In recent years, smart contracts have gained popularity amidst the growing interest in blockchain technology. These self-executing contracts, which operate based on software, allow for the establishment of enforceable conditions without the need for third-party involvement. However, like any new technology, smart contracts attract the attention of not only law-abiding users but also fraudsters.
Smart contracts are programs that are stored and executed on the blockchain. Blockchain is a distributed database consisting of chains of blocks, each containing transaction records. This technology can ensure the security and transparency of transactions, as all changes in the database are recorded and cannot be altered.
Popular platforms where smart contracts are implemented include Ethereum, Cardano, and Binance Smart Chain. Their open nature allows developers to create decentralized applications, but at the same time, it creates risks of fraud. Among the hundreds of thousands of smart contracts operating in the network, some are created solely for the purpose of deceiving users.
Ways of Fraud Through Smart Contracts
Fraudsters use various approaches to deceive users using smart contracts. Let's look at the most common schemes:
Fake Cryptocurrency Investments
One of the most common schemes is the creation of fake platforms for cryptocurrency investments. Fraudsters develop attractive websites where they offer users to "invest" in non-existent tokens or cryptocurrencies. Such platforms often use smart contracts to manage transactions and attract users.
These contracts may look legitimate, but they may be written with vulnerabilities or entirely unavailable for verification. Fraudsters manipulate the inherent nature of smart contracts to show potential victims that their money is safe. In reality, as soon as the victim transfers their funds, they instantly go to the fraudsters' accounts.
Pump & Dump Projects
Another common method is organizing "pump and dump" projects. Fraudsters create new tokens and deliberately drive up their value, attracting the attention of communities on social networks, forums, and messengers. Using smart contracts, they create limited offers and lure users into the system.
When the token value reaches its peak, fraudsters sell off their assets, leaving newcomers with virtually worthless tokens. The smart contract that confirms the transaction makes the process appear legitimate, but the tokens themselves may turn out to have no value.
Fake Decentralized Applications
Some fraudsters create fake decentralized applications, offering users access to supposedly unique services such as lending or token exchanges. These applications may look attractive and have functionality that seems reliable at first glance. However, behind the mask may be a complex scheme of deception.
Users who believe in the legitimacy of the dApp may become involved in complex transactions and agree to terms that deprive them of their investments. Fraudsters may control all aspects of the application, including the smart contract, making it extremely difficult to verify.
Fake Tokens
There is also a practice of creating fake tokens that mimic real cryptocurrencies. These tokens may have similar names and logos, misleading users. Fraudsters distribute such tokens through decentralized platforms or exchanges, using smart contracts to automate the process.
Users wishing to buy a well-known cryptocurrency may accidentally purchase its counterfeit. After the transaction, they have no way to get their money back or track operations, as the smart contract completes the transaction without the possibility of a refund.
How to Protect Yourself from Smart Contract Fraud
Protection against smart contract-related fraud requires vigilance and attention to detail. Here are some strategies that can help reduce risks:
Researching Projects Before Investing
Before investing in a project, thorough research is needed. This includes checking the development team, technical documentation, and verification by external audiences. It is recommended to study reviews from other users and clients.
Using Smart Contract Audits
Before investing in a project, it is recommended to check whether a smart contract audit has been conducted. An audit by an independent company can reveal errors or vulnerabilities in the code, which can prevent potential losses. Most serious projects undergo audits to increase user trust.
Checking Token History
When purchasing tokens, it is important to carefully study their history on the blockchain. Significant changes in trading volume and sharp price drops can be signs of fraud. It is also worth checking which addresses control the tokens to avoid fake projects.
Using Reliable Wallets and Exchanges
To store your assets, it is important to use verified and reliable cryptocurrency wallets and exchanges. Unreliable platforms can be sources of losses. It is advisable to choose only those wallets that have a good reputation and user technical support.
Conclusion
Smart contracts can become a powerful tool in the field of investments and business processes. However, they also provide opportunities for fraudsters to deceive users. Understanding the mechanisms by which fraudsters operate and applying effective protection methods can significantly reduce risks. It is always better to be vigilant and thoroughly verify information before participating in investment projects. Technologies are evolving, but it is also important to develop financial literacy and stay informed about the latest trends in the blockchain world.