Steemit Crypto Academy – Season 3 - Week 6 - Post for @yohan2on

Question 1 - What are Crypto scams?

The continuous growth and rise of cryptocurrency space has also seen the massive increase in the rate of scams. One of the main characteristics of cryptocurrency is anonymity and because of this, a lot of scammers have taken advantage of it to carry out scam actions. Cryptocurrency runs on the blockchain and any transaction that is done on the blockchain cannot be traced to the person who carried out the transaction, and in the case of privacy coins, transactions cannot be traced. One of the main aims of blockchain and cryptocurrency is to disrupt the current centralized financial system and bring about decentralization to the financial system and also serve as payment solution to send and receive funds anywhere at any time fast. Crypto scammers are taking advantage of the benefits of cryptocurrency to scam gullible individuals and steal user funds. Some of the common crypto scams are;

• Scam projects - This has become very common ever since crypto became very popular and has gotten a lot of attention. Scammers are creating scam projects and portray as legit. When users invest in these scam projects, they scammers either rugpull or exit with the invested user funds.

• Phishing - Phishing is one of the common scams in the cryptocurrency space. A lot of scammers create fake lookalike version of the original website or platform in an attempt to attract gullible users so steal user funds. For instance, according to a publication by the source bleepingcomputer which was published way back in Oct 25, 2017, there was a phishing attempt, a fake version of myetherwallet was created to scam myetherwallet and steal their funds in their wallets.

• Fake/scam wallet apps - This is another type of scam that is common in the crypto space. Scammers are creating fake wallet applications to try to scam users into believing they are real and legitimate wallet. When the gullible users download these fake/scam wallets and transfer funds into them, the funds are stolen by the scammers.

• Social media scam comments - This is another very common scam we see a lot in the crypto space. Social media has become a key part of the cryptocurrency world, a lot of users, projects and top institutions are making use of social media to reach out to their communities. Scammers are using these social platforms to scam gullible users who believe in the scam comments and fall into the trap. We also see a lot of scammers use the names and profiles of popular persons or famous individuals to try to scam gullible users through scam comments on social media.

• Email scams - This is also one of the common scams in the crypto space. Scammers blast out scam emails to a large number of email addresses of users with the hope of capturing the gullible ones who will fall for the trap. When the gullible users click on the scam links in the email and perform any of the actions, they end of losing their funds to the scammers.

Question 1(ii) - Make your research on any Cryptocurrency scam. (Attach a few references to the news surrounding that scam crypto project)

TurtleDex

In recent times, there have been many cases of scams in the cryptocurrency space. It is not a surprise because one of the main characteristics of cryptocurrency is anonymity which means that these scammers can create scam projects anonymously and get away with it. This has increased the rate of cryptocurrency scams in recent times. A known scam that took place in the crypto space was the DeFi project TurtleDex according to the article by thecoinshark, the project was a scam and made away with investor funds of about $2.5 million. That is a huge amount of funds that was stolen by the scammers.

[Source Reference] https://thecoinshark.net/defi-decentralized-finance/defi-project-turtledex-stole-25-million-from-investors

According to the article, the project gained a lot of momentum as it was launching on the binance smart chain. Binance smart chain was on a massive rise few months ago, since it was a great alternative to the ethereum blockchain and offered faster transactions and very low fees. This features was a huge attraction to a lot of developers to either migrate from ethereum blockchain which had very high gas fees as at the time, to the binance smart chain, or choose to build on the binance smart chain. Because of the very low fees on the binance smart chain, it became possible for a lot of scam projects to surface since they only needed to spend so little to steal large amount of funds.

According to the source, about the TurtleDex project – it was said to have turned out to be a scam project as it rugpulled on its investors. Rugpull is a term that is common in the crypto space, especially since DeFi and Decentralized exchanges became so popular. It is basically a term that is used to describe an exit scam malicious act by a scam project abandoning a project and running away with funds of investors. This is very common in the DeFi space especially on decentralized exchanges where the scam project pulls out all the liquidity they can from the DEX which crashes the price of the asset and causes the investors to lose their funds.

