How to easily identify decentralized finance scams to protect investors from fraudulent people with bad intentions, this is possible with this finance, but although it has benefits and is very successful, we find that it is increasing in fraud.

How to spot scams in decentralized finance

Decentralized finance is an integrated system of financial applications or products running on the blockchain represented by Ethereum. , and there is no need for a central authority in between.

But although centralized finance provides easy trading, it can also be used in a lot of scams, and although there are no specific ways to know how to spot scams in decentralized finance, there are some tips that can help protect a trader from being exposed to fraud, here are some tips:

1- Search carefully

Billionaire investor Mark Cuban suffered huge losses while trading in DeFi that brought his balance to zero in a single day, we found out that investors should spend some time researching before buying any crypto project or token.

While there is no foolproof checklist, investors should start by looking at the project or token’s website, where it is available for purchase, and its whitepaper and the developers or founders listed on it.

But while these characteristics aren’t the only indicators of whether or not something is up for grabs, they can be useful when trying to uncover more about a project that isn’t obvious at first glance and decide whether to invest.

Also See: Linear Finance Emerges Strong Rival For “Ethereum” To Participate In “Decentralized Finance”

2- Smart contract verification

Smart contracts or blocks of code that execute a set of instructions on a block chain are essential to run most crypto-based projects.

However, we found that this can be quite technical, but requires someone who knows the smart contract behind the project or knows enough about the space to do so. Because if there is a problem with the developer’s code, it could be weaknesses in the project.

When the “Poly Network”, a DeFi platform that connects various blockchains, was hacked in August, experts said the hacker was able to exploit a problem in the network’s encryption, although the hacker eventually returned the stolen funds, which was huge. Cryptocurrency Thefts.

That’s why it’s worth looking for projects that take security precautions and are well-audited, says John, president of Ava Labs, which supports the development of DeFi applications on the Avalanche blockchain. It is possible for a central party to control the network or its funds.

3- Understand their place in society

Meltem Demirers, Chief Strategy Officer of Coinshare, previously said that a project’s reputation is one of the things that tells whether it is in good shape or not from the start, and it can have founders who have no good intentions and set up a project. Its reputation is also a factor. It is also important to try to determine if the founders of the project are trustworthy before investing. .

As Jun Woo said: “Some of the best projects are anonymous or anonymous founders protect their privacy, so I’m not writing a project for it, but I expect transparency of implementation.”

Along with pump-and-dump schemes, developers abandon projects and leave with investors’ money, which has happened repeatedly in the crypto space, including in November, where a token named after a popular South Korean Netflix series plummeted to zero. After that its anonymous founder ran away.

Many social media influencers, celebrities and even CEOs were paid; To pump tokens or projects online, but that doesn’t mean it’s a good value or investment.

The Securities and Exchange Commission also warned: “It’s never a good idea to make an investment decision because a famous person says a product or service is a good investment.”.

4- Keep your wallet safe

It is important that your private keys and the string of letters and numbers similar to the password used to unlock access to the cryptocurrency remain undisclosed to the public.

There are many wallet options available to keep your investments and private keys safe, with an unprotected or self-protecting wallet, you are in control of your private keys and your crypto holdings.. though there are risks, cold wallets or hardware wallets are in a wide field. A very secure option for storing private keys.

You should also be aware of the bad guys in the space, common scams include SIM swaps, where hackers call your phone company and convince them to transfer your phone number to them to pass two-factor authentication on your account.

Others try to convince scammers to approve transactions or drop fake codes into your wallet over the air to direct you to a scam scheme website.

Some attackers buy Google ads that appear when users search for popular crypto wallets. Once victims click on the ad, thinking it is a link to a wallet site, they are directed to a real-looking phishing site.. Victims enter their credentials and give the fraudsters their private keys.

In general, it’s important to remain suspicious when receiving external messages regarding your crypto wallet.. Beware of fake accounts claiming to be crypto influencers or celebrities.

See also: What is Revenue Collection in Decentralized Finance?

Advantages of decentralized finance

When talking about how to detect fraud in decentralized finance, the advantages of this fund should be noted, because it provides a large number of financial services to users of digital assets, without sacrificing the basic principles on which these assets are built. .

This is the conclusion of many CeFi and traditional financial solutions, as decentralized financial platforms and protocols come without the need for prior authorization, which essentially implies that there is no central entity with leadership that decides who can or cannot use the site. To ensure that decentralized financial platforms are completely open to use by anyone.

Moreover, it is possible for anyone with a digital asset portfolio to use them, because they are very easy alternatives compared to banks, financial companies, money markets and other traditional financial platforms and provide access to another solution without any bank. Accounts.

Because they are based on “blockchain” platforms where they are presented to the public, this benefits them from complete transparency, which allows a third party to audit the code that runs the smart contracts for this solution. It processes transactions.

This implies that there is less ambiguity about what is going on behind the scenes, which gives decentralized finance users peace of mind, as assets acquired through decentralized finance platforms are freely traded through external platforms and generally gives users freedom. Unless they want to lock up or freeze these assets for a certain period of time, do whatever they want.

As this funding has led to a huge rise in scams, traders want to know how to spot scams in decentralized finance to avoid exposure to these operations.