5 Instances When Blockchain is Used for Scam, and 6 When It's Not
Read about both the most common blockchain scams and its valid applications.
Recently there was a considerable rise in mentions about blockchain, cryptocurrencies, and their likes on social media, news, and other online spaces.
Which is not surprising, if you think about it. Schemes for getting rich quickly were always popular among people, and now it seems that blockchain become another such scheme.
However, is it really true? And is this all there is to blockchain? Just a means of quick cash grab?
Hopefully, by the end of this post, you will have your own answers. But as of now, we compiled 5 examples of blockchain scams that you would want to know about and 6 instances of when it’s used for something more meaningful.
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5 common fraud schemes to watch out for:
1. Social media cryptocurrency giveaway scams.
It’s always good to be a bit skeptical when you see someone trying to give away something of value free of charge. Social media like YouTube, Twitter, Instagram, and more are being used as a means of luring unfortunate souls with promises of free cryptocurrency giveaways. Scammers will go to unbelievable lengths to convince people of their legitimacy. Posing as a famous person, or a new business, creating false advertisements… even paying for a blue checkmark on Twitter.
Clicking on the giveaway will redirect you to a website that will prompt you to verify your identity in order to receive the coins. To complete the verification, you will be required to make a payment as proof of your account's authenticity. However, your payment will either be lost or result in the theft of your personal data and cryptocurrency.
2. Investment schemes
The second example is quite similar to the first in that a scammer will assume the identity of another person. Again, someone famous, or unknown but “experienced investment manager”, and even someone you just met on Tinder of all places.
However, instead of false advertisements popping up on your social media, those scammers will be specifically seeking you out. They will ask out of the blue about your crypto assets and then claim that they earned millions through investing in cryptocurrency. They will assure you that this investment is with 0 or minimal risks, and will have a worth of 200-300% profit.
At this point, you’d already know that it’s a scam.
Then those “investor management” will ask for a fee and/or personal particulars that will gain them access to your cryptocurrency. You will never see your fee money nor your crypto assets if you go along with them, of course.
3. Crypto rug pull scams
There are different crypto rug pull schemes, but the more common one is probably “pump and dump” schemes because they do not require much technical knowledge to pull them off.
Scammers would pump up a new project, altcoin, or NFT to get the funding. With cryptocurrency in particular, once schemers have enough of their chosen crypto they would hype it up, and sell it to people, and once the price for crypto goes high enough, they would dump all other tokens into the market, taking the price down. The money they gained from this endeavor will remain with them. And more often than not, those cryptos will be coded by scammers to prevent people from selling them, so only they have a say on when to liquidate those assets. In the end, investors will be left with unsellable and valueless investments.
4. Crypto romance scams
Yes. Even those poor souls who were just looking for a date get pulled in the cryptocurrency bandwagon.
But in the case of investment schemes, it’s quite easy to distinguish scammers that use dating apps to prey upon people, because they often make their intentions clear from first conversations.
Dedicated romance scammers are just that. Very dedicated. And aim for a long con.
They get involved in a seemingly legit romantic relationship with their chosen victims and take time to gain their trust and love. In time, they start mentioning tidbits about blockchain and cryptocurrency, saying how it’s a fast way to generate income. It will reach a point where scammers will be able to fully convince their victims to buy or give money in tokens. If they can’t convince them that blockchain is a trusted source of income, they will lie and say that they are experiencing financial problems and will ask for debt. After getting the money, however, the romance scammer then swiftly disappears.
Phishing schemes existed long before blockchain, which makes it all the more trusted and tried ways to scam people out of their money and data.
You might be sent emails with highly suspicious links, sometimes not even in your language, and if you click it, you will be immediately transferred to a fake website that will gather all of your personal details (like cryptocurrency wallet key information, for instance).
It will be very troublesome to try and change your wallet key, You would need to create a whole new wallet altogether. So look out for any suspicious links and emails.
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+6 instances of legit blockchain application:
Now blockchain may be heavily associated with cryptocurrency, NFTs, and those scams mentioned above, but it’s not all there is to it. The reason why some people state that it is a powerful technology that has the potential to transform the world is that it had quite many legitimate applications that strive to improve the overall quality of life. Not get rich quickly, but solve issues that plagued several industries, and in turn, increase both producers and customer satisfaction.
So here, you can read about blockchain applications:
1. In Supply chain
Blockchain enables not only the storage of cryptocurrency but data. It can work splendidly with many IoT devices. Blockchain technology allows supply chain managers to integrate such IoT devices, vehicles, and equipment for real-time job status updates. Once data is recorded by IoT, it can be immediately retrieved, stored, and transferred through blockchain.
