- A rug pull involves a crypto quickly gaining large amounts of popularity and investors, when an inside member suddenly takes all the funds and goes off the grid.
- Scam cryptos usually include ‘backdoors’, which are vulnerabilities intentionally left in the coin’s code to enable quick theft of funds.
- To prevent being scammed, investors should do thorough research on the coin and the team behind it, while keeping an eye out for key factors such as liquidity and distribution.
In the ever-evolving digital space, new trends and patterns make their way to the spotlight each day. While most are of interest and provide value, certain trends can be seriously detrimental to users. A prime example is “rug pulling”, one of the latest crypto scams that is being used to swindle and trick investors. A typical rug pull involves a new cryptocurrency quickly gaining large amounts of popularity and investors, when suddenly an inside member takes all the funds and goes off the grid.
A rug pull scam begins with the creation of a coin. An individual can create their own cryptocurrency on a blockchain platform, then get the crypto listed on a decentralized exchange or other crypto marketplace. Some coins created for the purpose of scamming investors will include ‘backdoors’ in the code, which are vulnerabilities that a developer intentionally leaves for the purpose of stealing funds from users (or other nefarious acts).
Many scam coins will enlist the help of prominent figures to promote the crypto to their followers and increase the number of potential investors. In some cases, the influencer has little to no knowledge of the crypto, they’re just paid to promote it. In other cases, the influencer is aware that the coin was created for the purpose of scamming, or is even part of the team that created the coin.
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While crypto scams are often executed quickly at an unexpected time, there are safety measures that investors can utilize while vetting coins. The first is to do thorough research on the coin. Look at statistics such as liquidity and distribution, as these are valuable indicators that heavily influence a coin’s reliability and trustworthiness. It’s also worth searching for a community dedicated to the coin, where investors can converse and discuss important matters.
Another important factor to look out for is anonymity. The most reputable and reliable coins will provide thorough details on the team behind the crypto which includes names, credentials, websites/social media, and more. While every situation is different, a cryptocurrency having an anonymous creator is a red flag that should not be taken lightly while searching for potential investments.