The cryptocurrency community is spooked by crypto alerts from an assault of phishing schemes, which has many questioning the very foundations on which it was based.
Hundreds of millions of dollars are being lost by non-fungible token (NFT) developers and collectors to quick-thumbed crooks who are taking advantage of decentralized finance’s growing popularity and fractured customer service infrastructure.
Although phishing schemes in the digital finance (DeFi) space are not new, crypto’s new audience is fueling current fraudulent activities. As NFTs have grown increasingly valued (and fashionable) this year, many people have jumped on board, without any genuine de-fi knowledge, in the hopes of a huge windfall. But it’s not just newcomers who are being taken advantage of; crypto veterans are as well, prompting many to question whether one of crypto’s main values — anonymity — is worth reconsidering.
A stumbling block
For the uninitiated, here’s a basic rundown: As previously stated, NFT stands for “non-fungible token”; “non-fungible” refers to the fact that it cannot be exchanged for something of comparable value. On popular markets like OpenSea, Rarible, and Foundation, NFTs are bought and traded using cryptocurrency (primarily Ethereum). Every cryptocurrency transaction is recorded on the blockchain, a public digital database that anyone can view. Cryptocurrency is stored in digital wallets such as MetaMask, which include your “private key,” which is simply a password that allows you to spend the money you have.
There is no intermediary (such as a bank) in control of a person’s assets, and there are no governing entity (such as the federal Securities and Exchange Commission) setting regulations for how individuals and organizations interact using the blockchain. Even though many NFT markets provide options for clients to get help if they have a problem, the vast majority of customer support for NFT collectors and makers takes place on Discord’s servers.
Better DeFi instruction or better products?
People rely on banks to compensate them if they fall victim to fraud. Isn’t that correct? Our culture is ingrained with the concept of financial security. However, there is no bank in cryptocurrency. There is no one-stop-shop for getting your overdraft account back into the black. “NFTs and cryptocurrencies necessitate a certain level of technical education and awareness, which not everyone possesses,” said UT Austin professor Fracassi. “There are two ways to fix this: first, ensure that people are educated, and second, create products that are resistant to this kind of hacks.”
According to Fracassi, one method to do this is for more marketplaces, exchanges, and wallets to implement a “multi-signature capability.” For example, if you wanted to buy something on the Ethereum blockchain, you’d need not only your signature but also the signatures of your partners or the other custodian of your wallet.
Donnie Dinch, the founder and CEO of Bitski, a non-financial trading platform, agrees. “All wallets must accomplish two things: protect the wallet owner from bad actors, which I believe many of them do very well, and most significantly, protect wallet owners from themselves,” he stated.
“Wallets really don’t do a very good job of protecting people from themselves,” Dinch explained. “It’s not an oversight; it’s a philosophical way that these wallets are created.” “The reality is that self-custody comes with a lot of duty, and there may be a lot of risks if you’re not ready to put in the time as a user to grasp that responsibility.”
“People don’t comprehend the implications because everything on the internet was largely reversible with a support request up until the crypto wallet,” he stated.
No simple solutions
Depending on who you ask, the answer on how to deal with the avalanche of scams differs. Is it a problem with customer service? Is it a lack of knowledge? Is it true that regulation is the answer? It’s hard to completely eliminate scams (as we all know thanks to our present financial system), but how can a rising business like cryptocurrency combat fraud while simultaneously getting people enthusiastic about DeFi’s potential?
Supporting third-party platforms like Discord, according to Dinch, is a “calculated risk” for NFT markets like OpenSea and crypto exchanges.
“Having a Discord community when you’re a project early on is really helpful for getting feedback on things you’re doing — you have this sort of continuing interaction with your client base that you’ve been able to sort of aggregate,” he said. “However, there comes a point where your community grows to the point where monitoring all of the tiny queries and feedback on Discord becomes overwhelming, and at that point, you just need to make sure that all support requests go through a very specialized channel.”
Fracassi, on the other hand, believes that a more “controlled atmosphere” is required for cryptocurrencies to become more widely recognized.
“At some point, we have to bring cryptocurrencies back into the mainstream,” Fracassi added. “I believe that regulation will favour institutions that are more closely associated with large corporations, but it will make it much more difficult for startups to generate innovative products.”
Farudi realizes where he went wrong in his engagement with the scammers after reflecting on his experience. He does, however, recognize areas where things might be improved.
“Because NFTs are pulling more and more individuals into the ecosystem, there needs to be a level of acceptance from the crypto community that everything doesn’t have to be so anonymous and decentralized,” Farudi added. “The newcomers are at such a disadvantage, and the educational divide continues to be so large.
“The newcomers aren’t concerned with decentralization; they’re concerned with safety and trust.”