Guide: How To Safely Invest in Crypto, NFTs and Digital Assets

Steve Huff
Steve Huff is an Editor and Reporter at dot.LA. Steve was previously managing editor for The Metaverse Post and before that deputy digital editor for Maxim magazine. He has written for Inside Hook, Observer and New York Mag. Steve is the author of two official tie-ins books for AMC’s hit “Breaking Bad” prequel, “Better Call Saul.” He’s also a classically-trained tenor and has performed with opera companies and orchestras all over the Eastern U.S. He lives in the greater Boston metro area with his wife, educator Dr. Dana Huff.
crypto coins
Photo by Quantitatives on Unsplash

With the continually surging popularity of cryptocurrencies and NFTs, there has been an increase in scams targeting unsuspecting consumers. Even “ crypto winter” hasn’t slowed grifters looking to make big bucks by ripping off crypto and non-fungible token enthusiasts. In an August report, blockchain analytics firm Elliptic noted that investors had lost $100 million to NFT scams between July 2021 and July 2022. That was pocket change compared to cryptocurrency thefts—also in August, blockchain analytics firm Chainalysis reported $1.6 billion in total crypto losses from hackers attacking services designed to help investors transfer digital assets from one network to another.


Moneymaking potential in cryptocurrencies and NFTs is touted across the web, but the potential for digital highway robbery is just as great. That’s why it’s a good idea to armor yourself with information about how to avoid the many dangerous dark alleyways found along the blockchain’s supposed paths to wealth.

Scams can take many forms, from fake investment opportunities to phishing attacks. For example, “Web 3 Is Going Just Great” reports that in May 2022, a crypto project was launched with the title “Day of Defeat.” The project's developers called it a “radical social experiment token” that promised, “to give holders 10,000,000X PRICE INCREASE.” This meant anyone who purchased $1 of the token would receive massive rewards.

By the time the token’s price plummeted by 96%, investors had purchased $1.35 million worth of coins. Unfortunately, the scammers took all the liquid assets with them. It was a classic “ rug pull.” That’s an apt term to describe what happens when investors are lured to a new crypto investment opportunity only to have the developer pull out and usually vanish—websites and social media accounts deleted or locked. Rug pulls aren’t that new, but crypto’s widespread adoption has provided plenty of opportunities for the sufficiently motivated to create new ones.

In June 2022, actor Seth Green fell prey to a classic phishing scam focused on his Bored Ape Yacht Club (BAYC) NFTs. After Green bought legit Bored Apes, someone sent him a phishing email disguised as an alert about sketchy activity on his OpenSea account, where his apes were stored. He followed a link from the message to a site that looked enough like OpenSea to fool the Robot Chicken co-creator into typing in his login information. But as is usually the case with a phishing scam, Green’s info was sent to a command and control server where it was accessible to whoever built the fake login page.

In no time, hackers had grabbed some of Green’s most valuable NFTs and sold them to another account. As a result, the actor had to pay at least $260,000 to get his Bored Apes back.

While Seth Green was getting in on the latest thing—as Hollywood creators like to do—you can take steps to reduce your risk of falling into the trap that ensnared him.

Here are six to start:

Do your research

person using MacBook proPhoto by Austin Distel on Unsplash

Before spending a dime, examine the account offering the NFT or tokens. Does the marketplace offer verification? Opensea, for example, verifies accounts with a blue checkmark. It requires specific benchmarks for verification, stating that an account that owns “collections with at least 75 ETH of volume sold” may qualify if they also “meet other criteria like minimum activity levels and social presence.” Ensure you’re buying from a seller with a checkmark.

Use reputable platforms

Bitcoin wallet in 3D. Feel free to contact me through email mariia.shalabaieva@gmail.com. Check out my previous collections “Top Cryptocurrencies” and "Elon Musk" . Photo by Mariia Shalabaieva on Unsplash

Crypto and NFT purchases generally require setting up a digital wallet. To that end, there are plenty of sites offering crypto wallet functions. Still, only the ones that have been around for a few years (Coinbase, for example, launched in 2012) and have real name recognition can guarantee that they at least take security very seriously. Known and generally reliable sites offering wallets include Coinbase, Trezor, Metamask, Public.com, and Ledger. Of course, those aren’t the only ones; they’re a good place to start.

