Exchange or Project Collapse

Cryptocurrency exchanges allow users to trade cryptocurrencies and offer storage and management services. Some exchanges may have security risks, poor management, or fraudulent activities, endangering users’ funds. Exchanges might fail to meet their commitments due to poor management, technical issues, or legal pressures, leading to service interruptions or closures, and causing significant losses for users.

In the cryptocurrency world, many new projects and ICOs emerge. While some are genuine and innovative, others have fraudulent intentions. These projects may attract investors with false promises, deceptive advertising, or market manipulation but disappear after raising funds, causing severe losses for investors.

How to prevent a rug pull

To avoid malicious and false platforms and projects, it’s essential to trade on large exchanges. These platforms typically have stricter regulatory standards and higher credibility, reducing the risk of cryptocurrency fraud. They provide a more stable and secure trading environment and invest more in user fund security and privacy protection, making trading on large exchanges an effective preventive measure.

Spotting a Rug Pull

• Team Transparency: Check the project team’s members and backgrounds. It could be a warning sign if the team is anonymous or unclear.
• Project Goals and Roadmap: Ensure the project has clear goals and a feasible roadmap. Unrealistic promises or high returns might indicate fraud.
• Community Engagement: Observe the project’s community activity. Low engagement or widespread skepticism could be a red flag.
• Token Distribution and Lock-up Period: Check token distribution and lock-up periods. If most tokens are held by a few individuals or freely circulated, the rug pull risk increases.
• Past Records: Investigate the team’s history. It could be a warning sign if they have been involved in similar scams or have a bad record.

Fake Exchanges

While using large exchanges can reduce fraud risk, scammers are aware of this. Some impersonate well-known exchanges, designing websites to look identical and advertising heavily on Google to rank high in search results. Entering your account details on these fake sites allows them to steal your information and transfer your assets.

How to prevent fake exchanges:

Although logos and styles can be imitated, scammers cannot fake the URL. Always check the domain name for accuracy, like ensuring “Gate” hasn’t been altered to “Gate1” or “Gate.oo.” Use verified links to access major exchanges and add them to your bookmarks to avoid fake phishing sites.

Fraudulent Text Messages

You might receive messages pretending to be customer service, claiming there’s an issue with your wallet or account and requesting your private key or mnemonic phrase. Complying results in immediate asset theft. Official customer service never asks for your private key or mnemonic phrase, as these allow direct access to your wallet, password reset, and asset transfer.

How to prevent fraudulent text messages:

When uncertain if a message is from official personnel, contact customer service directly using information from the official site, not the message. Be cautious of messages indicating asset threats or site changes, as following these instructions could lead to information leakage.

How to Protect Your Assets from Theft

A cold wallet is a hardware or software wallet used to store cryptocurrencies securely, disconnected from the internet, preventing hacking and asset theft. Cold wallets are generally more secure than hot wallets as they are not network-connected, making them immune to network attacks.

Cold wallets come in hardware and offline software forms. A hardware wallet is a physical device storing private keys, connecting to a computer via USB for transaction signing while remaining offline when not in use. An offline software wallet is a software application running on an offline computer to generate and manage private keys for asset protection.

The main advantage of cold wallets is high security. Private keys are never exposed online, preventing hacking. They also protect against malicious software or viruses by only connecting to the internet when necessary, reducing attack risks.

However, cold wallets have some drawbacks. They need to connect to a computer for transactions, posing some security risks. Losing the mnemonic phrase or device means losing access to assets. Cold wallets are very effective for long-term cryptocurrency holders, offering better protection from hacking and information leakage.

Inscription Fraud Schemes and Risk Prevention

What is Inscription?

Inscriptions are digital assets based on the Bitcoin blockchain. By embedding data in Bitcoin blocks, they create immutable, unique proofs of digital ownership. Inscriptions represent artworks, collectibles, or other valuable digital content. This technology allows the creation and transfer of digital assets, ensuring their authenticity and scarcity. With inscriptions gaining popularity, some have exploited them for fraud. Here are common fraud tactics and preventive measures.

