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Experts warn about “Crypto Carpet Pulling”

ICYMI: Here’s a warning, Associated Pressabout “crypto rug pull” and how it can cause even more pain in the cryptocurrency markets:

A new type of scam has emerged in the hype-filled world of cryptocurrency: the “carpet pull”.

The scam, which got its name from the term “pulling the rug”, involves a developer who attracts investors to a new cryptocurrency project and then pulls out before the project is built, leaving investors with a worthless currency. It’s part of a long history of investment plans.

“It’s not a crypto phenomenon. It’s a human phenomenon. Crypto is just the latest way to do it,” said Adam Blumberg, a Houston-based certified financial planner specializing in digital assets. due to loose fundraising rules and an emphasis on decentralization.

Cryptocurrency projects often use “smart contracts”, agreements managed by computer software, not the legal system. This setup can be an advantage when it lowers transaction costs, but it also leaves very few options if things do not work out.

Carpeting has been particularly prevalent in decentralized financing or DeFi projects aimed at disrupting services such as banking and insurance. NFTs or non-fungible tokens, which provide digital ownership of art and other content, have also been implicated in carpet draws.

Investors can protect themselves by selecting established cryptocurrency projects, ensuring that the code for any new projects has been reviewed, and verifying the identity of the developers.

All-in pullbacks are most common with new projects that have not been researched in the same way as more established cryptocurrencies.

Bitcoin has its risks, but countless people around the world have used it and researched its intrinsic features, which are readily available online. Newer projects do not have such a track record, which means there may be vulnerabilities that allow their organizers to pick up value from investors and keep it to themselves.

If you are struggling to break through the hype, one way to find established projects is to look at centralized exchanges such as Binance, Coinbase and FTX. Although the presence of a cryptocurrency on a major stock exchange is in no way a guarantee of its quality or investment potential, these companies will often review assets before listing them for sale.

The trade-off of primarily investing in more established assets: While cryptocurrencies have generally experienced periods of rapid price increases, the highest rewards may come from new ventures, where the risk is also higher.

These are often listed on “decentralized exchanges”, which are not dependent on any centralized authority that would prevent unproven projects from participating.

Rex Hygate, founder of DeFiSafety, a company that reviews projects on the ground, says scammers can tackle the fear of missing out on something generated by rare but true stories of amazing returns. “It’s seductive. People made a lot of money. It’s a fact,” Hygate said.

“The hope is real, albeit small, (and) so organized and regular criminal organizations are doing these competitions.”

The fate of any investment in cryptocurrency or blockchain projects rests on the integrity of the project’s computer code. You may not be a computer programmer, but you should at least understand how a product works before investing in it.

One way to assess a potential investment without even going under the hood is to see if it has been audited by a respected professional body in the industry. Projects that have received high ratings from auditors will often promote the results themselves.

Some of the biggest red flags in the cryptocurrency world come down to human factors.

While it is not uncommon for people to use pseudonyms in cryptocurrency, reputable developers often have websites and references that can establish their credentials.

But even if you do your homework, there is no guarantee of success. For example, the founder of Rugdoc.io, a service reviewing new projects, says she ended up being scammed over an NFT that was supposed to be a ticket to an event.

Diversification is just as important in cryptocurrency as anywhere else in finance. Projects can fail due to technical issues or business errors, even without malicious intent.

“Assume that everything you invest in will have a problem,” said Leah, the founder of Rugdoc.io, who asked that her full name not be used to protect her identity from scammers looking for retribution. “If you plan to fail, if it does not fail, you will have a great day. And if it fails, you probably will not be hernia.

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