TL; DR Breakdown
- Crypto scams surged over 80% in 2021.
- The majority of the scams were rug-pulls.
- A total of $7.7 billion was lost this year due to scams and hacks.
- Investors should always lookout for the red flags mentioned in this article to protect their assets.
2021 was the greatest year for crypto since the launch of Bitcoin in 2009. This year crypto and blockchain projects received more fundings than all previous years combined. However, it was also a great year for crypto scammers.
According to the stats from blockchain analysis firm Elliptic, crypto scams accounted for $7.7 billion this year. If we also count the scams and hacks in the overall Decentralized Finance (DeFi) space, this total sums up to almost $12 billion. That’s more than the GDP of over 70 countries.
Compared to the previous year, crypto scams surged over 80% in 2021. Most importantly, almost 40% of these crypto scams were caused by ‘rug-pulls’. For users who actively followed the crypto and DeFi space in 2021, rug-pull is quite a known occurrence. It’s the event when the developers of a crypto project abandon it midway and run away with the investor’s money.
Most rug-pulls are identifiable, as they often have several red flags that any investor should consider. However, as cryptocurrency and blockchain is relatively new space, most investors fail to notice these red flags and end up losing their investments to scammers.
What were some of the major crypto scams in 2021?
One of the biggest crypto scams this year was the Squid Game Coin scam. It was a crypto project launched right after the popular Netflix show ‘Squid Game’ came out. The Korean series became the top Netflix TV show of all time. Scammers used this popularity to lure people into investing in the project.
However, the crypto project had no official affiliation with the Netflix show, and there were several other red flags, including the complete anonymity of the project developers. Squid Game Token ended being rug-pulled, and scammers ran away with $2.5 million. Turkish crypto exchange Thodex also experienced a rug-pull earlier this year, when the founders disappeared with almost $2 billion.
There was also the case of a Canadian scammer who stole crypto investors SIM cards to steal over $46 million worth of cryptocurrency. He was later arrested by the FBI. One of the recent major hacks was the Bitmart exchange hack, where the hacker stole 48 cryptocurrencies worth over $150 million.
Popular DeFi platform Cream Finance got hacked 3 times this year. In its latest hack in October, hackers ran away with $130 million. There was also the Binance Smart Cnain (BSC) hack on BXH protocol that caused the blockchain network $139 million. These were just a handful of the hacks and scams that took place throughout the year.
What lessons should investors take away from this year?
Security remains a key issue in the DeFi space heading into 2022. Major blockchain protocols and crypto exchanges are making significant changes to its DeFi security framework. However, as long as investors pour their money into crypto projects without proper knowledge and caution, scammers and hackers will continue to exploit it.
Here are some short and specific recommendations that investors should consider in 2022 to avoid potential scammers and hackers:
- Research about a new project before investing.
- Get to know the developers behind the project, their real identities, and their past experiences.
- Only use popular crypto exchanges that provide insurance over hacks. E.g – Binance and Coinbase.
- Only invest 5% of your portfolio in crypto.
- If you’re investing in a new project, check if it’s audited.
- See if the project has a proper withdraw/sell mechanism
- If a project has a liquidity time-lock, it’s better to stay cautious.
Considering this information while investing in a new crypto project will reduce your chances of being scammed and losing your investments. Cryptocurrency has huge potential heading into 2022, but investors should always stay cautious and smart to protect their assets.