Cryptocurrency is the latest transformative technology that is revolutionizing how transactions are made. But like any new technology, it’s not exempted from scams. One new scam that is gaining in popularity is called “Rug Pull.” This scam involves fooling investors into a project, and then “pulling the rug out” before the project is even built, rendering the currency worthless. So be careful when investing in cryptocurrency, and do your research before handing over your hard-earned money.
What is Rug Pull in Cryptocurrency?
Rug pulls in cryptocurrency are when a person or organization deliberately tries to manipulate the price of a digital asset by buying or selling in large volumes. This can be done for various reasons, such as to increase the price and make money off of investors artificially or to destabilize the market and cause panic selling.
Different Type of Rug Pulls in Cryptocurrency
1. Liquidity Stealing
Liquidity stealing is when a person withdraws all the coins from a liquidity pool. This action removes all the value injected into the currency by investors and causes the currency’s price to drop to zero.
2. Limiting Sell Orders
In a limiting sell order, a malicious developer codes the tokens so only the developer can sell them. This is a way to defraud investors. When developers create a new cryptocurrency, they typically pair it with another currency to facilitate trading. For example, they might pair it with the US Dollar.
Once enough people have bought into the new currency, and there is enough positive price action, the developers will sell all of their positions. This leaves the new currency worthless and the investors with nothing.
A pump and dump scheme is when someone buys a lot of a certain cryptocurrency or stock, promotes it heavily on social media, and then sells it all when the price goes up. This drives the price down and leaves people who didn’t sell with worthless tokens. Dumping is the act of selling a large amount of cryptocurrency all at once. This can be done for various reasons, but in the context of rug pulls, it is often done to cash out on investors before the project collapses.
What is the Difference Between Hard Pulls and Soft Pulls?
A hard rug pull is when a project’s developers code malicious backdoors into their token. This is done so they can exploit the system and steal people’s money. Liquidity stealing is also considered a hard rug pull.
Soft rug pulls are often carried out by developers who want to quickly get rid of their tokens. This leaves the token with a greatly reduced value, which can be detrimental to those who still have the token. While this act is considered unethical, it may not be criminal like hard pulls.
The Bottom Line: Staying on Top of Different Scams in Cryptocurrency
Cryptocurrency scams come in all shapes and sizes. Some are relatively easy to spot, while others are a little more sophisticated. By staying on top of the different types of scams that exist in the cryptocurrency world, you can protect yourself from being scammed and losing your hard-earned money.
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