Crypto is a fast-moving space with new platforms and coins seeming to arise every day. As a result, it can be difficult to keep up with Web3 and know which projects are trusted and which are not.As a result, the crypto space is rife with scams and fraud. While <a href="https://halborn.com/what-is-a-rug-pull-in-crypto/">rug pulls</a> are the most well-known threat, they are far from the only ones.Pig butchering is a scam that originated in traditional finance but works just as well in crypto. After spending time building rapport and trust with the victim, a scammer will trick them into a series of unwise investments that place money in the attacker’s pocket.<h2>How Pig Butchering Scams Work</h2>Pig butchering scams are social engineering attacks in which the scammer works to build trust with the intended target. Once they have achieved rapport, the scammer tricks the victim into investing in a scam that steals their money.Pig butchering attackers start by building a profile that they use to connect with potential targets. These social media profiles often include attractive – and often stolen – photos of the alleged profile owner.The scam begins with the attacker reaching out to the intended victim, often pretending to have done so by mistake. This could include a message to a “wrong number” or the attacker wondering why they have the victim’s information in their contacts.Once they have a connection, the attacker will work on building rapport. Instead of moving directly to providing investment advice, the scammer will engage in friendly chats with their target. The goal of these conversations is to build a connection and to collect information about the target that could be used later in the scam. The scammer will also take this opportunity to share details about themselves that make them sound like they have similar interests and experiences as the target, taking advantage of the fact that people are more likely to like and trust people who are like them.Eventually, the attacker will turn the topic of conversation to investing. They’ll mention that they have been very successful at it and may even share details of their success. The end goal is for the scammer to convince the target to invest in the scammer’s brokerage or crypto trading platform, giving them an opportunity to earn the same rewards. However, in reality, the platform is fake and the money invested by the victim goes directly into the attacker’s account.However, this first investment is typically only the beginning of the scam. First, the scammer will likely try to build trust by allowing a withdrawal or two, which a victim wouldn’t expect from a scam. Then, the attacker will use a variety of means to trick the victim into putting more money in. At first, this typically involves demonstrating huge profits, making additional investment enticing.However, after a while, these rewards will turn into losses, or the platform will become inaccessible. At this point, the attacker will use information shared by the victim for psychological manipulation or claim that the payment of additional taxes and fees is necessary to enable withdrawals and release funds.Eventually, the victim will become suspicious, but, by this point, it’s too late. While the scammer may have allowed a withdrawal at first to build trust, every other deposit is irreversible. When confronted, the attacker may end the scheme, often taunting and mocking the victim before they and their alleged brokerage disappear.<h2>Protecting Yourself Against Pig Butchering Scams</h2>Pig butchering scams can be sophisticated attacks because scammers are willing to put in significant time, effort, and resources for big rewards.&nbsp;Some ways that you can spot a scam and protect yourselves against pig butchering scams include the following:<ul><li>Don’t Trust Unknown Contacts: A pig butchering scheme begins with an unexpected text or social media message. If they messaged “by mistake” or “don’t know why you’re in their address book,” then they may be a scammer.</li><li>Be Dubious of Faceless Friends: Thanks to COVID, pretty much everyone knows how to use Zoom or other video platforms. If a new “friend” refuses to get on live video, then the photo on their profile probably isn’t theirs.</li><li>Be Cautious About Investing Advice: Most investing advice is bad, and some person that you’ve never met is unlikely to be a good source of financial advice. If someone tries to convince you to invest in their platform with promises of lavish rewards, be skeptical.</li><li>Validate Before Investing: Pig butchering scams involve an attacker trying to convince their target to use the scammer’s brokerage or crypto trading platform. Only invest in reputable platforms after doing your own research.</li></ul>While pig butchering is an increasingly common scam in the crypto space, it is far from the only threat that Web3 investors face. To learn more about what to look for and what to avoid in crypto projects, check out our blog article on the <a href="https://halborn.com/the-most-common-types-of-crypto-scams/">most common types of crypto scams</a>.

