Of late, mass interest in the cryptocurrency sector is growing and it is commonplace to find newer types of crypto coins hitting the market almost on a fortnightly basis. One big reason for the growing interest in the crypto sector is the lack of regulations and enhanced privacy of data. However, technological innovations often turn out to be double-edged swords and the crypto sector is not an exception. Not all crypto coins and projects that make headlines are genuine or backed by a well-known team. There are instances of fraudsters with fake crypto projects luring amateur investors and running away with their deposits. It has happened in the past and the recent such instance that is making headlines is that of the Squid game crypto scam.
The crypto scam modeled on a popular game
You will find crypto coins being developed on various themes and those with links to certain types of assets. Examples include Shiba INU and Dogecoin. The Squid Game crypto coin was named after a very popular South Korean TV show aired on Netflix. The popularity of the game helped the coin gain traction fast. The coin’s value grew incredibly and some users got 3000 percent returns in a few days. However, the credentials of the project were checked by no one in all that hoopla. Unexpectedly, the token developers pulled the rug and ran away with the money. Soon, the online platforms of the crypto project became non-functional. As per the update, the investors have lost close to the tune of INR 25 crore /$3.38 million in this scam. Before they could realize it, their money was turned into 0.
How did the frenzy die all of a sudden?
The anonymous team behind the fake Squid Game cryptocurrency project ran away with the money but how did they accomplish it? The coin, after its launch, showed a tremendous upwards growth trend. The peak was $2,861 and after that, it nosedived to 0. The creators cashed out the coins in lieu of fiat currency and drained the liquidity pool in the process.
There were warning signs all along but those were overlooked
The crypto sector investors warn the amateurs in the industry about warning signs of fraud in crypto projects. The SQUID crypto coin projects had many of these warning signs but the investors were blinded by the exceptional price surge and overlooked those loopholes.
- The website which was barely a few weeks old, was replete with texts with plenty of spelling and grammatical errors.
- There were no fund withdrawal options, which was a big warning sign. Even the Telegram channel and Twitter account of the company had interaction options disabled.
- In its whitepaper, the company put a condition for selling the coins only after a condition is met and that was tricky.
However, the buyers as well as several mainstream news outlets raved about the staggering price growth in a short time span-overlooking these signs. Technology websites like Gizmodo and CoinMarketCap warned potential investors about the project being a fake one.
After the creators of the fake Squid Game crypto project vanished with the money of the buyers, its website and social media profiles went defunct. After the project crashed, it was found almost 40,000 people were left with Squid tokens, which had no value. Emails sent to the company have bounced back. Now, the thing is the token’s protocol was made on the decentralized platform of Binance- which is the biggest cryptocurrency exchange in the world. Binance has said it will be running an investigation to find out the main players who carried out the scam. However, on the legal front, Binance has no obligation as the BSC is offered as an Open Source network.
Lessons to learn
The instance of the Squid Game cryptocurrency scam reminds one of the age-old sayings that warn you not to mistake every glowing object as gold! This is not the first time the scammers made use of pop culture to get user and media attention. The Mando cryptocurrency which used the popularity of Disney+’s Mandalorian TV show is another bright example of crypto frauds based on this theme. However, Disney acted quickly and made it clear that it had no link with the crypto project at that time. In late 2020, the makers of SushiSwap did the same thing.
Here are some important lessons for crypto sector enthusiasts to learn from this debacle:
- Thorough background research- No matter how popular a cryptocurrency or project is, do not get carried away by the media hype. Before buying a crypto token, regardless of its current price, do some in-depth research. Find out information on the team behind the project. Are they well-known people with a strong background in technology domains or not?
- Documentation check- It is necessary to check the whitepaper of any crypto project as it contains many details worth analyzing. You will learn about the total amount of tokens to be created and the interval of burning tokens. You will also know about options to stake the token and about various charges of the ecosystem.
- Future roadmap analysis- Analyzing the roadmap of a crypto project is necessary before you buy the coins, regardless of the amount. This is necessary as you would be able to plan your investments. As more features and functionalities are added to a crypt currency, its price is likely to soar upwards.
- Support in crypto sector- Before investing in a crypto project, support options have to be checked. You need to see if the coin is accepted for trading at the major crypto exchanges. You will also have to check if the coin is supported by major hardware and software crypto wallets.
- Price growth and reduction pattern- The volatility of the crypto sector is somewhat like that of stock market. Price of any crypto coin may surge upwards or take a nosedive unexpectedly and this has been seen in the case of old-time player like Bitcoin and Ethereum too. However, an incredibly rapid growth pattern can be indicative of something amiss. That is exactly what happened with Squid Game coin. In just 11 days the coin’s price grew 75,000%. After that, it was a downwards journey and the fall was faster than the price rise.
- The online presence- The website of a credible cryptocurrency project should appear professional and the same is true about the social media handles. This was not the case with ‘Squid Game’ cryptocurrency project. The website had enough wrongly spelled words. The website also had false claims about associations with leading players in the industry.
- Selling options- Not everyone enters the crypto sector with long term goals. An investor should not face hardship when he or she wants to sell the coins. With Squid Game coin, it was hard from day one! The developers required coin buyers to purchase Marbles, another cryptocurrency for selling their coins. Besides, they set a buying condition where the ratio of buyers to sellers would be 2:1. They camouflaged it cleverly as an ‘anti-dumping’ mechanism. It was a tactic to inflate the coin price artificially.
- Slow and steady approach- When you invest in crypto sector, no matter what cryptocurrency it is, think of the fable of the tortoise and rabbit! It is always prudent to start investing with a small amount and put in more money after checking the coin performance over time. That way, even if the project turns out to be a fake one, you will not lose a huge amount.
The need for regulations
There have been endless debates on the need for a regulation to iron out the anomalies and malpractices in the crypto sector. The proponents of crypto regulations point at scams like the Squid Game coin and incidents like the Binance exchange hack, and they have a point for sure. The detractors of regulation feel regulating the sector will rob it of the anonymity and privacy factors. However, implementing some sort of mechanisms to rein in the rogue players in this sector is a necessity, say the industry experts. As per the Federal Trade Commission report, over $80 million has been squandered by crypto-related scams from late 2020. In absence of any regulation and governing entity, the users duped of their money are left helpless, in most cases.
Besides, investors and crypto enthusiasts have to develop logical analysis capabilities. The schemes promising incredible gains in this sector like Squid Game are potential pitfalls and so they have to make moves cautiously.