Cryptocurrency Rug Pulls: How to Spot and Prevent Them
A recent report by blockchain security auditor Hacken reveals that spotting cryptocurrency rug pulls is not too difficult for investors. These scams, which make up the majority of crypto hacks, have distinct features that can be identified. Rug pulls occur when a project team artificially inflates the value of their token and then suddenly withdraws liquidity, resulting in significant losses for investors.
The Proliferation of Rug Pulls
Rug pulls are prevalent in the market because they are easy to create. Scammers use token factories to produce fraudulent tokens on a large scale. In Q3 2023, rug pulls accounted for more than 65% of all crypto hacks.
Preventing Rug Pulls
According to Hacken, preventing rug pulls is one of the simplest scams to avoid. The report provides some tips based on Q3 observations:
- Check for an independent third-party audit: Only 12 out of 78 Q3 rug pulls examined had completed any kind of audit.
- Be vigilant with audits: An audit alone does not guarantee protection from scams. Users should properly assess the audit report and its score.
The Influence of FOMO
Hacken’s CEO, Dyma Budorin, explains that investors often overlook red flags due to the fear of missing out (FOMO). Success stories like Pepe (PEPE) and Shiba Inu (SHIB) have led people to hope for similar gains. Scammers exploit this by mimicking successful projects and creating a sense of urgency.
The Impulsive Nature of Crypto Investments
Hacken’s CEO emphasizes that investing in cryptocurrency is often a quick and easy process, requiring only a few clicks. This simplicity can lead to impulsive decision-making, making it crucial for investors to conduct thorough research and exercise caution.
Hot Take: Staying Vigilant Against Rug Pulls
As the prevalence of rug pulls continues to rise, investors must remain vigilant to protect themselves from scams. Conducting independent audits, properly evaluating them, and avoiding impulsive decisions are essential steps in safeguarding your investments. By staying informed and cautious, you can minimize the risk of falling victim to rug pulls and other fraudulent schemes in the crypto market.
Source: Cointelegraph
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