Web3 security firm Halborn provides an overview of the social engineering scam that's wreaking havoc in the crypto space: pig butchering.

What Is a Pig Butchering Scam?

“Rug pull” has unfortunately become a common term in the cryptocurrency space.  Rug pull “attacks” are betrayals by the team behind a cryptocurrency project at the expense of their users.<h2>DEXes and Trading Pairs</h2>Decentralized Exchanges (DEXes) are a major part of the DeFi space.  Traditional finance requires a level of centralization for swaps of two currencies to be carried out.  An institution takes a deposit of one type of currency and pays out the desired currency.DEXes, on the other hand, eliminate this centralization by running exchanges on the blockchain.  A smart contract can hold cryptocurrency and make exchanges of one token for another.  The exchange rate of different tokens is determined by the laws of supply and demand (based on how much of each token the DEX currently holds).DEXes are also useful because some allow anyone to create new trading pairs on them.  A token created by a particular project is paired with a major cryptocurrency (like Ethereum), enabling trades between them.<h2>The Rug Pull: A DeFi Scam Explained</h2>The goal of every cryptocurrency project is to make a token that is worth a lot of money.  However, the reasons behind this can vary from one project to another.Some projects want to provide a genuinely valuable good or service, while others are scams.  In these latter projects, creators will set up a liquidity pool on a DEX and then shill the token, encouraging investors to put their money into it.  This results in the liquidity pool being filled with the high-value token (like Ether).Once the liquidity pool has gained enough value, the fraudsters will “pull the rug”.  By draining the liquidity pool of the tokens, the attacker makes money off of the scam at the investors’ expense.One of the advantages of cryptocurrency for rug pullers is the potential for anonymity.  Many projects have partially or fully anonymous teams behind them, making it difficult or impossible to hold them responsible for the success or failure of the project.  This makes it easy to grab the funds deposited by investors and disappear.<h2>Protecting Against Rug Pulls</h2>Any cryptocurrency project could be a potential rug pull.  However, some are more likely to end in rug pulls than others.  Some warning signs of a potential scam cryptocurrency include:<ul><li>Anonymous Teams: Most cryptocurrencies have at least one public face.  If the whole team is anonymous, this is a potential red flag.</li></ul><ul><li>Too Good to Be True: Many cryptocurrency projects have ambitious goals which may or may not be achievable.  However, if something seems too good to be true, it probably is.</li></ul><ul><li>No Path Forward: To achieve their ambitious goals, cryptocurrency projects need to have a plan.  A project that is ambiguous about how it will achieve its goals is a potential rug pull.</li></ul><ul><li>Only Listed on DEXes: DEXes are useful tools, but most legitimate tokens are also listed on centralized exchanges (like Coinbase).  If a cryptocurrency is only listed on DEXes, this is a potential warning sign.</li></ul>Rug pulls are an increasingly common problem as unscrupulous teams take advantage of the rise of cryptocurrency and DeFi.  Before investing in a project, do the research to see if the project looks reputable. If you’re a blockchain organization looking to protect your company from scams, get in touch with Halborn at <a href="mailto:halborn@protonmail.com">halborn@protonmail.com</a>.

Blockchain security firm Halborn explains what a rug pull is in the cryptocurrency world and how to protect yourself against one.

What Is a Rug Pull in Crypto?