This offers a clear end-to-end view of the whole supply chain, extending from the manufacturer to the customer through the warehouse. Through real-time device tracking, for example, you will be able to know precise vehicle location data, and the information necessary to make informed decisions and ensure efficient goods movement for supply chain managers, as opposed to relying on traditional status updates such as "in transit."
Besides that, it can be useful for those customers that frequently worry about the delivery of their purchase. With frequent updates, they don’t need to worry about when and where, as well as the why in case the purchase will come in poor quality.
Such transparency allows for less paperwork, that’s for sure.
2. In Medicine and Healthcare
Not surprisingly, healthcare is another industry that seeks more innovative solutions for its issues.
In the healthcare sector, blockchain networks are utilized to securely exchange and preserve patient data among hospitals, diagnostic labs, pharmacies, and healthcare providers. The accuracy of medical data is greatly improved and potentially dangerous errors can be accurately identified, leading to improved security, performance, and transparency in medical data sharing.
Remote monitoring is another trend in healthcare achieved by IoT devices. Different sensors measure patients’ vitals in real-time, allowing for greater visibility for healthcare workers into patients’ health. However, with IoT devices only, there is a risk of cyber attacks on private patient data. The issue is solved by blockchain cryptography which only permits certain parties to have access to data.
3. For Insurance
Insurance problems are so frequent nowadays, that perhaps everyone will have to deal with one such case at one point in their life. However, here we are talking specifically about insurance fraud.
Annual fraudulent claims in the US alone result in losses exceeding $40 billion, excluding health insurance, of course. Despite new digital tools available to us, it still seems an issue to detect and prove fraud.
Blockchain, on the other hand, offers a potential solution for fraud detection and prevention. The immutable and time-stamped nature of blockchain transactions ensures the permanent record-keeping of all executed transactions, thereby preventing unauthorized modifications and data breaches. The stored data can also aid in identifying patterns of fraudulent transactions, which can be incorporated into insurers' fraud prevention algorithms.
Blockchain enables decentralized cloud storage, allowing data to be stored across a network of computers instead of on a single server. This makes it more secure and resistant to data breaches, as there is no central point of failure.
All it is to say is that it will be highly unlikely that a potentially fraudulent claim will go further to court if it’s rebuked right at the beginning. It’s one way to save money, that’s for sure.
4. For Cloud technologies
Blockchain technology facilitates decentralized cloud storage solutions, where data is dispersed and stored across a network of nodes, rather than being centralized on a single server. Such structure enhances the security of the stored data, making it immune to potential data breaches, as there is no single point of failure in the system.
It also empowers users to retain full control over their data, even when it is stored in the cloud. Businesses and individuals who seek to protect their sensitive information from unauthorized access or misuse by third parties will certainly love this feature.
5. For Energy
There are several ways that blockchain can be applied to energy management. It can be used to execute energy supply transactions, for instance. Or allow for metering, billing, and clearing processes, as well as asset management, origin guarantees, emission allowances, and renewable energy certificates. All of this can be done through blockchain.
Besides these, it’s possible to use it for climate action and build more sustainable industries. Blockchain smart contracts can be utilized to better estimate, track and report the reduction of carbon footprints across the value chain. It can clearly pinpoint the individual contributions to reducing their carbon footprint.
6. In Oil & Gas
Continuing with the previous idea, this technology is capable of accurately detecting gas pipeline leakages and preserving the integrity of the system for oil and gas industries.
It can assist in verifying that the activities of the organizations involved in pipeline monitoring and servicing are compliant with human safety laws. Registration and verification of all on-field IoT-based sensing devices and aerial vehicles used to monitor the gas flow in the pipes to assure data reliability also is made easier. As a result, the collected data like temperature, gas and oil pressure, and gas flow rate will be highly reliable and verified.
Such information can assist in the timely detection and location of the leakage or even predict the occurrence of leakages based on the recorded data (such as the current condition and total pipeline lifespan). In turn, it helps the oil and gas industries to prevent any future losses as well as help them better manage their resources.
The bottom line is that, yes, blockchain technology was severely misused by malicious people to cause a great amount of grief to fraud victims. It’s not even every way blockchain might be abused to scam and hurt people.
However, it’s a trait shared by all new technology, With new innovations come as many risks as there are benefits. While focusing on how some individuals use it for personal gain, we can sometimes forget that it can be used for the benefit of communities too.
When you are presented with something new, it’s a common reaction to fear it. And it is always important to be aware of the risks and be somewhat skeptical. However, nothing good can come out of deliberately avoiding something just because of fearmongering,
After all, embracing the new does not only feel good but also opens up plenty of opportunities for personal and communal growth and development.
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What Are Crypto Rug Pulls? (2022). Worldcoin. https://worldcoin.org/articles/rug-pulls