Web3 Scams and How to Avoid Them
The global web3 market has been introducing new definitions for digital transformation with blockchain, NFTs, cryptocurrencies and DeFi solutions. With a market capitalization of around $27.6 billion, the web3 market is expanding at a radical pace. However, it is also important to learn about web3 scams and the security risks of web3.
According to the Global Web3 Security & AML Report 2022, the web3 industry registered 167 major attacks in 2022. The total loss incurred in the web3 attacks amounted to almost $3.6 billion, which is 47.4% higher than in 2021. The security incidents in 12 cross-chain bridge protocols alone resulted in losses worth $1.89 billion.
The prominent scale of losses due to web3 attacks provides answers for “Can Web 3.0 be hacked?” along with statistics. Apart from cross-chain bridge protocols, 20 different blockchain platforms also encountered major security breaches in 2022. Vulnerability exploits and social engineering attacks evolved as the prominent web3 security risks in 2022. How can you use web3 in 2023 without the fear of security risks? The following post offers you a guide to the top scams and security risks in web3, along with the best practices for dealing with them.
Why Should You Learn About Web3 Scams?
The foremost doubt on your mind right now must revolve around the reasons to learn about web 3.0 scams. Some of you must have expected that web3 comes with the advantage of cryptographic security with blockchain technology. Apparently, every new technology attracts opportunities as well as challenges. Web3 startups were successful in acquiring over $7 billion as an investment in 2022 in the face of bearish market conditions. The influx of capital and development of new projects has enhanced the value of web3 alongside exposing its vulnerabilities.
The need to learn about web3 hack attacks emerges from the growing prominence of web3 security incidents. Market leaders such as Ethereum and BNB Chain reported major security incidents in 2022. The staggering growth in value of the web3 market has encouraged cyber criminals to come up with innovative scams and security risks.
At the same time, web3 is a new concept, and users are slowly adjusting to the technology. Users are investing in cryptocurrencies, DeFi solutions and NFTs to capitalize on the benefits of web3. However, limited awareness of web 3.0 risks can make them vulnerable targets for scams and security breaches. Web3 envisions digital transformation where users would be in control of data, digital assets and online experiences. On the contrary, placing control in the hands of users creates conflicts with security best practices.
Most important of all, web3 transactions are irreversible, which creates difficulties in recovering assets lost to scams. As of January 2023, the total losses due to web3 vulnerability amounted to $29 million. The prominent categories of attacks include flash loan attacks and rug pull scams. The detailed overview of the state of security in web3 provides adequate reasons to learn about scams in web3.
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Most Popular Techniques for Web3 Scams and Hacks
Digital assets such as cryptocurrencies and NFTs in the web3 landscape have massive economic potential, thereby implying a promising future for web3. At the same time, hackers are moving towards web3 to hunt vulnerable targets in return for larger exploits. If you are wondering about questions like “is web3 safe,” then you need to reconsider your opinion.
The only way to ensure safety in web3 is to take responsibility for securing your assets and avoiding scams. A detailed understanding of popular web3 scams could help you identify the techniques employed by hackers to compromise web3 platforms. Here are some of the common scams you can come across in web3.
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The infamous Twitter hack scandal in 2020 is proof of how “celebrity airdrops” are not always what they seem to be. Scammers used fake accounts of popular individuals such as Barack Obama, Jeff Bezos, Elon Musk, and Joe Biden and popular companies such as Apple and Uber. The hackers offer cryptocurrency airdrops worth millions of dollars, generally in Bitcoin, in return for your Bitcoin.
The celebrity airdrop web3 hack, also known as the “Flip Coin” scam, resulted in losses amounting to $2 million. It is important to note that the decentralized nature of cryptocurrencies makes it impossible to track the identity of an individual. On top of it, you could not reverse a cryptocurrency transaction.
The best way to answer ‘How to avoid web3 scams’ in the case of celebrity airdrops would point to due diligence. In most cases, scammers could gain unauthorized access to the official accounts of popular celebrities and use them for scamming unsuspecting followers. Your best bet is to follow the golden rule of avoiding scams, i.e., the ‘too good to be true’ rule. Why would a celebrity send millions of dollars to random followers on Twitter? You can avoid such scams by staying away from the ‘too good to be true’ offers, even if Beyonce offers them.
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Another popular approach for users to enter the web3 market points at NFTs or non-fungible tokens. Users are actively investing in NFTs through collectibles such as the NBA Top Shot collection, Twitter profile pictures with Bored Apes and NFTs for tickets to events. At the same time, concerns such as “Can Web 3.0 be hacked?” also draw attention to hackers compromising the NFT space. Considering the dominance of NFTs and their role in the web3 ecosystem, it is important to identify popular NFT scams.
One of the common scams in the NFT space refers to forgery or fake NFTs. Scammers look for NFT projects which achieve significant growth in value within a limited period of time. Subsequently, the scammers can create copycat collections which resemble the original projects. An unsuspecting NFT enthusiast can assume that they have the chance to ‘ape in’ to a specific NFT collection at lower prices.
Ultimately, the scammers can disappear with your money, and you would be left with a useless NFT collection. You can avoid NFT scams through comprehensive research on a specific NFT artwork or collection. It is also important to check the past transactions recorded for the NFT to verify credibility of the NFT.
The list of web 3.0 risks also includes spoofing, which has been prevalent across social media platforms. Scammers use URLs, emails, text messages and live streams on social media websites to misguide web3 investors toward scam projects. Furthermore, technological innovations have enabled the possibilities of location and facial spoofing with ease. A spoof URL could look like a legitimate link for investing in a web3 project while it steals your private keys in the background.
