New tech, old scams: Don’t fall for these crypto and NFT ripoffs

Web3 products as non-expendable tokens and cryptocurrencies are already changing the world, a change that blogger evangelists say will revolutionize the way the Internet is built, the way we bank and transfer money, the way people pay for goods, and even the way we we socialize in the nascent metavers.

At the moment, most Americans don’t care. Google searches show that interest is already cooling in NFT, bitcoin, decentralized autonomous organizations, and other Web3-associated innovations. A reason? Unbridled fraud, experts told CBS MoneyWatch.

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Among a series of incidents, hackers took out NFT valued at $ 2.2 million in January from New York art collector Todd Kramer. A month later, OpenSea, the world’s largest NFT market, stole an estimated $ 1.7 million in NFT in an alleged fishing scam. And users of MetaMask, one of the most popular wallets, routinely report unauthorized transactions. According to Check Point Research, MetaMask users lost about $ 500,000 last fall in a targeted fishing attack.

“The average selling price of NFTs and the number of weekly NFT buying and selling accounts have also come down,” said Anand Sanwal, a technology analyst at CB Insight. “The falling market is raising questions about the long – term outlook for NFTs, which was $ 41. [billion] in sales and an explosion of venture capital investment in 2021 “.

In another sign that concerns about fraud are taking their toll, trading volume on OpenSea fell 80% in March from its peak in February, according to the Financial Times.

Expect the downward trend in NFT trading to continue until 2022, said Dan Ives, a technology analyst at investment firm Wedbush. “It has been a very slow start for the NFT market in 2022 with some major growth issues ahead. Along with a handful of high profile scams, there has been a black cloud over the NFT market. Some bad players clearly they have taken out the flower. the rose “.

Crypto and NFT are also confusing and risky, said Molly White, editor of the satirical Web3IsGoingGreat.com site, noting that “regulatory agencies have not really repressed” bad actors.

“The hype and noise undermine much of the confidence most people need to get involved,” he added. “Scams are hard to avoid.”

“One of the biggest flaws of web3 is the lack of regulation,” he says @ molly0xFFF of pic.twitter.com/I2YjfGnDYg

– Dan Patterson (@DanPatterson) March 8, 2022

If you are thinking of putting money into cryptocurrencies, NFTs or so-called decentralized autonomous organizations (DAOs), beware of these common scams.

Carpet pull

Rug pull occurs when a startup or influencer promotes a cryptocurrency token, an NFT or DAO project, applies for public investment, and then disappears with the cash or stops updating the project. To attract investors, these projects are often launched on reputable platforms or require celebrity participation. According to Chainanalysis, a company that tracks and analyzes blockchain trends, investors lost nearly $ 3 billion with such schemes last year.

One of the most notorious examples is the “Squid Game” carpet shooter. In 2021, a group of developers unrelated to the hit Netflix program created a payout to win a cryptographic card game. To fund its development, the team asked public investors to buy a “squid coin,” which at its peak was valued at $ 2,860. It collapsed when the currency’s creators abruptly canceled the project, citing “stress,” and disappeared with $ 3.3 million in its portfolio.

These tactics are nothing new, White3 told Web3IsGoingGreat.com on CBS MoneyWatch. “It’s not even an innovative scam, it’s just scaling well,” he added, noting that potential investors should be wary of small-scale schemes and well-publicized projects. “Sometimes with the smallest projects they have done the same scammers [the rug pull] several times, “White said.

Washing trade

Buying NFT can be a frustrating experience. Some NFTs sell for millions, while others collect digital dust. And some seem to increase in value for no apparent reason after a burst of trades.

According to the blockchain company Chainalysis, part of this activity is reduced to what is known as the “laundry trade”. In this centennial scheme, the buyer and seller of an investment collude to artificially inflate its value and make it appear that there is a significant external interest. Sometimes the buyer and seller are the same person or company. The practice was banned by the Commodity Exchange Act in 1936, and the IRS prohibits taxpayers from deducting losses from the laundry trade.

With NFTs, the goal of the wash business is to “make the NFT of one look more valuable than it really is” by selling it “to a new portfolio that the original owner also controls,” Chainalysis said in a report. . Because some of the top cryptocurrencies do not require users to verify their identities, it is relatively easy to create multiple accounts and simply swap the NFT back and forth.

The report found 262 users who traded NFT back and forth with their own wallets 25 times, 110 of those users made a profit. In total, the scammers earned nearly $ 9 million from the NFT wash bargaining last year, according to ZDNet.

Pump and dump

Pumping and dumping schemes, which have long been a staple of penny stock scams, involve artificially inflating the value of an asset by making misleading statements and misrepresenting investor demand. These schemes are especially common with small or obscure cryptocurrencies and NFTs that attract investors by offering the opportunity to enter a currency soon that could have great potential later.

Most U.S. states, as well as the federal government, ban manipulative stock market scams in the same way, but cryptocurrency investors lost millions last year on pumping and dumping schemes.

“With this scam, people who testify get influential people to really talk about it without revealing that they have paid or are part of the project,” White said. “The token price is skyrocketing because, you know, ‘Kim Kardashian is part of the project and she’s going to be great!’ Then the chips are sold and people lose interest, and everything falls apart again. “

Some allege that this scenario seems to be developing now with EthereumMax, a Kardashian-promoted cryptocurrency that recently skyrocketed in valuation after its endorsement, and then quickly plummeted. A group of investors filed a class action lawsuit earlier this year sues under the name Kardashianboxer Floyd Mayweather, basketball player Paul Pierce and others, alleging that celebrities received payments to promote the token claiming that early investors could “get significant returns” by buying the currency.

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