Detecting a cryptocurrency rug pull is a straightforward task, as suggested by cybersecurity firm Hacken, specializing in blockchain security. For investors, identifying cryptocurrency rug pulls is not an overly complex challenge, as these scams usually exhibit distinctive, easily recognizable traits, as outlined in a recent report.
On October 25, Hacken, the blockchain security auditor, unveiled its latest security insights report, aiming to unravel the trends in third-quarter crypto hacks and evaluate the security approaches taken by affected projects. Within this report, particular emphasis was given to rug pulls, a breed of exit scams that transpire when a project’s team inflates their token’s value before swiftly draining its liquidity. Shockingly, Hacken’s findings reveal that cryptocurrency rug pulls accounted for a staggering 65% of all crypto hacks in Q3 2023.
The proliferation of rug pulls in the market is primarily attributed to the simplicity of devising such fraudulent schemes. The report astutely observes that “serial scammers employ token factories that exhibit consistent patterns to mass-produce deceptive tokens.” Despite their prevalence, Hacken asserts that cryptocurrency rug pulls rank as “one of the simplest scams to prevent,” and they generously provide insights based on their Q3 observations.
One of the pivotal methods for assessing a project’s legitimacy is to seek an independent third-party audit, according to Hacken. Surprisingly, among the 78 Q3 rug pulls scrutinized by Hacken, only 12 had reportedly undergone “any form of audit.” Nevertheless, even when a crypto project claims to have been audited, users are urged to exercise vigilance in thoroughly scrutinizing the audit findings. An audit alone, Hacken emphasizes, does not guarantee protection from scams. The report aptly states, “The project may have undergone an audit and obtained a report, but the quality may be subpar. Regrettably, users sometimes overlook this fact and place undue confidence in the mere fact of the audit’s existence.”
Dyma Budorin, the co-founder and CEO of Hacken, points out that investors frequently turn a blind eye to red flags, such as the absence of audits and other warning signs, primarily due to the allure of quick and substantial gains—a phenomenon often referred to as “fear of missing out” (FOMO). The cryptocurrency industry has witnessed remarkable success stories with meme coins like Pepe (PEPE) and Shiba Inu (SHIB), where a modest investment of $100 out of curiosity transformed into substantial profits. This history of meteoric rises tempts individuals to anticipate a repeat performance, as Budorin observes, “This yearning for substantial returns in a short timeframe frequently blinds individuals to warning signs and drives them to impulsively enter investments.” He adds, “Scammers are acutely aware of this behavior and excel at mimicking prosperous projects. They frequently allude to thriving ventures, heightening the FOMO surrounding the next big opportunity.”
Hacken’s CEO further underscores that the cryptocurrency investment process has become almost second nature for many users, involving minimal effort, typically requiring just a few clicks. He points out that this ease of entry can sometimes lead to impulsive decision-making.
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