Ethereum Merge scams: Bad actors profit from paradigm shift
12:42, 8 September 2022
Scams and fraud are nothing new in the cryptocurrency industry. Last year $14bn was taken from unsuspecting investors, according to Chainalysis. But the upcoming Ethereum (ETH) merge is providing fraudsters with a new opportunity and the blockchain has taken note.
The Ethereum foundation said: “As we approach The Merge of Ethereum Mainnet, you should be on high alert for scams trying to take advantage of users during this transition.”
The second largest cryptocurrency is moving to a proof-of-stake (POS) consensus mechanism as it seeks to reduce energy usage, transaction speeds and gas fees.
This transition is set to take place between 13 and 15 September 2022, according to Ethereum’s co-founder, Vitalik Buterin. While there are benefits for Ethereum users, there are numerous fraud risks to be wary of.
The crypto industry is rife with fraud that is usually adaptive to new trends and takes advantage of sector-wide events.
For example, the rise of decentralised finance (DeFi) in 2021 led to new opportunities for fraudsters. DeFi fraud made up 72% of cryptocurrency thefts, according to Chainalysis.
Similarly, the explosion of non-fungible tokens (NFTs) into the mainstream gave bad actors new methods to take investors’ funds.
Chainalysis pointed to the use of wash trading, where NFT prices were manipulated to earn large profits.
The imminent Ethereum transition has the potential to be another sector-defining event for scammers. The blockchain has been preparing for the Merge for more than six years, and there are already Ethereum Merge scams to be cautious of.
Fake ETH2 tokens
It could be easy to assume that such a vast upgrade would warrant a new cryptocurrency. But the Ethereum foundation has made it clear that there will not be any ETH2 token.
Investors will not have to complete any swaps or upgrades for their cryptocurrency to be transferred onto the new blockchain upgrade.
But this does present an opportunity for phishing scammers to pry information about investors’ wallets and other security details. A site claiming to upgrade your Ethereum will most likely be looking to steal your funds.
Airdrop scams
A harmless-looking new Ethereum token can also be used to scam investors through airdrops.
These are usually used for promotional events where tokens are dropped into wallets for free.
However, crypto criminals have used the concept to gain access to investors’ keys and subsequently their funds.
These scams require investors to log in with their wallet details when trying to redeem the allegedly airdropped tokens. All investors are doing, however, is handing over their details to bad actors.
The Ethereum Foundation is not running any official airdrops. Coin98 recommends leaving suspicious airdropped tokens alone or sending them to a burn address.
Fraudulent mining pools
Not everyone is onboard with the new migration to proof of stake. Exchanges and well-known crypto figures, including BitTorrent’s chief executive, Justin Sun, are giving their support to proof-of-work (POW) forks, unofficial blockchains that use the old consensus mechanism.
As the founder of a POS blockchain, I believe that POW has its own unique value. In fact we may have underestimated the value of Ethereum as the only POW smart contract blockchain. — H.E. Justin Sun (@justinsuntron) August 6, 2022
There is already a subtype of crypto scams that take advantage of POW mining pools. These scams will present users with a seemingly official swap page for investors to send their funds to the “pool”.
These promise investors the chance to earn passive income. But the scam will instead steal the funds for good. Coinbase (COIN) estimated that more than $50m has been stolen via these scams.
Mining pool scams can also be used to phish details from users. Global Anti-Scam Org warned: “They may come with a 24/7 ‘customer service’ chat that give you deceptive explanations.”
As the ETH merge means it will no longer use the POW consensus, investors will have to be especially careful of mining pools that promise high rewards. Thorough research and caution should accompany decisions to interact with any cryptocurrency project, including Ethereum mining pools.
Ethereum 2.0's potential
The Ethereum merge could have the potential to transform the crypto industry, with the second largest crypto network becoming more energy and cost-efficient.
Yet there are also clear risks present. Whether it is a token or mining pool, it is crucial for investors to carry out thorough due diligence before interacting with any Ethereum 2.0 project, especially as the industry is young and largely unregulated.
Ethereum’s security advice reminds investors: “Once you lose your crypto, it is gone”.
FAQs
How to prepare for the Ethereum merge?
There is no action needed for Ethereum investors to prepare for the merge. Any ether will automatically be uploaded to the new upgrade, without any need for ethereum staking.
Investors should be wary of bad actors looking to take advantage of this event using impersonation to steal funds.
How to keep your funds secure before the merge?
Ethereum investors should be cautious of scams looking to pry funds from accounts. The Ethereum foundation warned investors not to send any ETH to those claiming to upgrade to the new consensus mechanism.
Cryptocurrency investors should also be cautious of airdropped tokens and Ethereum mining pools.
Markets in this article
