Bitcoin’s brief but spectacular rally on prospects of exchange-traded funds getting regulatory approval has revived investors’ interest in crypto, but a trust deficit in the industry still remains, thanks to regulatory scrutiny and crypto scams sprouting in large numbers.
Cryptocurrency hackers stole $720 million in Q3, rug pulls emerge as main culprit
Crypto investors lost a staggering $720 million to hackers in Q3 2023 in 117 separate attacks, up from $327 million across 131 breaches in Q2, according to blockchain security auditor Hacken. In its Q3 2023 Security Insights Report, Hacken also turned the spotlight on a scam currently plaguing the crypto industry: rug pulls.
What is a rug pull?
Rug pulls have become the talk of the town recently, with developers of cryptocurrency project Safereum suspected of pulling a fast one on the crypto community. In essence, rug pull is a type of scam where a crypto or an NFT developer creates buzz around a project to woo investors, only to later disappear with their money.
Hacken said cryptocurrency rug pulls are burgeoning to the point that they accounted for more than 65% of all crypto exploits in Q3 2023. Although rug pulls are not difficult to recognize, they are cropping up in large numbers, mainly because it’s relatively easier to orchestrate such schemes.
“Serial scammers use token factories that exhibit the same behavior to produce fraudulent tokens on a mass scale.”
Hacken
How to spot it
Based on its Q3 observations, Hacken has shared some tips to help you spot such scams. The blockchain security auditor argues that cryptocurrency rug pulls “are one of the simplest scams to prevent.”
One way to verify a project’s legitimacy is to check whether or not it has undergone an independent third-party audit, according to Hacken. In Q3, it reviewed 72 rug pulls—of which only 12 went through “any kind of audit”.
However, an audit doesn’t necessarily guarantee protection from scams, Hacken said, advising investors to exercise caution. “The project can undergo an audit and have an audit report, but with a poor score. Yet, users overlook this and consider the mere fact that the project was audited as sufficient.”
FOMO making investors susceptible to scams
Dyma Budorin, co-founder and CEO of Hacken, says crypto investors often look the other way, despite clear red flags such as the lack of audits. Their ignorance is rooted in their “desire for substantial returns in a short timeframe.”
Memecoins like Pepe and Shiba Inu has made queens out of paupers, delivering a return of $1 million on a $1,000 investment in a year, Budorin noted. Now, many are expecting a repeat of that, with their fear of missing out being exploited by scammers.
