Crypto scams are increasingly prevalent as the surge in DeFi and NFT projects increases. From Discord server bots to imitation NFT projects on OpenSea, new ways of stealing cryptocurrencies through deceit continue to crop up. Most in the space are familiar with a typical rug pull scenario in which many invest in a new blockchain project, only for the project to later disappear and the owner to make off with all the investors’ funds. Others may have fallen victim to “pump and dump” schemes, in which wealthy holders of vast amounts of a cryptocurrency (a.k.a. “whales”) have been known to buy mountains of it cheap to drive up the price and increase its scarcity (thus creating FOMO), only then to sell it immediately, sending the price crashing down and then pocketing the profits.
Here are a few ways you can protect yourself from scams.
Watch Out For Community-Owned, Renounced Projects
One way to avoid suffering the classic rug pull scenario is for the contract owners to renounce their ownership over to the community. Although this prevents a single entity from making an exit with all of a project’s capital, renounced projects can also come with a catch. If there is an issue with the contract after launch, they will not be able to fix the issues and will have to re-initiate the project entirely.
Take Advantage of New Security Tools
Tech companies in the blockchain space have begun remedying some of these security issues. EverRise’s solution to rug pulls is its EverOwn platform, which maintains the ownership of a decentralized project’s contract instead of the owners themselves. So, if something needs to be altered, the owner can then reclaim ownership with the acceptance of the community. It may be harder to find projects using a tool such as this to decentralize themselves, but knowing if they are would bring additional peace of mind.
Many scams have taken place on the Binance Smart Chain (BSC), and a company called RiseUpV2 has developed a BSC token and a technology called “Rug Screener” to bring safety and security to the world of cryptocurrencies. Rug Screener provides investors with the information they need to know about a project to identify crypto scams. RiseUpV2 has collated research tools from various platforms to quickly provide potential investors with information on any smart contract such as contract details, who the creator of the contract is, the project’s liquidity and more. Rug Screener even has a scoring system that provides the user with a warning if it deems a project as unsafe.
Do Your Own Research
As with any type of investment, it is imperative to do in-depth research before making a final decision. In the world of crypto, a dedicated project channel, whether it is on Telegram or Discord, usually is a great place to start to gather information. In addition to the team members, other users contribute by reporting questionable activities and scams to admins. Twitter, crypto’s go-to social media platform, is also a great place to stay up to date with project developments and news. As the industry continues to grow, investors are able to gather information from traditional and crypto-focused media.
There is no doubt that investors in the DeFi space need to continue being vigilant and careful with their choices. It does bring hope, however, that more and more projects and communities are coming up with solutions to make the crypto industry a safer place.