Has the Market Downturn Caused an Uptick in Crypto Scams?

DeFi Vulnerabilities Add to Bear Market

Cryptocurrency crime had a record-breaking year in 2021, with scammers taking billions of dollars worth of crypto last year. The threat of scams is growing even more, with $1.3 billion in losses in only the first quarter of 2022. 

The total value locked (TVL) in DeFi this year saw a decline from $235.5 billion at the end of the previous year to $75.44 billion at the time of writing. A decline in TVL has been attributed mainly to the recent collapse of stablecoins as well as financial losses caused by vulnerabilities in DeFi protocols. 

According to the REKT Database of cyber-attacks, DeFi protocols have been affected by scams, hacks, and exploits totaling $5.394 billion. The data from this year shows exploitation of $1.801 billion as of writing. In addition, REKT Database reports 2,841 attacks with 29.7% targeting Ethereum. 

Almost 97% of all cryptocurrency stolen in 2022 came from DeFi protocols, up from 72% in 2021 and 30% in 2020, according to Chainalyisis.

Some of the massive exploits include attacks on the Ronin network ($615.5 million), Wormhole ($326 million), and Poly Network ($602.18 million). 

The Scene After Q1

Over the last three months, the market has entered a bear cycle, wiping out $153.22 billion in TVL. In addition, a total of $695 million has been lost in this period due to various types of scams. The latest additions to the list include Gym Network ($2.1 million), Osmosis ($5.0 million), and Harmony Bridge Hack ($100 million) attributed the Lazarus Group. 

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Types of Cryptocurrency Scams

In cryptocurrency scams, scammers wear many colors. With the rising levels of losses incurred from crypto scams, investors need to be able to identify them quickly.

Social Engineering Scams

Social engineering scams involve scammers manipulating and deceiving their victims psychologically. This includes Imposter and Giveaway Scams, Phishing Scams, Blackmail, Extortion Scams, and many other kinds of similar scams. 

Among them, phishing scams have become more prevalent in recent times. Specifically, they send an email or a message through any social platform asking holders to enter private key information. A total of 114,700 people fell victim to phishing scams in 2019, according to the Federal Bureau of Investigation (FBI). 

Investment Related Scams

In order to reap higher returns, some profit-seeking speculators use misleading websites that claim to offer guaranteed returns. This includes new crypto-based opportunities like ICO and NFTs, DeFi rug pulls, etc. According to the Federal Trade Commission, investment-related fraud caused $575 million in losses from January 2021 to March 2022.

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How to Prevent Cryptocurrency Scams:

Here are some ways to avoid crypto scams according to AARP.org:

• Cryptocurrencies are risky, so don't invest money you can't afford to lose on them.
• Don't invest or trade cryptocurrencies based on online advice.
• Don’t engage with social media posts about cryptocurrency giveaways.
• Never share your "private keys" with anyone. Store them safely (preferably offline, where they cannot be hacked).

Crypto scammers will continue to target the crypto ecosystem as it grows and becomes more complex. Many people have lost money in the current market downturn, and scammers will take advantage of that to entice innocent investors into schemes that promise huge rewards. Identifying the common methods scammers use to steal your information (and ultimately your money) will enable you to avoid becoming a victim of crypto-related scams.

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