Inside the vortex of the cryptocurrency scam

Inside the vortex of the cryptocurrency scam

There’s little recourse when crypto investments turn out to be scams DeFi100’s problems are a small part of the picture, but they’re a reminder of the dangers of the ongoing crypto boom. Despite billions of dollars pouring into the space in recent months, there’s still little recourse when investments turn out to be scams. Most importantly, the radical decentralization of the blockchain means there is simply no way to get your money back — and few assurances that an unproven vendor will keep their promises once the transaction goes through. The result is a new gold rush in crypto scams, as speculators seek ever more obscure opportunities and riskier bets.

Screenshots of the message immediately went viral on crypto Twitter (always anarchic, easily risible). A popular anonymous crypto-tracking Twitter account called Mr. Whale estimated that DeFi100 had run off with $32 million. Cryptocurrency news outlets, as well as Yahoo Finance, ran with the number. The project owners denied any foul play, and it soon became clear the message was a website hack rather than a serious warning — but by then, it was too late. Panic had set in, and the price of the underlying coin was in free fall. “We never stole any funds,” a representative for the project told The Verge. “DeFi100 was a very small project, and we were not holding any investors’ funds, so there are no questions of scamming people or running away with their funds.” The DeFi100 project’s website is now back online, but rumors persist about what actually happened. Certik, a popular blockchain security leaderboard, does currently list DeFi100 as a “rug pull,” which is a term for a scam where the founders of a project raise investment money and run. (The project owners say a rug pull would be impossible since they never held investor funds.) It’s just one of a string of scams that today’s crypto holders need to watch out for, along with sketchy altcoins, Discord pump-and-dumps, Elon Musk impersonators, and more malicious forms of cybercrime.

According to Maren Altman, a TikTok influencer with over a million followers who creates videos about cryptocurrency and astrology, there are three kinds of risk that crypto holders should be wary of: bad investments, collapsing projects, and outright scams. Subreddits like r/cryptocurrency are awash with accusations of “scam coins”

The first and most common kind of risk is simple bad investments in obscure coins. Outside of major players like Bitcoin and Ethereum, there are thousands of smaller coins built on the blockchain technology, promising huge rewards if the coin ever comes to prominence. Subreddits like r/cryptocurrency are awash with accusations of “scam coins.” “I mean, I’m in a handful of those myself, where it’s just the investment, it was a promise, the development didn’t go through, and I’m still waiting,” she said. Trying to research obscure altcoins can be confusing for inexperienced traders. Links to cryptocurrency Discord servers often pop up on Twitter, promising an easy pump-and-dump of a smaller crypto coin. Or more confusingly, Twitter bots will accuse Discord servers that don’t exist of pump-and-dumps, hoping to drive up value for a separate coin. But while they promise easy money, the reality is less enticing.

Another risk is the oftentimes innocent but unfortunate mismanagement of funds. In a bullish crypto market, everyone thinks they have a revolutionary idea involving cryptocurrency. And, obviously, a lot of them don’t pan out. “Things not being clarified, errors in contract, or just a weak link in the development circle,” Altman explained, “leading to mismanagement of money and people not having their investment turn out as expected.” One extremely well-known example of this was the DAO project. It launched in the spring of 2016 to huge fanfare, only to be completely defunct by the fall of the same year. The project was created by the Decentralized Autonomous Organization and was an attempt to build a venture capital fund on the Ethereum blockchain. Only a month or two in, a hacker found a vulnerability in the token’s code and made off with $50 million. Traders started selling off DAO tokens en masse and the price never recovered.

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