What are Flashcoin Scams and How Do You Avoid Them?

In traditional finance, we often hear of fake bank alerts, fake receipts, fake cheques, and so forth. These are tools used by fraudsters to rip individuals off their hard-earned money. Interestingly, we have something similar to fake alerts in the cryptocurrency ecosystem, they are flashcoins.

Digital scammers use flashcoins to manipulate unsuspecting traders. Interestingly, there’s some bad news and some good news. The bad news is – Flashcoin scams could be targeted at anyone. And the good news is that you can successfully avoid flashcoin scams. But how? This article explains that.

What Exactly are Flashcoin Scams?

A flashcoin can be any cryptocurrency (Bitcoin, Ethereum, or any other coin) sent into your wallet that disappears after some time. Hence the name _flash_coin. You get a notification that you have received the cryptocurrency in your wallet. It even adds up to your existing balance, but it only stays long enough for unsuspecting traders to get swindled off their money before realizing they have been scammed.

How does it work?

Usually, scammers and fraudsters use peer-to-peer trading methods to perpetuate flashcoin scams. For example, a trader may intend to swap fiat for cryptocurrency. The scammer sends the intended cryptocurrency to the buyer’s wallet address. The buyer sees a notification, implying a successful transaction. After a while, the coin vanishes. This happens because the coins sent are invalid and were rejected by the cryptocurrency’s network nodes.

Here is how cryptocurrency works: A valid blockchain transaction is approved by nodes. Nodes oversee and record all the transactions on a blockchain network. Additionally, transactions are confirmed in blockchain ‘blocks.’ But how do these blocks facilitate confirmation for transactions?

How a Blockchain Transaction is Confirmed

Once a blockchain transaction is initiated, it must be confirmed before it is deemed valid and final. A valid transaction is contained in a block. A confirmation occurs when a miner successfully adds a new block to the blockchain.

Thus, transactions within the block are verified and become part of the blockchain. Subsequent blocks added to the network confirm the previous block(s). Hence, if block A contains your transaction, for example, and there are subsequent blocks B, C, and D after your transaction, you would have four confirmations.

Thus, the more block confirmations a transaction has, the more secure it is. The more secure a transaction is, the lesser the chances of the transaction being reversed (irreversibility). A transaction with zero confirmation can be reversed, which is the category flashcoins fall under.

A higher number of confirmations eliminates the possibility of ‘double-spending.’ Double-spending occurs when a scammer tries to send the same cryptocurrency coins multiple times. Scammers who send flashcoins to scam others may use the double-spending method by modifying the blockchain in a way that allows them to spend the same cryptocurrency coins twice.

How to Differentiate a Delayed Blockchain Transaction from a Flashcoin Scam

Sometimes, though, a valid transaction may be delayed for various reasons. Differentiating between a flashcoin and a delayed transaction involves understanding the characteristics of both scenarios.

Confirmation Time

In a legitimate blockchain transaction, the transaction’s progress can be tracked on the blockchain network. The delay is usually caused by technical issues (such as network upgrades and increased transaction volumes) or network congestion.

However, even though a flashcoin transaction may initially appear as a pending transaction when checked on a blockchain explorer, it either has just one confirmation or none. Most times, it has no confirmation.

Transparency and Information

Even though delayed, legitimate transactions can be traced on the blockchain with information about what is causing the delay.

Flashcoin scams, however, do not provide transparent or precise information about the transaction. Sometimes, there is even no information about the flashcoin transaction. The blockchain explorer may notify you of an error with the transaction, and eventually, the transaction will disappear.

In either case, when you check the blockchain network to verify a valid transaction, even though delayed, it would expressly state the reason for the delayed transaction.

A Flashcoin Scam Scenario

Consider the example of Daniel, who could have fallen victim to a flashcoin scam. He wanted to swap his fiat currency for Bitcoin worth $2,000. After he’d sent his wallet address to the sender, the sender sent $2 worth of $BTC to build a “supposed” trust. Since the amount was low, Daniel paid. Later, the sender sent $2000 worth of $BTC and demanded payment. But this time, Daniel waited for confirmation and asked the sender to wait before he would pay. After some time, Daniel checked and saw an RBF warning that indicated something was wrong with the transaction.

