Rug Pull Scams in Crypto World: Stay Safe and Informed!!
People are becoming aware and interested in buying and dealing with cryptocurrencies. No doubt, it is very positive for the market!!! However, there is also a downside to the scams.
Some scammers use this to cheat others, mainly known as the rug pull scams. They make fake cryptocurrencies or pictures known as NFTs that look good to trick people into giving them money. Then, the scammers disappear with the money.
Hence, it's called a "rug pull." It's compared to someone pulling the rug out from under you. Let us know this in some detail. We will also share some valuable tips on staying safe while dealing with cryptocurrency.
What is a Rug Pull?
Rug Pull is a scam quite famous in the crypto business, where cryptocurrency or NFT project developers trick investors.
They will hype the project as valuable to pull in significant money. Then, they will just stop the project or disappear, taking all the money - essentially, stealing.
The term is further derived from "to pull the rug out from under someone.” It means to surprise and leave him or her in a challenging financial situation.
Types of Rug Pull Scams!
Now, there are generally two types of rug pulls: soft and hard!!!
Soft Rug Pull: The developers promise big returns or the ability to gain entrance into exclusive memberships. As money from new investors rolls in, the value of the token increases rapidly. Now, when the developers have the maximal value, they go right ahead and sell their own holdings, which leaves the investors holding a suddenly nearly worthless portfolio.
Hard Rug Pull: This is usually when project administrators will freeze the tokens for investors or introduce some harmful code, ensuring that they steal all the money.
Notable Rug Pull Scams in Crypt World!
Let's discuss some of the worst rug pull scams in the crypto world:
Thodex
The Thodex founder, Faruk Fatih Ozer, suddenly declared in 2021 that it would return to services in five days. It never did. It went from a billion-dollar company to just being gone. Read more about this crypto fraud.
OneCoin
It was another example of a Ponzi scheme cryptocurrency. Its founder is Ruja Ignatova. She disappeared in 2017, raising $4 billion. The coin was not used to buy anything. Then, subsequent to Ruja's disappearance, it was taken over by her brother, who later got arrested for fraud and money laundering.
Fintoch
This was a project that scammed $32 million from investors back in May 2023. Of course, they were claiming it was backed by Morgan Stanley, giving the suckers a 1% per day return on their deposits. Then it vanished with the money.
How to Protect Yourself from Rug Pulls?
Here are some ways to help you steer clear of rug pull scams:
Do Your Research: The project is supposed to be researched before the investment process. Check if the community knows about the developers. Had they been able to complete any other projects? Beware of anonymous teams without history. Also, see if a trusted third-party audit has passed the project.
Engage with the Community: Most projects have a community on Telegram or Discord. Observe what people have to say and ask questions. If they seem unwelcoming or uptight, that's a possible red flag. If unsure, make a small investment to minimize risk.
Check Liquidity and Smart Contracts: Ensure that the project has enough liquidity and that its assets are locked for a safe period. This is usually located in the white paper and smart contract. Ensure that the smart contract code has no weak points that would allow the developers to steal funds.
Final Notes!
While scammers continue to target cryptocurrencies, you can take steps to avoid bad investments. The authorities are also cracking down on crypto scammers, making it so much harder for them to get away.
But remember: no method is foolproof. Trust your judgment always, and keep your digital wallets safe while learning daily to be safe from crypto scams. For more information on tax compliance, contact Crypto Accountants!