HomeCryptoWhat is Crypto Carpet Mining? Its meaning and how to avoid carpet throws
What is Crypto Carpet Mining? Its meaning and how to avoid carpet throws
January 13, 2023
What is a cryptocurrency pull?
The rise of cryptocurrency market has attracted more scam artists looking to make a quick profit. Crypto Rug pulls have become common in Web3despite the fact that some cryptocurrency scams employ conventional fraud strategies such as Ponzi schemes. Carpet scammers often employ cutting-edge techniques, such as malicious smart contract code, which catches many retail investors off guard as developers make off with millions.
What is carpet shooting?
A pull carpet is a type of cryptocurrency scam in which scammers deceive the public for funding before running off with the digital tokens of investors. The goal of pull pull developers is to attract as many retail investors as possible. They often advertise their tokens on social media platforms. The developers transfer depositors’ cryptocurrency to their wallets or allow them to cash out on a cryptocurrency exchange once enough people join this scam project.
Carpet shots are a common occurrence in Defi (decentralized finance) app. Defi’s inherent decentralization and lack of regulation make it easier for scammers to hide their identities and get away with a sizable amount of cryptocurrency. However, not all scammers need to remain anonymous.
Rubbings are quite common, judging by the impact of investment fraud. According to blockchain analytics firm Chainalysis, scammers defrauded $2.8 billion, or $7 million a day, during 2021. Cryptocurrency mining has grown significantly in recent years.
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What Different Types of Carpet Throws Are There?
Each takedown involves criminals stealing cryptocurrency from unwary investors. However, there are three main tricks used by scammers:
1. Cash theft
Cash theft, also known as cash theft, is the sudden withdrawal of all coins from the liquidity pool that is used to fund a project by its founder. When this happens, the locked value of the token is released, leaving investors with a useless asset that is of no use. The Defi area has the highest prevalence of this type of pull pull.
2. Limit sales orders
This is a more subtle way for dishonest founders to defraud investors. In this type of fraud, a developer creates a token with a smart contract that restricts who else can sell them. As a result, investors are locked into an asset that cannot be traded. Also, I am unable to sell the token to other peers. When enough investors have bought the token and the founder is sitting on a profit, they sell their tokens, leaving investors with worthless tokens they can do nothing with.
3. Pumping and unloading
Dumping refers to the quick sale of a sizable portion of a cryptocurrency founder or developer’s tokens. As a result of the substantially declining demand for the coin and increased supply, the price of the coin is drastically reduced. In a tug-of-war, rogue founders pump the token to increase its value and lure investors in by luring them with promises of big returns. Risky investors will buy the tokens with marketing and promotion. The founder will sell the tokens when the price action is strong to profit from the fervor.
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How many types of carpet does it pull
A pull pull can also be found in one of two different forms:
1. Pull the carpet hard
When a founder maliciously uses the project to defraud investors, this is known as a “hard rug pull”. This indicates that the smart contract contains elements that are hidden but intended to deceive investors, and the code clearly shows that the intent is to steal money. An example of a hard rug pull is cash theft, where code is written to lock investors into an asset with no real purpose or function.
2. Pull the carpet soft
Soft carpet throws describe the sudden sale of cryptocurrency assets by token developers. The remaining cryptocurrency investors are left with a token that has been significantly devalued as a result. Dumping may not be a crime in the same sense that hard pulls are, although it is unethical.
What are the ethical and legal implications of cryptocurrency pulls?
Cash theft and limiting of sell orders are generally illegal. Both of these strategies indicate that developers have designed their tokens or dApps to appeal to retail investors. Both of these scams are known as “hard rug pulls” because the fraud is “hardwired” into the code of a cryptographic project.
In contrast, “pump and dump” schemes are legally ambiguous. While “pumping and dumping” carpet is unethical, proving illegal activity by scammers is more difficult. It is not necessarily illegal to buy a cryptocurrency on the open market and advertise it online. This is especially true if the scammers behind a “pump and dump” scheme have invested in a token they had nothing to do with creating. Some people refer to “pump and dump” schemes as “soft rug pulls” because there is nothing in the project’s code that predisposes it to failure.
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How to recognize a Crypto Rug Pull
Crypto carpet rolls can be deceptive, but there are a few red flags to look for when evaluating new tokens:
Unclear white papers
No third party controls
Excessive social media marketing
Unusual price movement
How to avoid a crypto carpet throw?
Investors can protect themselves from tug-of-war by keeping an eye out for some obvious warning signs, such as unfrozen liquidity and a lack of external audit.
1. Stick to established dApps
Consider sticking with top-tier dApps like Uniswap or Aave rather than looking for upcoming cryptocurrency projects. Projects with a strong community, long history, and good reputation are more likely to provide authentic tokens and rewards.
2. Limits on sales orders
A malicious party could program a token to limit the ability of some investors to sell it while leaving others unrestricted. These sales restrictions are telltale indicators of a fraudulent project.
It can be difficult to determine if there is fraudulent activity because the selling restrictions are hidden in the code. One way to test this is to buy a small amount of the new coin and then try to sell it right away. The project is probably a scam if there are problems with downloading what has just been purchased.
3. Test a small cap token on a trusted DEX
Buy a small amount of this cryptocurrency and try to sell it on a reliable DEX like uniswap if you suspect that you will not be able to sell a token. This cryptocurrency is probably a limiting sales scam if you can’t trade it.
4. Suspiciously high returns
Anything that seems too good to be true probably is. It’s probably a Ponzi scheme if the yields on a new currency look suspiciously high, but it doesn’t turn out to be a knockout. While it’s not always a sign of fraud when tokens offer a annual percentage return (APY) in the triple digits. However, these high returns typically come with equally high risk.
5. No external audits
New cryptocurrencies now regularly go through a formal code verification process managed by a reputable third party. Tether (USDT), a centralized stablecoin whose team neglected to disclose that it held non-fiat-backed assets, is an infamous example. An audit is especially relevant for decentralized currencies, where an audit is required by default for Defi projects.
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Examples of crypto rug pulls
OneCoin, a Bulgaria-based company, is accused of fronting a Ponzi scheme of digital tokens. However, between 2014 and 2016 it defrauded more than three million of its participants out of $4 billion. It represents the largest amount ever stolen in the history of cryptocurrency. After his disappearance in 2017, according to the BBC, the person believed to be responsible for the theft was placed on the FBI’s Ten Most Wanted Fugitives list. Onecoin was one of the famous examples of crypto rug pull.
Africrypt, a South African digital token investment platform, was taken down in 2021 in a $3.6 billion attack. Raees and Ameer Cajee, the founding brothers of the company who fled to the UK, have allegedly denied any involvement.
3. Pull the SQUID Token Mat
One of the most devastating limiting sales mat rolls is the Squid Game mat roll. SQUID is a digital token that was introduced by an unidentified group in response to Netflix’s “Squid Game” request. This token was supposedly intended for use in a play-to-earn game based on the Netflix series. SQUID Token hit a high of nearly $3,000 per token when it was first founded in late 2021 before plummeting to zero.
England’s now-defunct BitConnect lending platform has secured returns for investors despite the market turmoil. Instead, founder Satish Kumbhani is claimed to have been repaying subsequent investors with money from previous investors, ultimately earning $2.4 billion in global profits. However, according to CNN, Kumbhani could spend up to 70 years in prison.
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