Types Of Crypto Scams & How To Avoid Them
Excerpt: So far, many airdrops have taken place, with more on the way in the coming weeks. In the past, most bitcoin investors have received an airdrop from one of the sites. Here’s your guide to understanding crypto airdrops and how they function if you’ve heard about them but aren’t sure what they are or how they work.
As cryptocurrency has increased in popularity, phishers have gotten more interested in its users. Every time we make one sort of phishing harder, the phishers come up with new tricks, so it’s in everyone’s best interest to remain on top of the current scams and think about how to protect yourself against them.
What we’re dubbing “Airdrop frauds” is one strategy that’s been gaining traction recently. A common airdrop scam entails minting a new harmful token, sending it to user accounts, and then phishing those users while they investigate this weird token. Users who rely solely on MetaMask for their token holdings are not vulnerable to this attack, as MetaMask has always been adamant about not auto-detecting unknown tokens and only detecting tokens that meet a high caliber of credibility, as we’ve long recognized that this is a strategy to attack and confuse users.
The issue arises when users browse other websites and wallets that display any token on the blockchain using the name chosen by the token’s author. Other wallets or block explorers may even optimistically return a value for that token based on an easily manipulated liquidity position on an Automated Market Maker (AMM) exchange. These tokens, on the other hand, do not behave like standard tokens. When users try to exchange them, they receive an error message (the text of which is also given by the malicious contract author), which refers the user to a phishing site for assistance, where they are phished.
So far, many airdrops have taken place, with more on the way in the coming weeks. In the past, most bitcoin investors have received an airdrop from one of the sites. Here’s your guide to understanding crypto airdrops and how they function if you’ve heard about them but aren’t sure what they are or how they work.
If you’re someone who wants to protect your financial data, then you’re definitely at the right place. We can give you the best practices in identifying red flags as well as help you in recovering your stolen money from scammers!
Table of Contents
CHAPTER 1: What Is an Airdrop in Cryptocurrency?
After airdropping tokens to its customers in November, the Ethereum Name Service (ENS), a platform that offers nonfungible tokens (NFTs) of domains representing wallet addresses, sparked interest in the crypto community. Those who received the tokens received governance powers over the ENS and could vote on future protocol choices.
It was so favorably appreciated that it spurred other Ethereum projects to launch their own airdrops. Airdrops aren’t new, but they’ve recently gotten more popular. Projects deliver coins to individual investors’ wallets using an airdrop. In other cases, as with the ENS, projects will airdrop tokens to users who have used their service. Occasionally, projects will distribute tokens to potential investors in order to promote their products. Receiving the airdropped tokens can also be different. Investors must opt to accept the tokens by claiming them in certain cases, while in others, they are unable to refuse the airdrop, and the tokens are instantly deposited in their wallets.
The ENS airdrop appears to be valid, as the ENS has been around for a long time and required investors to vote on a “foundational ENS governance constitution” outlining the holders’ authority before collecting their tokens. Crypto scammers, on the other hand, frequently use airdrops. They may attempt to airdrop bogus tokens into an investor’s wallet to entice them to visit a phishing website in some situations.
An airdrop is a sort of promotion for blockchain-based enterprises that helps fund the initial development of a virtual currency initiative. Its purpose is to boost awareness of cryptocurrency and the number of people trading it after it is published as an ICO on a marketplace. Airdrops are typically announced on the firm’s website and in crypto communities. The coins/tokens are exclusively issued to existing crypto wallet holders who have requested them, mostly Bitcoin or Ethereum.
Before a recipient is eligible for the gift, he or she may need to have a certain number of cryptocurrencies in their wallet. It’s also likely that they’ll be forced to make a social media post about the money, connect with another project member, or write a blog article. A suitable crypto airdrop will never force you to invest in a cryptocurrency. It exists solely to promote itself. A dusting scam, on the other hand, sends little amounts of bitcoin and other cryptocurrencies to unknowing recipients. Unauthorized crypto wallet deposits should never be accepted.
