Layer 1 Landmines: Unmasking scams in blockchain's foundations

Layer 1 blockchains offer a high level of security for investors like cryptographic algorithms and consensus mechanisms. But as technology evolves from older to newer trends, so do the methods used by malicious actors. Where there’s money in crypto, there will always be malicious actors out to steal and defraud. Scams come in many common forms like impersonation, fake investment schemes, and phishing. Many scammers have used the popularity of Bitcoin, Ethereum, Solana, Polkadot, and Binance Smart Chain as fishing sites for scam activities to defraud investors with false promises.

Haven1 is a Layer 1 blockchain that goes above and beyond your everyday Layer 1 to establish network-level risk controls to cancel malicious activities. However, bad human intentions can override even the strongest security measures. Here’s a breakdown of some of the most notable scams of various chains, what you should be aware of, and how Haven1 provides additional protection versus many of the traditional Layer 1 blockchains.

Bitcoin: navigating the waters of the first cryptocurrency

The Bitcoin network and ecosystem is often a target because of its popularity as the most noteworthy crypto. Here are some of the most notable Bitcoin scams that have taken place, despite the relatively robust security of the network.

The BitConnect Ponzi

One of the earliest and most notorious Bitcoin scams was run by BitConnect. Its operators were paying old investors with money invested by new investors, adopting the nature of a Ponzi scheme. It was swiftly closed following its exposure. Eventually, these operations fail once the flow of newer investors stops coming and can no longer pay the older investors. 

BitKRX and fake exchanges

Scammers set up fraudulent exchanges to lure users into depositing Bitcoin, only to steal the funds. They use celebrity endorsements and unsolicited phone calls to offer high returns on investments. For example, BitKRX in South Korea deceived investors by claiming it was run by Korea Exchange (KRX), the country’s largest trading platform. Investors, under the impression they were purchasing Bitcoin (BTC) from a reputable exchange,  soon discovered that their money had been stolen.

Ethereum: beyond smart contracts and the battle against scams

Phishing and mining pool scams are some of the common tactics used by ETH scammers, including fake Ethereum exchanges.

The infamous DAO hack

The Decentralized Autonomous Organization (DAO) hack was a significant event where millions of dollars in ETH were stolen due to vulnerabilities in smart contract code. During DAO’s token sale, an attacker took the opportunity to steal the funds while programmers were trying to fix a smart contract bug. What was once the largest crowdfunding campaign in history led to a split of the Ethereum network.

Phishing attacks abound

Numerous phishing scams have targeted Ethereum users, tricking them into revealing their private keys. Scammers use fake links, websites, or malicious smart contracts, manipulating users into feeling an urgent need to comply with the scammer’s requests. For example, victims might receive a message about an issue with their accounts. A fake link or website will prompt them to log in quickly and fix it.

Solana: high-speed transactions and security challenges

Solana has encountered multiple security incidents, where scammers have exploited thousands of Solana wallets.

The Cypher protocol exploit

Potential vulnerabilities in smart contracts on the Solana network could be exploited, similar to other DeFi platforms. Weaknesses in the code can be exploited by scammers to gain unauthorized access and steal funds. The most recent exploit in a Solana-based exchange caused a loss of $1 million. As a result, smart contracts were frozen to address the incident.

The Luna Yield rug pull

As with other blockchain ecosystems, Solana-based projects may be at risk of rug pulls, where developers abruptly withdraw all funds from a project. A hard rug pull happens when developers had no initial intention to complete the project, intending to cause fraud from the start. The Luna Yield incident, the biggest rug pull in Solana, stole $10 million from investors - leaving them with a worthless asset.

Polkadot: Interoperability's double-edged sword

Cross-chain transactions have unique risks when it comes to transferring assets from different chains, causing scam activities across multiple chain networks.

Cross-chain isn’t scam free

The interconnected nature of Polkadot's parachains might present unique scam risks, such as exploiting security weaknesses in bridging protocols. Coin swaps between multiple blockchain networks put Polkadot at risk for users to “launder” funds. Scammers might also create a new token, and make it seem like there’s a real market for it while using a different blockchain than the one initially promoted.

DOT scam projects abound

As Polkadot encourages the development of new blockchains, there is potential for fraudulent projects to emerge under the guise of innovation. Promises for high returns and lack of transparency are red flags users can look out for. With such an inherent risk, Polkadot released its latest “anti-scam bounty” to reward members for participating in anti-scam initiatives.

Binance Smart Chain: combating flash loan attacks

Recent vulnerabilities in the protocols and smart contracts of Binance Smart Chain are at risk for scammers to hide malicious scripts.

Flash loan attacks 

BSC has been subject to several flash loan attacks where hackers exploit vulnerabilities in DeFi protocols to borrow and manipulate cryptocurrency prices for profit. BSC flash loan attacks start with a hefty amount of borrowed money and then use it to play with the prices of tokens. The tricky part is, they pay the borrowed money in one go after the attack, leaving platforms with no room to protect themselves.

Smart contract vulnerabilities

Due to the rush in deploying DeFi applications on BSC, some projects have been found to have critical smart contract vulnerabilities. Attackers use techniques like reentrancy attacks, timestamp manipulation, and denial-of-service (DoS) to pierce through smart contracts’ weaknesses.

Stay scam-smart with Haven1

Web3 is slowly but surely changing how on-chain finance works, attracting evermore attention from malicious actors, scammers, and fraudseters. Layer 1 blockchains such as Haven1 offer exciting opportunities to defend against crypto scammers. However, among 170 active blockchains, Haven1 is the only chain that offers protection against legal uncertainty and proper recourse mechanisms for victims of fraud or loss of funds. With Haven1, you can be smarter than the scammers.