Cryptocurrencies have an air of being 100% secure. Yet the past year was full of hacks and scams resulting in billions of dollars worth of cryptos lost. Mostly, the large hacks have to do with the systems that help users transact, such as decentralized finance, or DeFi, platforms, many of them barely one to two-years-old. In other cases, the scams are simply pump-and-dump, rug pulls, or other schemes.
And just like most things cryptos, even the scams are sometimes shrouded in mystery. It is not always clear who scammed who — who were the actual attackers or scammers and who really lost money. In fact, it is not always clear how much money was involved. In a few cases, it is not even certain that there was an attack — whether the claims are false or overblown by hype.
What is clear is that in a decentralized system that has little in the way of oversight and regulation, investors should be ultra careful when it comes to crypto. (While relatively few dabble in crypto investment, everybody should be aware of identity theft risk. Here are the states with the most identity theft.)
To find some of the biggest and most famous cryptocurrency scams of the past year, 24/7 Wall St. reviewed media reports, trying to create a representative list of some of the biggest, more recent headlines involving crypto scams. The list is by no means exhaustive, nor does it necessarily list the scams with the most money involved (the sums are not always clear). Rather, it tries to provide a wide array of hacks and scams that made the most news over the past year alone.
Cryptocurrency is a type of digital money that is secured via encryption technology that is immutable or unalterable. Cryptos have no physical form, such as bills or coins, and unlike most currencies are not issued by any government. Cryptos exist as digital blocks of data that are digitally signed each transaction — this digital ledger is maintained across a peer-to-peer network called blockchain.
The first cryptocurrency to attain significant popularity was bitcoin, launched in 2009. Bitcoin (BTC) remains the most popular crypto system available, with about $800 billion in market capitalization as of April 20. Other large cryptos by market cap include ethereum (ETH) and tether (USDT), though many more cryptocurrencies are constantly created.
Cryptocurrencies are created (and secured via blockchains) through cryptographic algorithms in a process called mining, using a network of computers. This computing power for the mining process consumes a great deal of electricity, much of it carbon based as of early 2022.
Though similar to cryptos in that they are unique cryptographic tokens, NFTs — short for non-fungible tokens — are different in that they can represent real-life items like artwork and cannot be exchanged at equivalency. So while fungible items — money, commodities, cryptos like bitcoins — can be traded for one another in equal part or quantity, non-fungible items, like a unique artwork, cannot be replaced by another.
Scammers and hackers took in $14 billion worth of crypto in 2021 alone, according to blockchain analytics firm Chainalysis. Largely, this was the result of the rise of DeFi platforms, which are financial applications that allow people to transact without relying on intermediaries, such as brokerages and exchanges. And according to crypto-asset risk management firm Elliptic, DeFi fraud alone has topped $10.5 billion in 2021, with losses jumping by 600% from 2020.
Without intermediaries, there are also no terms and conditions, Chainalysis explains and adds that DeFi platforms also have many code vulnerabilities that hackers have managed to exploit. Hot wallets seem to be hackable, with private keys from hot wallets of many different crypto exchanges stolen. Rug pull scams also increased considerably in 2021.