Users that interact with new and existing applications on a regular basis are likely to receive an airdrop at some point in time. As part of a bigger marketing campaign, blockchain-based organizations and developers distribute free tokens to members of their communities. The fundamental concept is to deliver newly created tokens to hundreds or thousands of different wallet addresses in the hopes that receivers will become more interested in the relevant project – even if it’s just to get a know-how of how to cash out the free tokens into anything else.
This concept is similar to getting a free discount card in the mail to attract you to try out a new store in your neighborhood. The purpose of a crypto airdrop, on the other hand, is to raise awareness for new projects and services rather than to get people to spend money. In most cases, users receive a crypto airdrop in exchange for completing a certain assignment. These responsibilities frequently include things like:
- Following a social media account.
- Retweeting or sharing one of their posts with hashtags.
- Performing a transaction (either sending or receiving) (using a particular crypto platform or wallet).
- Registering for updates and creating an account.
As we’ll see below, there are times when a crypto airdrop is given to consumers without them having to do anything.
Why do Crypto Airdrops Exist?
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A crypto airdrop’s primary purpose is to raise awareness for a blockchain startup, project, or service. By releasing tokens to users, the company may bootstrap its project and ensure a fair distribution of tokens across its community from the outset.
Furthermore, once the token is listed on an exchange, holders of these tokens are encouraged to spread the word about the project and help it reach a wider audience. The more people interested in the token, the more probable it will gain value. Airdrops are commonly popularized via promoting them on a project’s website, cryptocurrency forums, and social media. Users will never be asked to invest in a legitimate crypto airdrop. Instead, it’s a method to distinguish yourself from competitors who have sought outside investment before releasing their coins.
How Do Crypto Airdrops Work, and Are They Safe?
A crypto airdrop can be done in a variety of ways:
- Require users to execute one or more modest social tasks to be eligible for an airdrop at a later time.
- Give tokens to holders of a specific asset or balance on the blockchain where the airdrop will take place automatically. (For example, the airdrop is available to any address having a ratio of 0.01 ether or more.)
- Using an intelligent contract to take a blockchain snapshot at an earlier date and allowing users to claim their airdrop tokens through the project’s website.
Crypto airdrops, despite their popularity, aren’t always as risk-free as they appear.
Airdrops will be nothing more than pump-and-dump operations because users receive “free money” in their wallets. More specifically, the developer creates a token in the hopes of generating enough interest for it to be listed on an exchange. When tokens begin to trade, the investor sells a large chunk of their holdings, causing the price to plummet.
The so-called dusting attack is another possible attack vector. To compromise a user’s privacy, a scammer will transmit a small quantity of cryptocurrency to them. Next, the attacker will follow the wallet tokens’ transaction behavior to identify the person or entity behind the wallet. Finally, because airdrops are considered income by the US Internal Revenue Service, you’ll have to pay tax on any quantity of “free tokens” you receive, regardless of whether you desired the airdrop in the first place.
CHAPTER 2: The Reasons Why Crypto Enthusiasts Adore Airdrops
The reason for their popularity is that most cryptocurrency enthusiasts, especially those with small to no crypto holdings, prefer airdrops simply because they regard them to be free money. Furthermore, in some cases, this unrestricted wealth may rise dramatically or explode suddenly, resulting in massive rewards with no original commitment.
Airdrops are usually more profitable to the issuing company in the short term, but recipients of the free coins are generally in for a surprise later. It’s a win-win situation for all parties involved. Given the fierce competition among cryptocurrency businesses, an airdrop is a way for a company to stand out. Some crypto airdrop companies provide user alerts, startup listing services, and various marketing services to help them fine-tune their airdrops.
There are excellent and poor businesses in this field, as in any other. Early adopters and loyal community members in a crypto project benefit the most from airdrops. Due to the ease with which anyone may search smart contracts for NFT holders, some people may have many unwanted digital assets in their wallets, leading to suspicion about the airdropping procedure.
It’s one of those circumstances where anyone could airdrop anything since it’s all out in the open. One advantage of airdrops is that crypto holders typically get to claim the assets personally, giving them time to investigate the project and its legitimacy. Successful airdrops could increase the number of people interested in crypto ventures. On the other hand, some crypto companies may organize airdrop giveaways to earn quick cash.