The most effective answer for ‘How to avoid web3 scams’ through spoofing would refer to a review of spoofing examples. Generally, scammers use the identity of a large trusted web3 company or web3 influencer in spoofing attacks. Assume that you received an email from Binance with a link for claiming rewards. Upon clicking the link, you land up on a website that looks similar to Binance and asks for your sign-in credentials. Once you enter the password, the scammer can access your Binance account and drain out your funds.
The threats of social media scams in web3 have increased exponentially with the introduction of the Twitter Blue subscription feature. How are you supposed to distinguish a verified account from the blue check, which anyone can buy for $8? Another example of web3 vulnerability in social media scams through spoofing refers to fake live streams.
Scammers don the hats of crypto and web3 influencers by spoofing content from credible sources and visually appealing content in YouTube live streams. How can you differentiate a credible YouTube influencer from a scammer? The answer would round up once again on the necessity of research.
The best approach to avoid spoofing scams in web3 is to check the URLs, email addresses, and links you access. It is also important to remember that web3 projects do not require your seed phrases in any case. In the case of Twitter accounts, you need to check the time for which the account has been active.
You must also verify the credibility and relevance of their posts for web3 before interacting with social media posts. Similarly, you can avoid spoofing web3 hack on YouTube by checking the number of videos on the channel. If you don’t find any videos on the YouTube channel the ‘influencer,’ hit the “Home” button immediately.
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Rug Pull Scams
The outline of web3 scams would be incomplete without referring to rug pulls, which are a type of exit scam. Rug pulls are more common in the domain of NFTs and DeFi. Web3 offers flexibility in creating new decentralized projects with new tokens and freedom from intermediaries for financial transactions.
Scammers can use this as an opportunity to exploit unsuspecting victims. Hackers could create a crypto token and list it on decentralized exchanges without any background check. Apparently, almost 117,000 scam tokens robbed billions of dollars from investors in 2022.
The premise of rug pulls scammers convincing investors about the legitimacy of a project and its potential for the future. Scammers can present a DeFi project or NFT project as a promising one with an appealing website and create roadmaps for showcasing that the project would have a sustainable future. Once investors start investing their tokens in the project in return for native tokens of the project, the price of the native token would increase. When the native token price reaches a peak, the scammers will disappear with the money of investors.
The web3 vulnerability with rug pulls is also evident in the case of NFTs. Scammers could create copycat collections of popular NFT projects. For example, a fake collection, Mutant Ape Planet, copied the Mutant Ape Yacht Club collection and robbed $3 million from buyers.
The consistent improvements in vetting mechanisms for DeFi and NFT projects have opened up new prospects for safety against rug pull scams. Try to avoid web3 projects which cannot offer clear details about their founders and contributors. Take a look at the project’s whitepaper and verify whether they have passed a successful smart contract audit and KYC verification.
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Pump and Dump Scams
Pump and dump scams are a variant of rug pull scams. The difference between pump and dump scams is the fact that influencers use such scams. Popular influencers, as well as token creators, could buy a specific cryptocurrency at a low price. The next step in such web 3.0 risks is the promotion of the token bought by the influencers.
Influencers would convince their followers that the specific cryptocurrency is the next big thing in web3. Once investors start purchasing the cryptocurrency, the increased trading activity would inflate or ‘pump’ the price of the token. After a certain point, the influencer sells their cryptocurrency holdings at the peak price or dumps their investment.
The unexpected exit of the influencer from the market results in a significant drop in the token price. Ultimately, the investors would have to bear the losses on a cryptocurrency that never had any potential in the first place. How can you ensure safety from a web3 hack through pump and dump schemes?
You can find the answer by overcoming the fear of missing out on an exciting opportunity. Take your time in reading the documentation of a specific cryptocurrency, NFT or DeFi project before investing. You should maintain a strict focus on research irrespective of the aggressive marketing of certain crypto tokens by influencers.
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The list of most popular scams in web3 would remain incomplete without referring to phishing scams. Phishing involves stealing sensitive information from unsuspecting victims by impersonating a trusted entity. You can find similarities between web3 vulnerability in phishing and spoofing methods. Both methods use impersonation as a technique for gaining the trust of victims. Some of the common methods of phishing attacks in web3 include seed phishing through ads, social media phishing, employer phishing and ice phishing.
Best Practices for Avoiding Web3 Scams
The explanation of different types of scams and hacks in web3 draws attention to methods for addressing the hacks. One of the trusted methods for finding how to avoid web3 scams is comprehensive research. You must dive deeper into the details of every web3 project before placing your trust. Even the most popular web3 influencers should come under investigation when you come across random airdrops or rewards.
Always stay safe from malicious links and never share your private keys or seed phrase in any situation. Above everything else, you should practice patience before investing in web3 projects and avoid the greed to earn overnight fortunes. Another important practice in avoiding web3 hacks and scams is to remember the ‘too good to be true’ rule.
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The different types of scams in web3 offer clarity regarding questions such as “is web3 safe” and emphasize the need for awareness. Web3 has been attracting investors with the assurance of benefits with decentralization and innovative economic potential of NFTs, cryptocurrencies and DeFi projects. However, the scams and hacks in web3 should not discourage investors from capitalizing on the opportunities available in web3.
Compliance with best practices for avoiding web3 scams, such as in-depth research on project details and review of documentation, can safeguard users against web3 risks. The comprehensive knowledge of different types of scams in web3 can help you navigate through web3 without risks to your valuable assets. Learn more about web3 security in detail right now.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!
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