Scams dominated all other types of crypto crime in terms of losses once again in 2021, with over $7.7 billion worth of cryptocurrency snatched from victims worldwide – mostly by the rug-pull method.
Chainalysis is releasing its comprehensive 2022 Crypto Crime Report in February 2022, but they've already let us take a sneak peek at some of the most significant findings. So, keep reading to learn about the most significant crypto scam observations from 2021 and how to stay alert in 2022.
What is a rug-pull?
"rug-pull" is a relatively new term in the crypto field, so the definition of "rug-pull" isn't carved in stone. It generally refers to instances where creators of apparently legitimate cryptocurrencies, wallets, and sites offer fraudulent investment opportunities. They lure in innocent investors before pulling out all the money and vanishing. If we remove rug-pulls and limit the 2021 results solely to investment scams, the total scam revenue actually remained flat – that's how big of an impact this extortion method had.
The year 2021 was harsh for crypto investors, especially for less experienced ones. We've seen decentralized finance or 'DeFi' gaining momentum (the latest movement in the crypto industry that attracted many investors despite low asset prices), the Finiko pyramid scheme collapsing, and it seemed like scammers came up with new gimmicks every day.
Crypto scams predictions for 2022
First, the cryptocurrency market is one of the most volatile investment markets, and that won't change anytime soon. In 2021, we've seen some very creative and carefully interlinked schemes, often aided by the media and even influencers. We do not expect this to change in 2022, either. In fact, with the world of commerce changing so rapidly, constant advancements in technology, and the ever-growing influence of media, the situation could still worsen.
What we expect to change, however, is for investors to get slightly more careful now that we've seen how far scammers will go. Unfortunately, bad actors are always one step ahead and, as public awareness raises, so does their game.
How can you best prepare?
The bad news is new crypto scams are fabricated every day. The good news is that so many defense mechanisms already exist, with many great new ones on the way as well. Useful information is freely available across the internet. Here are the three most important things to keep in mind if you're planning to invest in cryptocurrency in the upcoming period:
Investigate before investing
Trust is very expensive nowadays – don't take any news at face value. Get all the details before making any investment decisions, and question every offer, especially those that seem too good to be true. Don't trust direct messages from strangers, influencers, or government officials that are trying to convince you to pay them in cryptocurrency or claim they're offering a great investment opportunity.
Remember, just because a name rings a bell – it doesn't mean that name carries any credibility. Most phishing emails you'll receive will come under a familiar name because phishers know people are more likely to believe them. They have methods of digging up names that mean something to their potential victim. Also, just because something is popular worldwide, it doesn't mean it should be blindly embraced. The recent Squid Game cryptocurrency hoax is a perfect example of that.
Protect your data
Never share any kind of password to your cryptocurrency wallets, such as a private key or the seed phrase, with anyone, not even with the people you trust most, especially not in written form via email or a social network messenger. Those can be easily intercepted.
Instead, try to remember your private key and store that information somewhere offline. If you have difficulties remembering multiple passwords, like most of us do, make use of one of the best password managers. Whenever you can, enable two-factor authentication for any crypto exchange, wallet, or site you use.
Stay away from Ponzi schemes
If somebody came to you on the street asking for 5 dollars with a promise that they would return in a week with 5,000, would you trust them? Probably not. So why would you trust anybody that's offering you the same, only in cryptocurrency form?
Different websites will propose tempting crypto deals and promise you they can increase your assets twofold in a brief period. This is a classic Ponzi scheme – and as soon as you send your coin, the likelihood of you ever seeing it again reduces to a minimum. This type of investing is illegal and super risky, so it's always best to stay far away from it.