Other considerations with airdrops include their security and taxability. The crypto community is still figuring out where these lines will be drawn because the space is new. One apparent reason for airdrops is to promote a new platform or service among the crypto community. The chance of individuals flocking to the service climbs significantly as word spreads throughout the crypto industry. This goes the same way that traditional businesses use the internet to sell themselves.
The basic rationale is that the platform’s virtual currency must maintain its value and only expand over time. It is the pinnacle of a platform’s development in the crypto realm. Sand, the virtual currency for the popular play-to-earn blockchain game Sandbox, for example, began trading at roughly USD 0.05 before soaring to an all-time high of almost $7. This represents a 140X increase from January of last year.
A large part of the currency’s value is determined by the number of people who invest in it. The market value of a currency rises as the volume of transactions and the number of holders increases. As a result, an airdrop is an excellent approach to reaching a large audience.
Although their main motivation is to incentivize consumers, crypto projects may give away free coins in various conditions. The following are the most common sorts of airdrops you’ll see:
- Typical airdrop
- Airdrop of a bounty
- This is an exclusive airdrop.
- Airdrop by the holder
More About Standard Airdrop?
A basic crypto airdrop is a marketing strategy that involves depositing a set amount of native coins or tokens into existing wallets. It’s typically done to promote a brand and encourage more people to embrace the asset, frequently occurring during an ICO.
In most cases, during the distribution event, you must create an account with the project and enter your wallet id.
What Is a Bounty Airdrop?
Bounty airdrops are a marketing approach; however, consumers must participate in some type of promotional activities to obtain the digital item.
- One of these behaviors could be sharing a post about the blockchain initiative on Twitter or other social media channels.
- Subscribing to the project’s e-newsletter
- Participating in a discussion forum on the project.
Getting a free token through a bounty airdrop requires a little more effort than a typical airdrop, although the activities are usually not strenuous.
What Is an Exclusive Airdrop?
An exclusive airdrop distributes cryptocurrency to a select set of people who subscribe to an airdrop aggregator. These third-party websites disseminate information about promising crypto projects and anticipated airdrops.
What Is a Holder Airdrop?
Users with a certain amount of another crypto in their wallets are eligible for a holder airdrop. Typically, a crypto project takes a snapshot of crypto holdings on a given date and allows users to claim an airdrop depending on their ownership.
Stellar, for example, is a crypto project that began in 2014. As a gesture of appreciation to the Bitcoin network, its officials revealed a proposal to airdrop $19 billion worth of lumen (XLM), its native cryptocurrency, to existing bitcoin (BTC) holders in 2016. To claim the XLM from the Stellar airdrop, you must verify your BTC holdings first.
How Do You Receive Crypto Airdrops?
Airdrops are a fantastic way to diversify your cryptocurrency portfolio without spending any money.
- Conducting regular web searches for crypto airdrops, chances are some strategies to locate crypto airdrops.
- Signing up for special airdrops by following airdrop aggregators.
- Joining new platforms in order to take advantage of any standard airdrops they provide.
- Keeping an eye on up-and-coming projects in order to prepare for bounty airdrops
It’s primarily a matter of staying on top of events and seizing opportunities as they occur to take advantage of an approaching airdrop.
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CHAPTER 3: Cryptocurrency Airdrops: Benefits and Drawbacks
With the vast popularity, we are already aware of the many cryptocurrencies that are available. While the debate over their use continues, a growing number of people are becoming interested in cryptography.
As a result, more industry participants are joining the market, each hoping to gain traction for their blockchain-based firm. In this case, a cryptocurrency airdrop has shown to be incredibly valuable. What is an airdrop, exactly? In essence, a crypto airdrop is a promotional offer made to players in order to keep them engaged in one of the many online games.
Crypto airdrops, which deliver free crypto coins or tokens linked with the service, help to do this. They normally request that the participants promote their service on various social media channels in exchange. In the midst of strong competition, an airdrop is a tactic to set a bitcoin company apart. Some crypto airdrop businesses offer a variety of services for fine-tuning airdrops in addition to listing services for startups and alert services for customers.
