Beware of Cryptocurrency Scams: Insights into Memecoin Frauds

TFD – Delve into the world of cryptocurrency scams and memecoin frauds as we uncover the tactics used by con artists to dupe investors. Learn from Ryan’s cautionary tale and understand the importance of due diligence in crypto investment. Stay ahead of the scams and protect your financial interests.

Ryan has been self-employed for 15 years. He works long hours on two small manufacturing businesses. But he finds time to daydream about getting in early on a cryptocurrency that goes to the moon.

In 2021, the value of Dogecoin—a cryptocurrency asset that began as a joke—rose seventy times in just four months. The total value of the coins in circulation reached $70 billion. “Imagine being one of the early adopters of Dogecoin,” says Ryan.

Numerous clone memecoins have ripped off the Dogecoin format. They are worthless and don’t offer any innovation, yet a handful have had an equally sharp price increase. In order to discuss financial problems, Ryan, who wanted to only be identified by his first name, says he invests in fresh memecoins for “entertainment,” being cautious never to spend more than he can afford to lose. However, he also wants to try his hand at wealth.

Scammers now have a window of opportunity thanks to the memecoin market, which is based on the notion that anyone may become wealthy if they are quick enough to miss the mark. There are many various types of frauds, but recently, con artists have started advertising early-bird pricing for investors who purchase before a coin is issued, capitalizing on their desire to get in before the masses.

According to data from crypto security startup Blockaid, the number of memetoken presales climbed fivefold between February and March, when the price of bitcoin reached all-time highs. Blockaid discovered that 369 presales in March alone had 33% of them being frauds. According to Ido Ben-Natan, a cofounder of Blockaid, “scammers try to feed on the FOMO.”

Ryan was looking around for a fresh investment earlier in the year. He invested $750 in Rebel Satoshi, a coin that was being presaled. He was first encouraged by the token’s credibility because the website had attractive artwork, investors could pay with a credit card, and there seemed to have been a press release about it on Yahoo Finance. Ryan claims, “It didn’t take long for me to start having doubts.”

Ryan asserts that Rebel Satoshi’s creators altered the regulations prior to the token’s scheduled release. Prior to commencement, investors were initially assured of receiving their entire allocation; however, this was to be distributed in weekly installments beginning on Monday and lasting for eight weeks. The fees connected with each of those transactions now have the potential to exceed the whole amount of a small investor’s interest. Ryan hypothesizes that the developers were attempting to keep certain users from claiming their share since they had sold more tokens during the presale than they had planned to release. He began to investigate.

The Rebel Satoshi’s price dropped by 65% in a few of days after its March introduction. Rebel Satoshi started promoting a new coin that was up for preorder on social media. Investors began to suspect that there might be a scam involved. Among the many spam messages on a Discord channel for the coin’s investors were valid questions. The moderators removed Ryan as he began to ask pointed questions. In a marketing email sent in February, Rebel Satoshi claimed to have entered into a “groundbreaking partnership” with crypto exchange BingX. But in an email message seen by WIRED, the exchange told Ryan there was no such partnership.

Crypto auditing firm Hacken conducted a study on behalf of WIRED and found red flags in the token’s underlying code that could potentially indicate a scam. Among them were, among other things, the lack of a feature that keeps the issuer from pilfering from the pool of tokens reserved to enable secondary market trading.

Ryan has attempted to warn others away, believing he has been duped. “Even though $750 is a lot to lose, I wouldn’t end up dead,” he claims. “However, my heart goes out to those who truly lost.”

A request for comment submitted to email aliases provided on the Rebel Satoshi website was not answered by WIRED.

A token presale scam is the kind of fraud Ryan believes he has fallen victim to. Although the format is not new, people are more susceptible because of the fear of missing out on anything because cryptocurrency prices are so high. According to Ben-Natan, “these scams are broadly correlated to recent events.” “They recur, but they’re not new phenomena.”

Ben-Natan notes that while there are variances on the topic, most scams follow a similar pattern. The developers, who like to stay unknown, typically spend money on glitzy social media marketing and sponsored spots in cryptocurrency media sources, pitching their token as the newest and greatest memecoin and offering presale investors a discount. Sometimes the token never appears, and the con artists take the money. In other cases, the con artists either break their promise of providing long-term assistance or leave the project after selling off their own token holdings.

Like with Rebel Satoshi, it’s not always easy to distinguish between a fraud and a failed initiative in the later case. Furthermore, according to Ben-Natan, “something that wasn’t a scam initially can later transform into a scam” because of the big sums of money involved. The line may become less distinct over time.”

According to Ben-Natan, skilled cybercriminal gangs, rather than lone players, are mostly responsible for these schemes. He claims that a “microeconomy” has developed around them, in which several entities may be in charge of running various aspects of the hoax, such as the marketing campaign or the website design, among other things. The biggest of these businesses have the potential to make hundreds of millions of dollars. “The figures are astounding,” states Ben-Natan.

The warning indicators are there for anyone who is prepared to search for them, according to Dyma Budorin, cofounder of Hacken. For example, it’s easy to verify if the creators have disclosed their identities or if there’s a mechanism in place to stop them from selling their interests suddenly. But few investors bother to do due diligence since they are anxious to get started on new projects as soon as possible. “All of it stems from avarice,” states Budorin.

According to Budorin, in an attempt to get in early, some investors who are desperate for profits have resorted to employing “sniping bots” to automatically buy tokens as soon as they start trading on the open market. Some people are copy-trading, which is the act of mindlessly copying another person’s transactions in order to avoid having to conduct their own research. Both strategies raise the possibility that someone will come upon a hoax.

Even with how severe these memecoin-based frauds have become, there is still more space for expansion. According to Budorin, the majority of those purchasing these items are already employed in the sector. Presale events are marketed in niche circles, and most new tokens aren’t traded at launch on mainstream crypto platforms. But as newcomers are drawn into the cryptosphere by the run-up in the price of mainstream tokens, like bitcoin, the pool of potential victims will expand.

Setting an industry-wide standard for new cryptocurrency tokens and requiring features in the code that stop developers from abusing their authority over significant amounts of the token would be one method to protect against these scams, according to Budorin. In theory, any tokens that differed might be easily discovered and blacklisted if someone could convince exchanges and other stakeholders to embrace the new standard in unison. “It could be fixed relatively easily with a standard,” says Budorin.

However, investors seeking massive profits will still take a chance by purchasing recently created memecoins. Ryan acknowledges some guilt about perhaps losing his money to fraud. With hindsight, I hardly blame them. I ought to have been more aware. Numerous flags were present, he claims. However, the event hasn’t made him any less excited about investing in memecoins.

Ryan states, “I think I will continue putting money toward other tokens that have a lot of potential and stay away from the sketchy stuff.” “I refuse to let it deter me.”