The rising crypto scams may have dampened the spirits of many global enthusiasts hoping to shine in the promising digital currency space. But is this going to be a permanent concern? Or is there a way to safely navigate the market without becoming a sitting duck for scammers?
Although the threats are real and participants may have little chance of escaping an attack, especially those involving high-security breaches, some fraud can be avoided by taking basic precautions.
Experts believe that simple safety measures can largely help to avoid the risk.
Why is the threat real?
London-based blockchain analytics firm Elliptic estimated that the DeFi-based NFT industry lost an astounding $12 billion to fraud, which includes price manipulation, money laundering, etc., in 2021.
In many cases, hackers used a flaw or flaw in the DeFi protocol to steal crypto assets, said the Elliptic study titled ‘NFT Report 2022’, released on August 26.
In a tweet on August 4, the Solana blockchain revealed that a “malicious actor” was responsible for the massive wallet thefts. The tweet said, “An exploit allowed a malicious actor to drain funds” from thousands of Solana wallets, including Slope and Phantom wallets. It affected 7,767 wallets.
Commenting on the crypto scams, Vijay Pravin Maharajan, founder and CEO of bitsCrunch, a German blockchain analytics firm, said that the responsibility to protect the NFT wallets lies with the users (buyers and sellers). However, some aspects of responsibility also go to the marketplace.
Here are five things to keep in mind in the crypto market:
Use a secure wallet: The Maharaja advised people to opt for a non-custodial wallet to store funds or to access products. A non-custodial wallet allows you to retain control of your credentials and assets rather than giving that responsibility to a third party.
But you can use a custodial wallet if the service provider is a well-known organization. However, he warned that custodial wallets can be hacked more easily than non-custodial wallets.
Unlike custodial wallets, non-custodial wallets do not store private keys, which are unique tokens to determine your ownership of the assets, including NFTs. Binance, BitMex and Coinbase are some examples of custodial wallets. The non-custodial wallets include Electrum, Exodus and Ledger Nano X.
Do not store sensitive data online: The Maharajan has advised people to keep a digital copy of important data to prevent it from falling into wrong hands. He told them to store login credentials and other critical details in a physical space that only they had access to.
Be aware of Wallet activity: Keep track of your wallet and respective NFT developer’s blockchain activity. “While these strategies can serve as a safety net, the fact remains that blockchain users need to be constantly vigilant about their assets and accounts,” Maharajan added.
Look for revised smart contracts: Elliptical researchers have advised people to check if the DeFi protocols have audited the smart contracts. This is because hackers usually exploit a DeFi NFT protocol by finding vulnerabilities in the smart contract. Therefore, you should also check whether the vulnerabilities in the smart contract audit have been patched.
Look for suspicious developers: You should check if a DeFi protocol is developed by an anonymous developer with no proven technical abilities. If you can’t find conclusive evidence, then stay away from that protocol. You should also be wary of centralized DeFi projects, which only have a few private keys from developers as they can perform a rug-pull scam.
Developer’s operational preparedness: Sometimes white hat hackers can expose a faulty smart contract code, but you should check if the DeFi protocol fixed the bug. Elliptical researchers also advised people to check whether the NFT developer shows a general level of operational security during its public chats. This will help you judge whether they may be a target for social engineering attacks.