Screenshot of RBF warning (Source: [medium.com/@Dexfiat]

Daniel tried to wait for at least two confirmations before paying, but the confirmations never arrived. He decided to paste his address on the blockchain explorer and saw that the transaction was invalid and a case of double spending.

Screenshot of an invalid transaction detail from the blockchain explorer (Source: [medium.com/@Dexfiat]

Daniel discovered that the sender had just tried to send him flashcoins and would have lost his funds if he had not waited for confirmation before attempting to pay. But how can you avoid flashcoin scams?

How to Avoid Flashcoin Scams

It’s already bad news to be scammed with flashcoins. But it’s _worse _news that funds lost through this means cannot be retrieved unless the scammer decides to return your funds gracefully. Therefore, it is better to learn to spot and avoid flashcoin scams and not fall into the trap.

Confirming Transactions

The first point of protection is to confirm the transaction’s authenticity on the blockchain network. There are two ways to do this:

• If the sender claims to have sent the cryptocurrency coins and you have received a receipt notification, copy your wallet address and paste it on a blockchain explorer. There, you can check the activities on your wallet address and check for confirmations. Here are three confirmation principles you can apply to your crypto transactions:
  1. One or two confirmations may be enough if the transaction amount is less than $1000. It is preferable to wait for at least two.
  2. Waiting for at least three confirmations is better if the transaction amount ranges between $1000 to $10,000.
  3. If the transaction amount exceeds $10,000 and above, waiting for three to four or even more confirmations is better.

Here is an example of how to check the transaction details of a wallet address using polygonscan:

Source: Polygonscan.com

By checking the transaction details of your wallet address, you can confirm if you have received any cryptocurrency and view the block containing the transaction. You can also see if there are any issues with a pending transaction.

• Alternatively, you can request the transaction hash/hash ID (abbreviated as tx hash or txn hash) from the sender. A transaction hash/hash ID gives proof or records that a transaction has occurred. It is like a receipt you receive after you’ve bought goods from a store.

  The transaction hash can be used to trace a transaction’s status and details, such as the sender’s and receiver’s addresses, amount sent, date of transfer, block, paid fees, and the number of block confirmations.

Here is an example of how to use a transaction hash to verify the success of a transaction using etherscan.io.

Source: Etherscan.io

The image also shows that there have been 1428012 block confirmations after initiating this transaction. According to the confirmation rule, you should see at least two or more block confirmations to authenticate your transaction.

The better option to confirm transactions is to request the transaction hash from the sender and verify it on the blockchain. After all, a receipt cannot be generated if no purchase has been made.

Use a Reputable P-2-P Exchange

Another way to reduce the likelihood of coming in contact with a scammer is to trade on trusted P-2-P platforms on crypto exchanges like Gate.io. On Gate.io, vendors are scrutinized and vetted before they are allowed to trade on the platforms. Additionally, the exchange ensures that established procedures are implemented to ensure smooth resolutions if any issue arises during the transaction.

Avoid Anonymity

Trade only with reputable traders. Avoid trading with a total stranger, especially on social media apps. If you still want to engage in P-2-P trading without using crypto exchanges, it’s best to trade with someone you know and trust.

FAQs

Can a flashcoin scam be reversed after it disappears from my wallet?

Blockchain network nodes typically reject invalid transactions. After flashcoins have disappeared from your wallet, they cannot be reversed because they are invalid.

What should I do if I’ve been a victim of a flashcoin scam?

If you’ve been scammed, you can take the following steps:

1. If you were a victim of a flashcoin scam while using an exchange platform, stop the transaction and report the incident. They can provide information and take further steps to ban the scammer and stop the scammer from using their services in the future.
2. If you fell victim while dealing outside exchanges, report the incident to relevant law enforcement authorities. Although recovery is difficult, reporting helps the authorities to track the scammer and prevent similar scams in the future
3. Educate others. Share your experiences with others in the community to raise awareness and help others avoid falling victim to similar scam tactics in the future.

Conclusion

Because of the anonymity prevalent in cryptocurrency, flashcoin scams severely threaten finances. This article has broken down how flashcoin scams operate and offers easy steps to protect yourself.

Confirm transactions, use trusted exchange platforms, and choose secure wallets. By sharing your experiences, reporting incidents, and staying informed, you contribute to a safer community for the cryptocurrency space.