A recent report underscores that spotting cryptocurrency scams isn't a complex task, as most scams exhibit blatant and readily identifiable characteristics. Hacken, a blockchain security audit firm, published its latest security insights report on October 25, aiming to shed light on cryptocurrency hacking trends in the third quarter and evaluate the responses of affected projects in handling security issues.
The report delves into the realm of "rug pulling," an exit scam tactic where project teams suddenly withdraw liquidity after flooding the market with their tokens. Rug pulling is the most prevalent form of cryptocurrency attack, constituting over 65% of all hacks in the third quarter of 2023, according to Hacken. The prevalence of rug pulls is attributed to the relative ease with which such scams can be initiated. The report points out that "serial scammers use token factories that exhibit the same behavior to mass-produce fraudulent tokens."
Despite the high incidence of rug pulling, Hacken asserts that it is "one of the most preventable scams" and provides some guidance on recognizing and avoiding such scams based on their observations in Q3. Hacken underscores the importance of evaluating projects through independent third-party audits. Among the 78 rug pulls Hacken examined in the third quarter, only 12 claimed to have undergone "any type of audit."
Furthermore, Hacken advises investors to remain cautious and thoroughly scrutinize audits, as audits alone do not guarantee immunity from scams. As stated in the report, "The project can be audited and issued a review report but have a lower rating. Nevertheless, users disregard this and assume that the mere fact of the project being audited is sufficient."
Dyma Budorin, the co-founder and CEO of Hacken, pointed out that investors often ignore red flags, like the absence of audits, due to the fear of missing out (FOMO). In the cryptocurrency space, success stories like Pepe and Shiba Inu have spurred individuals to invest $100 out of curiosity, potentially resulting in substantial profits. This desire for quick and significant returns often leads people to overlook warning signs and make impulsive investment decisions. Budorin added that scammers exploit this phenomenon, as they are skilled at mimicking successful projects and referencing ongoing booming projects to stoke FOMO.
The CEO also highlighted that investing in cryptocurrencies is often perceived as a simple process, requiring only a few clicks. This ease of entry into the market can contribute to impulsive investment decisions, which are not always made after due diligence.
