fake exchange to steal their assets directly. Additionally, in some other cases, the scammers use fake exchanges in crypto romance scams to make the users believe that their assets are growing and their value is increasing. However, the trading dashboard is fake, as the exchange doesn't exist, and assets are lost.

Fake job offers

The scammers contact users through direct messages, usually on Telegram, Discord, or Twitter, and offer job proposals to people. Once they establish contact with the user and capture the victim's interest, they assign small tasks to the victim and regularly pay him small amounts of cryptocurrencies. Once they gain users’ trust by sending them the first payment, they manipulate users, asking for an advanced payment to pay for some tools or subscriptions. Consequently, in some cases, the victim is convinced to send cryptocurrencies to the scammers so they can continue working together. However, once the victim makes a slightly bigger transaction, the scammers disappear with the stolen money. Be aware of who offers jobs by sliding into your DMs. It’s very implausible that a legit business owner hires people in this way, and it’s clearly a scam.

Smart contracts breaches

Sometimes, scammers attack smart contracts with an injection of malicious code, and it can cause serious damage. By gaining access to a smart contract, scammers can infect users’ wallets that engage with the smart contract. In the most serious cases, the scammers, having access to the smart contract linked to users’ wallets, can gain access to users’ funds and drain their wallets; all the smart contracts need to be audited by external experts and reputable teams to verify that it’s not possible to hack them. It’s advisable not to sign transactions with smart contracts of ambiguous projects because they may be hacked or compromised and infect your wallet.

Rug pulls

In rug pulls, similar to pump and dump schemes, scammers vanish into thin air after collecting people’s money. They often create projects with fake, ambitious promises and high expectations, creating hype and FOMO (fear of missing out). After the token sale, they suddenly (or gradually) disappear and leave all the investors without money. A variation of “classic” rug pulls is the slow rug pulls, in which the scammers perpetrate the scam over a long time, continuing to offer fake promises and draining investors’ liquidity. However, their presence in communities and the marketing activity gradually decreases, and the project's real goal slowly becomes clear: Stealing users’ funds without offering concrete value in return, just false promises.

Exchange hacks

Not your keys, not your coins, and if you rely on a platform that is not reputable and secure, you may be a victim of exchange hacks. In fact, by keeping funds on third-party platforms, you entrust the security of your assets to the exchange's security measures. Always verify the exchange's reputation and ensure that it uses advanced security measures using protocols like Fireblocks and Coinbase asset custodians. Always ensure the exchange or platform you’re using adopts advanced security practices. Otherwise, you can’t have peace of mind.

Web3 Security: Avoid Common Crypto Scams & Recognize The Red Flags

To conclude our analysis, we strongly advise you to keep learning about Web3 security and best practices, including recognizing the most common crypto scams by analyzing the possible red flags. Here, finally, we give you some last possible red flags you should analyze to understand if a project or platform could be a scam:

  • Unrealistic promises of high returns
  • Lack of transparency and anonymous team
  • Poorly written whitepaper or website
  • FOMO and pressure tactics
  • No verifiable roadmap or unclear plans
  • Unsolicited messages and job offers
  • Lack of community engagement
  • Non-audited smart contracts
  • Suspicious URLs
  • Fake partnerships or endorsements 
  • Requests for private keys or seed phrase

We hope that this guide can be useful both for advanced and new crypto enthusiasts. We strongly advise implementing the most advanced Web3 security measure and always carefully verifying that the project or the platform doesn't present the above red flags. At Trakx, we pride ourselves on implementing the most advanced security measures to ensure complete peace of mind for our users.

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