Marketing is critical for a cryptocurrency’s success, according to Michael J. Casey, an advisor to MIT’s blockchain research initiative. Money has no worth unless it is widely acknowledged. And it will only be feasible if everyone makes a concerted effort to encourage the technology’s widespread adoption.
Others in the industry, on the other side, have issued severe warnings about the risks of cryptocurrency airdrops. For example, crypto airdrops can be a pump-and-dump approach. It’s possible that cryptocurrency investors are inflating the value of their assets in order to earn a quick buck.
The allure of free money can lead individuals into a frenzy of clicking, and some airdrops are phishing schemes aimed at stealing your personal information.
If you have been scammed by an online scam then contact us to help you get your money back!
Benefits of Airdrops
With the rise in popularity of initial coin offerings (ICOs) as a favored method of seed funding and crowdfunding in the crypto sector over the last several years, airdrops have become increasingly popular among ICO project founders as effective marketing strategies.
Despite the fact that the term “airdrop” literally refers to the act of dropping troops, supplies, or equipment from an airplane via parachutes during times of war, cryptocurrency airdrops refer to crypto project owners attempting to market their coins/tokens by giving them away for free to members of the crypto community.
Airdrops were once utilized to attract the attention of the crypto community. Everyone enjoys getting goods for free, and tokens are simple to distribute. Because tokens are often included as part of the marketing budget in many ICOs, utilizing them to pay for marketing and garner attention may seem like a good idea. Is this, however, genuinely beneficial or useful?
Crypto airdrops have shown to be quite beneficial to the cryptocurrency community. Crypto airdrops, on the other hand, have certain drawbacks. Let’s have a look at the pros of a crypto airdrop first:
1. Participating in Airdrops Is a Risk-free Way to Get Started in The Crypto Industry
The crypto realm is alluring and full of opportunities, but it’s also uncontrolled and unsafe to invest in. You don’t have to commit money or give to a project that might be a hoax if you use an airdrop. With crypto airdrops, the only danger is being hacked or losing your private key. Even so, the only thing you can lose is free coins.
2. The Coins You Receive Are Completely Free
Everyone enjoys receiving free gifts. In the crypto realm, these are known as ICO airdrops, where a corporation or development team can give away tokens to users for free. Airdrops can be compared to free gifts or money.
By participating in airdrops, you are assisting ICOs in gaining publicity, and, as a result, you are rewarded with free coins or tokens. To acquire the airdropped tokens or cash, most airdrop campaigns need users to complete a few basic activities. Share a Facebook status, send a Tweet, subscribe to the ICO’s newsletter, and so on.
The ICO’s founders simply want to expand their audience, so they ask you to complete little marketing tasks in exchange for free coins or tokens. So, why not spend a few minutes completing some basic chores in exchange for some free coins? In certain circumstances, the free tokens can have a significant value, such as the Polymath airdrop, when each user received 250 tokens worth about $400, and all you had to do was register on their website and pass KYC.
3. You'll Be Able to Participate in Fresh and Innovative Initiatives
Joining airdrops is an excellent way to get engaged with a crypto/blockchain firm right from the start. You never know when the next big breakout will occur, and you don’t want to be left out.
4. Work from Home as a Professional Airdrop/bounty Hunter
Working as a professional airdrop and bounty hunter allows you to work and earn from the convenience of your own home. Finding a lucrative airdrop or bounty and then engaging in distribution might be a great way to supplement your income.
5. A Method For Promoting an ICO
Airdrops are utilized to help spread the news about the ICO because they are a type of “free money.”
A campaign to market an ICO can be highly expensive, and because most ICOs don’t have enough funding in the early stages, they choose to market the ICO using their tokens. Good airdrop initiatives frequently aid in gaining community exposure, as the projects are sometimes featured organically on social media, particularly on Facebook, Twitter, Reddit, and other platforms.
Furthermore, several cryptocurrency news sites have particular sections that announce impending airdrops and how to qualify for them. Co-Intelligence just added an airdrop section to its website, which details all scheduled ICO airdrops.
