The crypto industry has seen an absolute boom in recent years – but where there are supporters of the industry, there are criminals. Increasingly, profitable investments turn out to be scams, and people are sometimes deprived of large sums of money. So, the question arises: are there aspects that those interested in cryptocurrency can look out for to protect themselves a bit from NFT and cryptocurrency scams? And who can victims of fraud turn to? 

Crypto scams: the forms are varied 

A look at the tricks used by criminals in the crypto sector shows: there are too many opportunities for fraud in this sector to list. Gilbert Fridgen, professor of digital financial services at the University of Luxembourg, draws attention to this. 

So-called airdrops, which are supposed to give access to free coins, are initiated via Discord or other social media platforms and sometimes contain dubious links or security threats. Owners of promoted projects suddenly commit exit scams, i.e. disappear with investors’ money. And there are scams with irreplaceable tokens, where stolen artworks are sold as NFTs, or NFTs are sold that end up not containing the promised content – the approaches are different. 

People often present themselves in the crypto space under fake names: for example, the platform Opensea, which is actually considered relatively secure, has in the past encountered scammers posing as helpdesk employees, obtaining confidential data from users seeking help. The chances of recovering stolen assets are almost non-existent – a case study documented by The Verge clearly demonstrates this. Now Opensea has responded and created new support channels. 

Why so many incidents 

“Professor Gilbert Frijen sees four main reasons that make cryptocurrency fraud so simple and therefore so common. On the one hand, “prosecution of perpetrators is difficult, if not impossible – this is precisely because of the anonymity or pseudonymity of blockchain technology”. On the other hand, “the usability of the common solution is often so poor, even with serious proposals, that it is difficult for non-specialists to distinguish dubious proposals from serious ones. 

In the crypto sector, most organisations are still very young, so there are hardly any “established” providers that stakeholders can rely on. And even the few providers that are now considered trustworthy “have sometimes grown so fast that development team members may be tempted to withdraw money.” 

Friedgen advises, “if you don’t want to take any risk – up to and including total loss – you shouldn’t invest in crypto-assets.” 

Crypto investing: what to look out for in advance 

Nevertheless, a survey by Coinbase and the Frankfurt Blockchain Centre shows that interest in crypto investing is not declining, but growing. According to Friedgen, anyone who “wants to be among the first investors in ‘this new, as yet unknown proposition'” should be aware of the risks. 

“Before investing, it’s helpful to get detailed information about the proposal, such as examining whether there is a project white paper, what it says and who is behind the project. Do the suppliers have a sales history that can be reviewed? On which platform should the upcoming transaction take place? 

All in all, it is difficult to make a general statement about what a serious proposal should look like, says Fridgen. And Giorgio Constaninou, an NFT music expert, recently told Rolling Stone: “Until proven otherwise, it’s best to consider everyone a fraud.” 

Gilbert Frijen advises interested parties, when in doubt, to choose offerings “that have been active for several years and have an active and broad developer community.” Potential investors should also take a particularly close look at projects that are massively promoted by respected professionals in the crypto space. 

These recommendations also make it clear: stay away from seemingly quick profits, offers from direct reports and hasty decisions in unknown communities. 

Help after cryptocurrency fraud 

Worst-case scenario: despite all caution, you’ve fallen for the bait and lost a large sum of money. What can victims of fraud do? 

“Since crypto-assets are based on the principle of decentralisation, there is no central point of contact that fraud victims can turn to. You are usually not the only victim of fraud. An expert from the University of Luxembourg therefore advises you to look for a connection with other victims. 

If a clearly identifiable company is behind the scam, you can of course contact the police, just like in the case of any online fraud.” Finally, over time, new investigations may emerge, such as in the case of the TheDAO hack in 2016.” 

However, it is clear that “a major hack gets more investigative attention than what the development community considers a minor scam,” and if the culprit cannot ultimately be identified, those affected are left with the damage. “The more you dive into the unregulated and unregulated crypto world, the less classic legal remedies will help you. We are in the digital Wild West,” says Friedgen. 

How cryptocurrency fraud risks are evolving 

Talking about the future of the crypto industry and therefore future fraud risks, Gilbert Friedgen draws attention to the development of decentralised finance (Defi), i.e. decentralised financial markets that are also partly managed through so-called DAOs (Decentralised Organisations). “There is sometimes even more opacity here, for example with regard to conscious and unconscious backdoors in the underlying code,” says the expert. At the same time, considerably more money is involved. The risk associated with the investment is therefore unlikely to diminish. 

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