Scams and hacks in the cryptocurrency sector make headlines more often than they should. Whether a bridge that has been exploited or a protocol loophole has been found, these exploits are often worth millions. Though perhaps more common than hacks, crypto scams affect individual users and are often a case of security mismanagement or poor due diligence.
Whether phishing scams, rug pulls, or Ponzi schemes, there are a variety of scams you can run into when participating in the digital asset sector. We’ll discuss those types of hacks and scams and what the likelihood is that you’ll be able to get any funds back if they happen to you. Let’s jump in.
Common Scams and Your Recovery Options (If Any)
Bridge Hacks and Protocol Exploits
We’re going to start with bridge hacks and protocol exploits because they aren’t really scams but they can certainly cause you to lose funds. Often when new blockchains launch or are developing, at some point they’ll create a bridge protocol to bring assets from another blockchain to it, or vice-versa. These bridges aren’t always the most secure in terms of code, or there may be an issue in the code. In either case, a hacker exploits it and drains funds in one way or another.
Bridge Exploit Recovery
It’s unlikely you’ll get much in the way of funds back when this happens, but it actually is more likely than with many of the other scams on this list. This is because the hacker is often incentivized to return funds, or in rare cases, was simply proving a point to a developer and returns the funds.
Phishing Scams
Much like in real life, one of the most common scams in crypto is a phishing scam. In your day to day life this is often received in the form of a random text message or phone call saying you owe money or are owed money. The scammer then goes from there if you bite.
With crypto, the most common phishing scams are blanket emails sent out that say that your cryptocurrency wallet needs to be verified. This can be for a variety of the most trusted crypto wallets on the market. The emails look real and appear to be from the real company, often being sent from a close but not the actual company’s email, but they aren’t. If you follow the instructions given by the email, it’s likely you’re giving them the key information they need to recover your wallet on their end and take all your funds.
No crypto wallet providers email users to verify anything, as that would defeat the purpose of having a decentralized wallet service. If you receive any sort of email like this, either ignore it, or report it to the actual company.
Phishing Recovery?
It’s highly unlikely you’ll get anything back from a phishing attempt if they successfully get into one of your crypto wallets and send the funds somewhere. Though until the funds get mixed or sent to a privacy coin network, it’s certainly possible to see where your assets went. The only way you’re likely to get any of these funds back is if it is a larger phishing ring and a government body catches them and returns people’s assets. This is going to be a common theme amongst recovery options.
Rug Pulls
Rug pulls are frequent occurrences in crypto as well. There are a few ways in which they occur, but the end result is that the developers run away with investors’ funds or investors’ assets become valueless. The problem with rug pulls is that they can be hard to see coming and then they happen suddenly.
One of the more common rug pulls that occurs is with NFT projects. A new project will promise X, Y, and Z for their NFT project. Based upon that, investors will look to get on board early, buying in on various NFTs as they go up for presale.
For example, when a new blockchain based game is being developed, the developers will often pre-sell the land, space, vehicles, and more before the game is running. Investors who think it is a good concept can then pay in crypto for those NFTs for the game. But sometimes, months later, the developers disappear and the investor is stuck with useless NFTs for a game that doesn’t exist.
Rug Pull Recovery?
The issue with a rug pull is that there’s often nothing taken from you specifically, the value just disappears because either the asset drops to zero (like Terra when it collapsed), or there’s simply nothing to recover because the project just stops functioning. Much like with a phishing scam, your best bet is some sort of government intervention in order to get any crypto or investment money back. This can be seen best with the current FTX Exchange collapse case. FTX brings us to our next scam.
Ponzi Schemes
Ponzi schemes are often deals that are too good to be true. This could be an asset that seems to be giving an unsustainable rate of return, a platform like a crypto exchange offering you their own token with too many benefits (more on this in a moment), or a new token launch that has yet to come to market.
Now, the caveat to this is that when new platforms launch, they must incentivize new users to migrate to their platform with some sort of high rate of return for early adoption. The problem of a scheme arises if these platforms keep raising these rates or never decrease them.
For example, FTX Exchange, which can now certainly be described as a Ponzi scheme, never changed the benefits provided by its FTX Token (FTT), even as more and more users were onboarded. Had users noted this lack of change, or even just looked at the overall distribution of FTT (as FTX and Alameda held most of the supply), they’d have quickly been able to see some warning signs. The fact that in the court case it became clear that they took new investor money to pay old investors, FTX was one of the biggest ponzi cases in recent memory.
In contrast, Crypto.com has their own token in Cronos (CRO), which did give huge APR returns when the platform first launched, but they’ve since decreased significantly. Perhaps more importantly for CRO investors, there is a Cronos blockchain whereas FTT was simply an ERC-20 (Ethereum) token.
Ponzi Scheme Recovery?
Just like with a rug pull, you’re essentially just going to have to wait for the government to get their hands on funds and return them to affected users.
Closing Thoughts: It’s Possible to
Getting scammed in crypto or otherwise is not a fun experience. Though your odds of getting all your funds back aren’t high, the fact that it is possible is certainly a good thing. The best thing you can do is try to avoid these scams by doing due diligence and only investing what you can lose.
