Security Risks in the Blockchain World: Analysis of Smart Contract Scams

Cryptocurrencies and blockchain technology are reshaping the financial sector, but this revolution has also brought new security challenges. Scammers are no longer limited to exploiting technical vulnerabilities; they have transformed blockchain smart contracts themselves into tools for attack. By employing carefully designed social engineering traps, they leverage the transparency and irreversibility of blockchain to convert users' trust into means for stealing assets. From forging smart contracts to manipulating cross-chain transactions, these attacks are not only covert and difficult to trace but also more deceptive due to their 'legitimized' appearance. This article will analyze examples to reveal how scammers turn protocols into vectors for attack and provide a comprehensive solution ranging from technical protection to behavioral prevention, helping users navigate safely in a decentralized world.

1. How does an agreement become a tool for fraud?

Blockchain protocols are supposed to ensure security and trust, but scammers exploit their characteristics, combined with user negligence, to create various covert attack methods. Here are some techniques and their technical details:

(1) malicious smart contracts authorization

Technical Principles:

On blockchains like Ethereum, the ERC-20 token standard allows users to authorize a third party (usually a smart contract) to withdraw a specified number of tokens from their wallet through the "Approve" function. This feature is widely used in DeFi protocols, where users need to authorize smart contracts to complete transactions, stake, or participate in liquidity mining. However, scammers exploit this mechanism to design malicious contracts.

How it works:

Scammers create a DApp disguised as a legitimate project, often promoted through phishing websites or social media. Users connect their wallets and are induced to click "Approve", which appears to authorize a small amount of tokens, but may actually be an unlimited amount (uint256.max value). Once the authorization is complete, the scammer's contract address gains permission to call the "TransferFrom" function at any time, allowing them to withdraw all corresponding tokens from the user's wallet.

Case:

At the beginning of 2023, a phishing website disguised as "Uniswap V3 upgrade" caused hundreds of users to lose millions of dollars in USDT and ETH. On-chain data shows that these transactions fully comply with the ERC-20 standard, making it difficult for victims to recover their losses through legal means, as the authorization was voluntarily signed.

(2) Signature Phishing

Technical Principles:

Blockchain transactions require users to generate signatures using their private keys to prove the legitimacy of the transaction. Wallets usually pop up a signature request, and after user confirmation, the transaction is broadcast to the network. Fraudsters exploit this process to forge signature requests and steal assets.

How it works:

Users receive an email or message disguised as an official notification, such as "Your NFT airdrop is ready to claim, please verify your wallet." After clicking the link, users are led to a malicious website that asks them to connect their wallet and sign a "verification transaction." This transaction may actually call the "Transfer" function, directly transferring ETH or tokens from the wallet to the scammer's address; or it could be a "SetApprovalForAll" operation, granting the scammer control over the user's NFT collection.

Case:

A well-known NFT project community has suffered a signature phishing attack, with several users losing NFTs worth millions of dollars due to signing forged "airdrop claim" transactions. The attackers exploited the EIP-712 signature standard to forge seemingly safe requests.

(3) Fake tokens and "dust attack"

Technical Principles:

The openness of the Blockchain allows anyone to send tokens to any address, even if the recipient has not actively requested them. Fraudsters exploit this by sending small amounts of cryptocurrency to multiple wallet addresses to track the activity of the wallets and associate them with the individuals or companies that own the wallets.

How it works:

Attackers send small amounts of "dust" tokens to a large number of addresses, which may have enticing names or metadata. Users may be curious to query or try to redeem these tokens, thus exposing more wallet information. Attackers analyze subsequent transactions to pinpoint the user's active wallet addresses and implement more precise scams.

Case:

There was a "GAS token" dusting attack on the Ethereum network, affecting thousands of wallets. Some users lost ETH and ERC-20 tokens due to curiosity-driven interactions.

2. Why are these scams difficult to detect?

The success of these scams is largely due to their concealment within the legitimate mechanisms of Blockchain, making it difficult for ordinary users to discern their malicious nature. The main reasons include:

• Technical Complexity: The code of smart contracts and signature requests are obscure and difficult for non-technical users to understand.
• On-chain Legitimacy: All transactions are recorded on the Blockchain, which seems transparent, but victims often only realize the consequences of the authorization or signature afterwards.
• Social Engineering: Scammers exploit human vulnerabilities, such as greed, fear, or trust.
• Clever disguise: Phishing websites may use URLs similar to the official domain, and even enhance credibility through HTTPS certificates.

3. How to protect your cryptocurrency wallet?

In the face of these scams that coexist with technical and psychological warfare, protecting assets requires a multi-layered strategy:

Check and manage authorization permissions

• Regularly check the wallet's authorization records using the authorization inspection tool.
• Revoke unnecessary authorizations, especially unlimited authorizations to unknown addresses.
• Ensure that the DApp comes from a trusted source before each authorization.

Verify the link and source

• Manually enter the official URL to avoid clicking links in social media or emails.
• Ensure the website uses the correct domain name and SSL certificate.
• Be cautious of misspelled or extra character domain names.

Use cold wallets and multi-signature

• Store most of your assets in a hardware wallet and connect to the network only when necessary.
• For large assets, use multi-signature tools that require multiple keys to confirm transactions.

Handle signature requests with caution

• Carefully read the transaction details in the wallet pop-up.
• Use the decoding function of the blockchain browser to analyze the signature content, or consult a technical expert.
• Create a separate wallet for high-risk operations, storing a small amount of assets.

Responding to Dust Attacks

• Do not interact after receiving unknown tokens. Mark them as "spam" or hide them.
• Confirm the source of the tokens through the Blockchain explorer, be cautious of bulk sending.
• Avoid disclosing wallet addresses or use a new address for sensitive operations.

Conclusion

Implementing the above security measures can significantly reduce the risk of becoming a victim of advanced fraud schemes. However, true security not only relies on technological protection but also requires users to understand the authorization logic and adopt a prudent attitude towards on-chain behavior. Every data parsing before signing, every permission review after authorization, is a maintenance of one's own digital sovereignty.

In the blockchain world where code is law, every click and every transaction is permanently recorded and cannot be changed. Therefore, internalizing security awareness as a habit and maintaining a balance between trust and verification is key to protecting digital assets.