Use the wallet’s security settings wisely

two pink padlock on pink surfacePhoto by FLY:D on Unsplash

Good wallets have the kind of security protocols we might expect from our banks or email accounts. For example, using two-factor authentication is a must, especially if you don’t want to end up paying through the nose for apes you’d already purchased, like Seth Green.

Look for rug-pull red flags

woman sitting on bed with MacBook on lapPhoto by Victoria Heath on Unsplash

These include mysterious, anonymous developers. If you research projects on Twitter, for example, there are frequent mentions of “doxxed” developers. In this context, doxxed just means the devs are telling potential investors who they are, likely with an open, transparent, and consistent web presence that goes back further than just a few months. Be wary of new social accounts and examine websites and white papers describing the project and its purpose. If they are vague or the sites seem thrown together (multiple pages with no content or TBAs), be very wary.

Be suspicious of 'pie in the sky' promises regarding profits

10 and 20 us dollar billPhoto by Alexander Schimmeck on Unsplash

If you refer back to “Day of Defeat,” the project that rooked investors to the tune of $1.35 million, one of the easiest methods of spotting a possible scam is right there—the promise that those who purchased tokens would see a 10,000,000X increase in price. CoinTelegraph puts it succinctly in their recommendations about taking care with crypto and NFTs: “If the yields for a new coin seem suspiciously high, but it doesn’t turn out to be a rug pull, it’s likely a Ponzi scheme.”

Look for skewed numbers

turned on monitoring screenPhoto by Stephen Dawson on Unsplash

According to Matthew Callahan—founder and CEO of Delphi, a Web3 consulting agency—other red flags to watch out for include projects where the number of “Twitter and Discord follower numbers seem disproportionate to their engagement.” That is, small numbers of users contrasted with active, vocal engagement can suggest sock puppetry at work. Callahan also suggests that “advertising the project on Twitter/Instagram” could be a red flag. Why? A paid ad campaign could indicate an attempt to obscure a lack of organic engagement. The account isn’t relying on word of mouth so much as paid views, which artificially boosts its profile, obscuring the fact that there’s “no real community engagement on social platforms.”

Frankly, there is still no surefire way to avoid all online scams. The key is to be a little paranoid, ultimately. Keep your digital head on a swivel, check all corners, and don’t go big at the start. Extra vigilance will improve your chances of not getting scammed into oblivion.

steve@dot.la

Subscribe to our newsletter to catch every headline.

LA-Based Apex Is Tapping Into the Small Satellite Market by Making Buses for Spacecraft

Spencer Rascoff

Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.

​Ian Cinnamon
Ian Cinnamon

On this episode of Office Hours, Apex founder and CEO Ian Cinnamon discusses the importance of investing in space exploration and shares his thoughts on the evolving space ecosystem in Los Angeles.


Read moreShow less
https://twitter.com/spencerrascoff
https://www.linkedin.com/in/spencerrascoff/
admin@dot.la

This Week in ‘Raises’: Measurabl Snags $93M, Selva Ventures Grabs $34M

Decerry Donato

Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.

Raises
Image by Joshua Letona

A local data management platform company lands fresh funding to help commercial real estate owners reduce carbon footprint, while one Los Angeles-based venture firm closes its second fund to accelerate the growth of emerging companies across health, wellness, beauty and personal care.

***

Read moreShow less

McKinsey & Company Launches InLA Accelerator To Help Underrepresented Founders Tackle Startup Challenges

Decerry Donato

Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.

McKinsey & Company Launches InLA Accelerator To Help Underrepresented Founders Tackle Startup Challenges
InLA

In 2022, female founders saw a 28% decline in overall U.S. funding, while Black-led startups saw a 38% decline in total capital received. In an effort to increase funding for minority-led startups, global venture firm McKinsey & Company is launching InLA, an accelerator program for underrepresented founders.

“This effort is something that the firm has been really excited about for a long time,” Engagement Manager Elkhyn Rivas Rodriguez said. “There's obviously a meaningful and growing startup community out here and just from a diversity standpoint, LA is incredibly diverse and multi-ethnic and multicultural. So we think that there will be a really great pool of potential companies to partner with.”

Read moreShow less
RELATEDEDITOR'S PICKS
LA TECH JOBS
interchangeLA
Trending