<h2>Cryptocurrency Allocations</h2>When a new cryptocurrency or token is created, the founders have full say in how the newly created coins or tokens are allocated.&nbsp; Typically, this information is published as part of the whitepaper and on the project’s site.Before buying into a particular token, investors have the opportunity to inspect this allocation.&nbsp; If the proportions of tokens or coins allocated for a particular purpose seem off, they have the choice not to invest.However, it is common for the founder or founding team behind a new cryptocurrency to hold a significant percentage of the newly created coins.&nbsp; This can be intended to fund development and acts as a reward and motivation for creating a successful company.This concept isn’t unique to the crypto world.&nbsp; Founders of companies commonly hold a major share of their company’s stock, which is why many tech founders are also the richest people in the world.<h2>Cryptocurrency Valuations</h2>One of the biggest criticisms of cryptocurrency is that it is very difficult to assign a “fair” value to a token.&nbsp; While this is true of any company or currency, virtual currencies are especially prone to this.&nbsp; This is why predictions of Bitcoin’s “true value” vary wildly and why cryptocurrency can be so volatile.When it comes to Initial Coin Offerings (ICOs) and Initial Token Offerings (ITOs), the value of a new digital asset is largely based upon what customers are willing to pay.&nbsp; By pumping up enthusiasm and promising an array of new and valuable features &#8211; contingent on available funding &#8211; founders can drive up the perceived value of their asset and of their shares in it.For a legitimate project, high valuations are a huge asset because they provide founders with the liquidity that they need to execute on their plans and they may open up new options as well.&nbsp;&nbsp;These sky-high valuations become a problem when founders have no intention of delivering on their promises.<h1>Exit Scams Explained</h1>As any trader will say: buy high and sell low.&nbsp; In an exit scam, a founder takes this to heart and liquidates their shares in the token or coin that they created and then disappears.By selling at the peak of the excitement for a digital asset, a founder can get a good price for their tokens.&nbsp; However, the laws of supply and demand mean that the sudden glut of tokens on the market &#8211; in addition to the fact that the founder won’t be following through with their promises &#8211; causes the price to crash.&nbsp; As a result, the founder makes a mint at the token’s investors’ expense.A <a href="https://selfkey.org/the-ultimate-list-of-exit-scams-how-to-spot-one/">number of exit scams</a> have occurred, but it is not always easy to differentiate a true exit scam from a suspicious exit.&nbsp; For example, Chef Nomi was decried for an exit scam with SushiSwap after he sold off many of his tokens.&nbsp; He <a href="https://www.zdnet.com/article/defi-sushiswap-creator-returns-14m-in-eth-after-causing-coin-crash/">later returned the money</a> that he made to the project, but it is difficult to tell whether this was an actual exit scam or just a “mistake”.<h1>Protect Yourself Against Exit Scams With These 4 Warning Signs</h1>Exit scams are often planned by their founders from the beginning.&nbsp; The plan is to create a token, pump up excitement and its value, and then sell off at the peak.These types of tokens have certain warning signs that investors should look out for:<ol><li>Implausible Goals: Every crypto startup has high hopes, but most keep these dreams of success and financial gain within the realm of plausibility. If something sounds too good to be true, it probably is.</li><li>Inability to Deliver: Blockchain is built on revolutionary technology, and many token projects have ambitious goals.  However, an effective project is one that can also deliver on its promises.  If a project has ambitious goals but no clear plan to reach them, then it may be a scam.</li><li>Lack of Preparation: Building a successful crypto project requires a great deal of planning and preparation, and a good presentation is an essential part of this.  If a whitepaper contains frequent misspellings or there are other gaps in the plan, this may indicate that the team behind it has no intent to deliver.</li><li>Anonymous Teams: Many blockchain startup teams have anonymous members, but most reputable projects have a public face.  If the team behind a token is completely anonymous, it may be a sign that they are deliberately hiding their identities to prepare for an exit scam.</li></ol>Crowdfunding through ICOs and ITOs is what makes many blockchain projects possible. However, exit scams are a serious risk for the consumer.&nbsp; Before investing in a project, do your research and check for red flags or signs that a project is legit.If you’re a serious investor, you can schedule a third-party audit with a company like Halborn. Get in touch today at <a href="mailto:halborn@protonmail.com">halborn@protonmail.com</a> to find out about our crypto auditing services.&nbsp;

What is an exit scam? Halborn cybersecurity explains exit scams and lists the 4 warning signs for spotting one.

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