Crypto Scams that actually happened and what we can learn from it
Earlier, we introduced the different types of scams you should be aware of. In this part I will expand upon the subject and take a look at scams that actually happened, and what type they can be classed under.
Why have we seen a recent increase in Crypto scams?
Ironically, the main factor behind the increase in cryptocurrency scams is the rapid rise of decentralized finance (DeFi), according to data platform Chainalysis. DeFi aims to remove all middleman from the financial sector, including banks and lawyers, by approving all financial transactions independently as a piece of written code replaces the traditional middlemen. This sector is still in its infancy, and as a piece of code that is still being refined, DeFi software remains highly vulnerable to hackers. So while the lack of middlemen is one of its core-strengths of DeFi, it also poses a disadvantage, as it is much more difficult for regulators to stop fraud in the space.
Scams that actually happened
1. FaZe Clan
Scam type: Pump and dump
Year: 2021
Amount lost: $30.000
A successful esports organization by the name of FaZe Clan, showed their support online for a new cryptocurrency calles “Save the Kids” (KIDS). Influential members with a large follower base like RiceGum and Sommer Ray promoted the new tokens website (which does not exist anymore at the time of writing) through their social media accounts, slaiming that the project was helping to build a better world for children, and promised to donate a portion of the token`s proceeds to charity.
Many fans bought the token and “pumped” money into this charitable crypto scheme, believing that their investment was safeguarded due to the high profile influencers showing their support. Unfortunately all their money disappeared almost overnight.
As the accusations grew, FaZe Clan fired and suspended several members who were allegedly involved with the scam.
Lessons learned:
- No matter who is promoting a new crypto project, ensure that you do your own research before investing.
- Even if it seems for a good cause, be skeptical about new projects when there is little or no information available.
2. OmiseGo Scam
Scam type: Airdrop
Year: 2017
Amount lost: $56.000
The amount involved is relatively small compared to other scams, the OmiseGo scam took place before crypto achieved the hype it does today, therefore it was a relatively large scam taking into account the market context and sentiment at the time.
The OmiseGo management team had planned to airdop its token (OMG) in September 2017, but postponed it for an unknown reason. The word however, had already spread, and the airdrop campaign had already gained a significant amount of popularity on social media platforms like Twitter and Telegram.
Scammers decided to take advantage of the popularity by creating fake Twitter handles, and websites that would trick unsuspecting users into handing over their private keys.
The scam was detected after about 300 ETH tokens had been swiped from participants. Valued at the time around 56.000. At the peak of the most recent bullmarket this would equal Translated into today this would have been $1.45 million, and translated to the value of todays writing this would equal to $570.000
Lessons learned:
- No matter how exciting you might be about a project, always check the official sources for more information and updates.
- Never submit your private keys to social media accounts to anybody. Not even to official channels.
3. Squid Game
Scam type: Rug Pull
Year: 2021
Amount lost: $3.38 million
In 2021 the South Korean Netflix series Squid Game, took the world by storm. SQUID was a cryptocurrency inspired on its Netflix series equivalent, and was said to be a token for playing a new online game inspired by the series. On November 2021 SQUID rose to the top of the crypto charts in an extremely short time, topping out with a valuation of $2861 per coin.
The SQUID coin was marketed as a play to earn cryptocurrency. It quickly gained traction among users who believed that there was an association between the crypto project and the Squid Game series, resulting in a price increase of thousands of percent.
After its peak, SQUID plummeted to $0 after reaching its peak at $2861. This is what can be called as a rug pull, where its creators quickly cash out their coins for real money, and therefore liquidate its own market as its liquidity gets drained from the exchange.
There were numerous signs that SQUID coin was a scam. Its we`bsite `wa`s full of grammar and spelling errors. CoinmarketCap had placed a warning to be extremely cautious when buying SQUID. The biggest red flag was the fact you could only buy the coin, with no real way of selling the tokens, so once bought, you were stuck with your holdings. By then however, mainstream media outlets overshadowed all concerns continued running headlines about the new SQUID Game token soaring by 83000% over just a few days.
Lessons learned:
- The price of a coin is not the only factor that established its credibility. If something goes up this fast, its best to take caution and do proper research into the project first.
- When something is being hyped up through mainstream media, it is easy to get lost in excitement and anticipation. Stay cool, and realize you are probably already too late.
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Disclaimer:
The information provided above is not financial advice but for educational and entertainment purposes. Please do your own due diligence or consult a financial advisor before investing in any digital assets.
All opinions expressed on Bitget’s Soapbox (also known as the ‘Soapbox’) are opinions of individual traders using the Bitget platform, and do not reflect the opinions of Bitget or its affiliate companies and partners. The Soapbox author’s opinions are based upon information they confirm to be reliable, but neither Bitget nor its affiliates warrant its complete accuracy, and it should not be relied upon as such.