6. They Are Enjoyable to Receive
The biggest benefit of token airdrops for receivers is that they’re entertaining; who doesn’t appreciate getting free money, especially when it has the potential to grow in value? Airdrops are also a great tool for token issuers to increase user loyalty and promote their coin.
7. Marketing Costs Are Low
It’s not difficult to locate people to participate in airdrops because information spreads quickly. The costs of airdrop marketing are minimal.
A well-timed token airdrop might motivate users to learn more about the token, giving them the impression that they have a real stake in its development. In fact, airdrops can be a great way to raise money.
Drawbacks of Crypto Airdrop
The disadvantages are also worth mentioning:
Projects raise cash in ETH/BTC/FIAT or other cryptocurrencies during the ICO.
When a contributor buys 1000 tokens for 1 ETH, for example, the token price is $0.3 per token, based on the current ETH price. In reality, the contributor would not sell his tokens at a lower price since he would lose money. When ICOs make airdrops and give tokens away for free, however, the airdrops hunters are unconcerned. In most situations, their ultimate purpose is to sell as soon as they are able. This may have a negative impact on the token economy and value.
Scammers may use airdrops to persuade people into phishing their MyEtherWallet private keys and draining their cash. As a result, before deciding to participate in an airdrop campaign, one should thoroughly examine it. Never give anyone your wallet’s private keys.
Also, double-check the URL of your wallet before inputting your private keys to log in because some scammers may phish your private keys using sites that look precisely like your wallet’s login page.
3. Make-believe Numbers
Many ICO founders follow the trend and are enticed to increase their social media following and Telegram channel in the hopes of raising funds; however, this is not the case.
At this point of an ICO, airdrops can be a very negative instrument to utilize for marketing. Take the Ubex Token Sale, for example. Their Telegram channel has 100K followers, and they have 60K Twitter and Facebook followers, but they are still short of their hard cap.
Another example is the Shivom project, which had a Telegram channel with over 70K individuals 5 months ago during the airdrop, but now has just 46K people, indicating that interest in the project was more centered on the “free money” than on supporting the initiative. Sophisticated investors and venture capitalists are already aware of this pattern and view ICOs that offer airdrops and incentives with suspicion. Airdrops don’t attract the ideal customers for your goods; instead, they attract bargain hunters looking for the best offer on “free money.”
4. Ineffective Airdrops
Airdropped tokens might be nearly worthless at times. As a result, while it’s always nice to get some free money, wasting time and effort on airdropped tokens with no real value or development potential is pointless.
5. Deciding How Many Tokens To Offer is Difficult
Choosing how many tokens to distribute can be difficult. If you give out too few, your marketing and community-building efforts will be ineffective.
If you give out too many, your tokens’ market value will be diluted. Last year, following an airdrop, U Network ran out of tokens, prompting them to buy tokens back from airdrop recipients.
6. The Value of the Asset Plummets
Another problem with token airdrops is that many people who get them will sell them as soon as they become tradeable, causing the value of the token to plunge if not enough airdrop receivers keep their tokens. As a result, later token buyers will see their investments lose value, which is bad for loyalty.
Crypto airdrops have shown to be a highly efficient marketing tool for new and upcoming crypto projects, as well as a boon to crypto enthusiasts who are able to take part in successful airdrops. However, given the increasing frequency of airdrop frauds, crypto users are recommended to conduct comprehensive and thorough research on airdrop events before participating in order to avoid becoming victims of malicious airdrops.
To summarize, ICOs that are still in the early stages of development and lack sufficient funding seek to utilize their tokens as an incentive to entice people to promote their products. Because the market is currently swamped with airdrops, the quality of users participating in these airdrops is suspect. Many bots and “silent users” will join the chat or follow the social media channels without ever interacting with the project or visiting the website.
Founders are treating tokens shabbily because they never paid for them in the first place, and they are simply following the crowd and taking the easy way out. On the surface, airdrops appear to be a fantastic idea, but their sloppy implementation may be doing more harm than good to ICOs.
If you’re thinking of doing one for your own project, make sure you organize it well so that you can attract individuals who will support your ICO and continue to promote and interact with you even after they stop earning free tokens.
