Jun 22, 2021

Crypto Scams: Don‘t Be Too Smart For Your Own Good

Crypto newbies are not the only target group for scammers. There are some which target more advanced users, albeit those whose confidence trumps their competence. Learn how you can avoid them.

Experience is one of the best safeguards against scams. However it works only for those who complement it with an adequate degree of humility. Crypto users who after gaining some insight succumb to overconfidence may lose their money. Here are two examples of fraudulent schemes specifically targeting people with an inflated sense of their crypto competence.

 It is interesting both of them entice the user to engage in unethical behavior, or plain old theft. This is a smart trick to reduce the chance of victims seeking justice - who would after all want the world to know he got scammed while trying to steal crypto?

1️⃣ A very accessible wallet

This is an old trick going back at least 3 years. The scammers post a picture of their new hardware crypto wallet, „accidentally“ revealing the wallet‘s recovery phrase on the pic. This is designed to entice people to try to steal the funds. When they check the wallet, they discover it contains an ERC20 token but no ETH for gas to withdraw it. This prompts the would-be thieves to send ETH to the address to steal the other tokens. Regretfully a smart contract is set up to wipe out any ETH that gets sent to the address.

The trick originated in 2018 but the picture of the recovery phrase has been widely circulating since. While it is usually used to mock others than as a serious scam attempt, do beware of any similar concepts.

2️⃣ A Smart Contract That Wasn‘t

Everyone has heard about multiple DeFi protocol hacks, often employing the so called flash loans. The inability to write a smart contract has not stopped multiple enthusiasts from trying to hop on the bandwagon. Here‘s how they get scammed. The dishonest operators market DIY instructions how to deploy a smart contract. They claim the contract will conduct flash loan-based arbitrage meaning big gains for the issuer. Part of the deployment is sending around 0.3 BNB / ETH to the contract for arbitrage gas fees.

Sounds like a nobrainer, right? Regretfully people deploying those contracts have little idea how a a real smart contract is structured. Otherwise they would have noticed the smart contract does nothing apart from sending the deposited funds to its owner, i.e. the scammer. Also the upfront gas fee would be rather high, especially on the Binance Smart Chain. While we will not link to the scam videos themselves, here is a more detailed analysis of the fraudulent smart contract itself.

 

 

The above mentioned schemes are but examples of a trend which will no doubt continue. To shield yourself against them you need to remember the basics. If anyone offers you to steal together, there is no guarantee they won‘t steal from you as well. Also while crypto offers significant opportunities, the ones above are too good to be real.

Whenever you encounter such propositions, the easiest solution is to google them and see what comes up. Such a simple method would have saved many a victim significant money. Another more advanced method whenever dealing with smart contracts is to use one of the websites where you can verify them for obvious holes. Scams always have a history so reports from past victims should be easy to find.