The TurtleDex project – was said to be a DeFi protocol launched on the binance smart chain for storing large amounts of files. The project was said to have made away with about 9000 BNB tokens which as was the time of the publication, the value of 9000 BNB was about $2.5 million. This exit scam was said to have happened just within hours of the pre-sale of the TTDX token. It was reported that the project had removed its website and telegram and also withdrawn the assets it used for liquidity and transferred to 9 different wallets and was sent to Binance exchange. Because of how inexpensive to put up a project on the binance smart chain, the rate of rugpull projects on the binance smart chain has increased drastically and this has caused investors to be very cautious when it comes to investing in projects on the binance smart chain. Sometimes investors miss out on very good opportunities because of the fear of being rugpulled.

Question 2 - To what extent have Crypto scams affected the Crypto space?

In my opinion, the crypto scams have affected the crypto space in a variety of ways. Some of the ways in which crypto scams have affected the crypto space are;

Missing out on legit projects and great opportunities due to fear of rugpull or exit scam

This is one of the extents which crypto scams have affected the crypto space. A lot of investors are now scared of investing in new projects because of rugpull or exit scam. Because of the past experiences of heavy loss of funds on scam projects, investors and general users become very cautious and sometime miss out on great investment opportunities.

Negative government regulations

Because of the scams and perceptions many have for cryptocurrency, some countries have put out regulations that is negative in the crypto space. Some countries have banned the use of cryptocurrencies because of the perception of cryptocurrency being used as a way to scam citizens. Some governments claims that they are banning the use of cryptocurrencies so as to protect its citizens from being scammed. While it is not a bad thing for governments to look out for the wellbeing of its citizens, banning the use cryptocurrencies means slow rate of adoption in these countries.

Heavy loss of investment capital

This is also another extent in which crypto scams have affected the crypto space. The aim of scam projects is to steal investors funds. This means that anyone who invests in these scam projects will mostly incur heavy loss of investment capital when the projects rugpulls or uses the exit scam strategy. This has become a big issue in the crypto space in recent times especially since the rise of blockchain and cryptocurrency. Some investors lose all their funds to scam projects that they don’t have any more funds to invest in good project opportunities. This sometimes hinders the rapid growth in the crypto space since more buyers lead to increase in price.

Slow adoption rate

Due to the increase in the rate of crypto scams, it has greatly slowed down the adoption rate of cryptocurrency by people outside the crypto space. A lot of persons know about crypto but are not making use of it because of the perception they have about crypto. Some see crypto as a scam, some are scared to have anything to do with crypto because they see it as an easy way for scammers to get away with scam since transactions are anonymous and can be traced to the persons behind the scam.

Question 3 - Will regulations in Crypto add value to the Crypto space?

In my opinion, regulations will add value the crypto space to a great extent. This is because when certain positive regulations are put in place, it can greatly reduce the rate of scam projects. Because cryptocurrency transactions are anonymous and cannot be traced to the people behind the scamming activities, some regulations can come in handy in mitigating the rate of scam projects surfacing. Some of the ways which regulations can add value to the crypto space are;

• It can help encourage the formation of self-regulatory bodies that can set some standards especially for cryptocurrency projects. This can help reduce the rise of scam projects because it would be a lot more difficult for scam projects to meet to the standards and requirements.

• Regulation can help mitigate money laundering through cryptocurrency. Exchanges where a lot of these stolen cryptocurrencies are transferred to, can help tighten up to make it difficult for scammers to sell stolen cryptocurrencies

• Regulations can help make it a standard for crypto projects to be fully registered. This can help reduce the rate of scam projects because it means that users will not invest in any project that is not fully registered.

• Crypto platforms should be fully audited before being available for users. When crypto platforms are fully audited, this will go a long way to mitigate fraudulent codes or platforms that are created to scam users and steal user funds.

• Government organization adopting the use of cryptocurrencies can open the door for more adoptions. When government authorities put up a directive to adopt the use of cryptocurrencies, this can encourage more investments from top individuals, big institutions and other private businesses, as they would feel more confident to adopt cryptocurrency.

Conclusion

The rise and continuous growth of cryptocurrency has been amazing years now. However, it has also seen the massive increase in the rate of scams. Because anonymity is one of the main characteristics of cryptocurrency, a lot of scammers have taken advantage of it to carry out scam actions. That is why it is important to do proper fundamental analysis before inventing in any crypto project. Also, regulations can help add value to the crypto space by mitigating the rate of scam project, the lower the rate of scam projects in the crypto space, the more healthy the crypto space will be and in turn, attract more investors.

@yohan2on