CHAPTER 4: Crypto Airdrop Scam: How to Avoid Being a Victim
It’s crucial to remember that not all airdrop schemes are legitimate; airdrop scams are on the rise as unscrupulous actors use the guise of crypto airdrops to defraud consumers out of their money.
Several examples have been reported of malicious actors airdropping harmful tokens into the wallets of random crypto holders, who then discover that their assets have been completely ripped off when they try to send money out of their wallets. There have also been instances where fraudsters promote bogus airdrop events to crypto users, bringing them to a phishing website and persuading them to connect their wallets to their malicious sites in order to delete their cash.
However, as the crypto industry has learned that scammers are using the concept of crypto airdrops to steal people’s money, consumers are recommended to conduct thorough research on any crypto airdrop before participating.
The bitcoin industry is always inventing new ways to defraud you of your hard-earned money. We’ve compiled a list of items to keep an eye on.
1.) Keep Your Private Keys Safe
If an airdrop asks for your private id or key, you can be sure it’s not genuine. The wallet’s owner is the only one who has access to the private keys. If someone gets their hands on your private key, they also get their hands on your pocketbook. That is something we do not desire.
2.) Take Care of Your Personal Data
Some airdrops will request personal information from you, such as your email address. Now, for legitimate airdrops, you’ll almost certainly need to submit personal information, which is where things become sticky.
3.) Do Your Homework
If you have the option of receiving airdropped tokens, you should first research the project that is delivering them to see if it has a viable product. Even if the airdropped token is safe to claim, the project’s goal may be to benefit a small group of founders or essential contributors. A drop’s code, website, and social media can all provide information about it and its project. Before connecting your wallet to a project’s website, look into its basics and what it proposes.
4.) Lookout For The Red Flags
There are a few frequent red flags to be wary of when studying a project, many of which can be observed when examining the smart contract, which are collections of code that carry out a set of instructions.
For example, if a project does not have on-chain security to secure cash, its founders or developers may be able to control the flow of money. This is frequent in “pump and dump” or “rug pull” operations, in which developers quit a new initiative and walk away with the money invested.
Furthermore, if a project airdropping tokens lack a product, plan, governance outline, or other similar elements, it could be a red flag. It can be risky to claim tokens now with the promise of being taught details later. While this can occasionally be the case with early crypto initiatives with no malice, it’s something to keep in mind.
Founders of projects should be open to answering inquiries on Discord or Twitter, especially if people are raising potential issues or concerns. If they aren’t, this can also be a red flag. Another example is if a project charges a fee to trade or sell tokens or does not allow you to swap or trade at all.
5.) Look at Smart Contracts
Most crypto-based projects require smart contracts to function. Although they can be pretty complex, it’s worth looking into a project’s smart contract or asking someone who knows the space to do so.
If a developer’s code has flaws, whether purposefully or unintentionally, the project may suffer from flaws.
6.) Double-check Your Sources
To prevent being a victim of an airdrop scam, trust but double-check your sources, which means that before signing up for an airdrop, you should conduct your homework and confirm its credibility.
Scammers have learned that airdrops are a great way to fool people because there is a lot of demand from people looking for quick cash.
According to Metamask, threat actors distributed damaging coins to random crypto wallet holders late last year. When account holders are interested in learning more about the token, they typically search it up on the internet. The search would lead them to the threat actor’s malicious website, where they would be phished for sensitive online data from unsuspecting customers.
Users should be wary of such schemes and should only participate in legal platform airdrops that have been previously advertised on legitimate websites. When individuals are asked to send cryptocurrency in exchange for being enrolled in an airdrop, this is another criterion to watch out for. Or if the airdrop’s promised money is far too high to be justified. In such times, it is best to avoid potentially malicious action or conduct an extensive investigation of the project’s scope.
Airdrops are a very innocuous marketing strategy that benefits both fledgling projects and their early backers. While these tokens may appear minor at first glance, they have the potential to be quite useful to crypto newbies and enthusiasts looking to get in on the ground floor of exciting new projects without having to pay any money.
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