Phishing Website Schemes

This fraud method is common in the cryptocurrency world. Not only exchanges but wallets can also be counterfeited. Fraudsters quickly counterfeit popular platforms. For example, with inscriptions gaining popularity, fraudsters create fake websites and optimize keywords in search engines, luring unsuspecting users to register. Registered users’ assets might disappear even without leaking the mnemonic phrase, as they transfer virtual assets from other accounts to the wallet within the application, leading to asset theft.

To prevent this, always verify links through official Twitter or community channels before visiting any platform. Use verified links and downloads to avoid counterfeit sites. Browser plugins like Scamsniffer can detect site safety. Be cautious of links in Telegram groups, as fraudsters often use multiple accounts with identical names in the same community.

Impersonating Famous Inscriptions

In cryptocurrency, pretending to be a famous inscription is a common scam. This tactic isn’t just used on exchanges and wallets; even the inscriptions themselves can be targeted. A user once searched for a specific inscription in a Web3 wallet and found several identical results, which was confusing. For example, the user found four seemingly identical results when searching for the popular inscription DOGI. This usually happens because the platform prioritizes certain fields, which scammers exploit for their fraudulent activities.

NFT inscriptions have similar issues. Early on, NFTs with the same attributes but different serial numbers were common. For instance, a BTC inscription NFT collection only includes NFTs with specific serial numbers. If an NFT is outside this set, it doesn’t belong to the series. Scammers often forge an NFT from the same series to cheat traders, making it difficult for users to tell if the serial number belongs to the series.

To avoid this scam, use mature trading platforms for inscription transactions. These platforms provide a better security experience and can distinguish between genuine and fake inscriptions. Always double-check and compare the format and protocol of the inscription before trading.

Minting Traps

Trading in the secondary market isn’t thrilling enough for some, so many people turn to minting inscriptions for quick wealth. Exploiting the public’s eagerness for new inscriptions, some groups start creating counterfeit inscriptions to scam people. In this scam, they let you participate in minting freely but only to extract your transaction fees. Scammers usually set up fraudulent mint contracts and lure users into participating, leading to high gas fees and only receiving a worthless inscription image.

To avoid this, before participating in any mint activity, double-check and compare to ensure the format and protocol of the inscription match your expectations. Spend time researching and verifying the contract’s legality, especially looking out for unreasonable fee structures. Use mature trading platforms for inscription trading as they offer better security and can distinguish between genuine and fake inscriptions.

Stealing Wallet Private Keys

During minting, multiple wallets are often created. Many people copy and paste private keys and mnemonic phrases into notepads or WeChat for storage to avoid the hassle of writing down mnemonic phrases. Participating in certain staking or airdrop activities might lead to clicking unknown links, easily allowing hackers to obtain private key information and transfer your virtual currency without your knowledge.

To prevent this, verify any mint information seen online. Be especially cautious about activities and download links from friends in Telegram groups and Twitter. Do not click on them casually.

Dangerous Mint Messages

Example: GoPlus observed dangerous mint messages circulating in user communities. Once this information is released, many users act quickly, using inscription script tools to copy and paste private keys and transaction information for batch operations, leading to asset theft. Fraud groups construct special JSON fields encoded as hex, tricking users into inscribing and transferring their assets.

In this example: General token inscription mints are self-transfers with a string of token protocol JSON content added to the Input data for inscription. Users often use the wallet’s custom hex to convert the token protocol JSON content into hexadecimal and input it. Users commonly paste the hex string from the message source, which is likely a malicious string from another JSON format.

To prevent this type of fraud, thoroughly verify any mint information posted in the community. Avoid directly using unverified script tools, especially those involving private keys and critical transaction information. Check successful transactions on the blockchain explorer to see if the hexadecimal in the transaction matches the message content.

Conclusion

This article introduces blockchain and cryptocurrency concepts, and discusses related potential risks and fraud schemes. As blockchain technology and cryptocurrencies gain popularity, it’s crucial to be aware of risks like exchange collapses, fake exchanges, and scam messages. The article provides preventive measures such as choosing reliable trading platforms, staying alert, and using cold wallets. By understanding these technologies and risks, you can better protect your assets and interests and avoid becoming a fraud victim.