New Threats in the Blockchain World: When Smart Contracts Become Tools for Fraud

Cryptocurrencies and blockchain technology are reshaping the financial landscape, but this revolution also brings new security challenges. Scammers are no longer limited to exploiting technological vulnerabilities; instead, they are turning the blockchain smart contracts protocols themselves into tools of attack. Through carefully designed social engineering traps, they exploit the transparency and irreversibility of blockchain to transform user trust into a means of asset theft. From forging smart contracts to manipulating cross-chain transactions, these attacks are not only covert and difficult to trace but are also more deceptive due to their "legitimate" appearance. This article will analyze instances to reveal how scammers turn protocols into vehicles for attack and provide comprehensive solutions ranging from technical protection to behavioral prevention, helping you navigate safely in a decentralized world.

1. How do legal agreements turn into fraud tools?

The original intention of blockchain protocol design is to ensure security and trust, but scammers exploit its characteristics, combined with user negligence, to create various covert attack methods. Below are some techniques and their technical details:

(1) malicious smart contracts authorization

Technical Principles: On blockchain platforms like Ethereum, the ERC-20 token standard allows users to authorize third parties (usually smart contracts) to withdraw a specified amount of tokens from their wallets through the "Approve" function. This feature is widely used in DeFi protocols, where users need to authorize smart contracts to complete transactions, stake, or engage in liquidity mining. However, scammers exploit this mechanism to design malicious contracts.

How it works: The scammer creates a DApp disguised as a legitimate project, often promoted through phishing websites or social media. Users connect their wallets and are lured into clicking "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.

Real 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, and victims are unable to recover their losses through legal means because the authorization was voluntarily signed.

(2) Signature phishing

Technical Principles: Blockchain transactions require users to generate a signature using their private key to prove the legitimacy of the transaction. Wallets typically prompt a signature request, and after user confirmation, the transaction is broadcasted to the network. Fraudsters exploit this process to forge signature requests and steal assets.

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

Real Case: A well-known NFT project community encountered a signature phishing attack, resulting in several users losing NFTs worth millions of dollars due to signing a forged "airdrop claim" transaction. The attackers exploited the EIP-712 signature standard to forge seemingly safe requests.

(3) fake tokens and "dust attacks"

Technical Principles: The openness of Blockchain allows anyone to send tokens to any address, even if the recipient has not actively requested it. Scammers take advantage of this by sending small amounts of cryptocurrency to multiple wallet addresses to track the activity of the wallets and link them to the individuals or companies that own the wallets.

Operating method: Attackers send small amounts of cryptocurrency to different addresses and then try to figure out which ones belong to the same wallet. These "dust" are often distributed to users' wallets in the form of airdrops and may come with enticing names or metadata. Users may want to cash out these tokens, thereby accessing the websites provided by the attackers. The attackers can then access users' wallets through the contract addresses attached to the tokens or by analyzing users' subsequent transactions to lock onto active wallet addresses and implement more precise scams.

Real case: In the past, the "GAS token" dust attack on the Ethereum network affected thousands of wallets. Some users lost ETH and ERC-20 tokens due to curiosity and interaction.

2. Why are these scams difficult to detect?

The success of these scams is largely due to the fact that they are hidden within the legitimate mechanisms of the Blockchain, making it difficult for ordinary users to discern their malicious nature. Here are a few key reasons:

• Technical complexity: The code of smart contracts and signature requests can be obscure and difficult for non-technical users to understand. For example, an "Approve" request might appear as hexadecimal data like "0x095ea7b3...", making it hard for users to intuitively grasp its meaning.

• On-chain legality: All transactions are recorded on the Blockchain, appearing transparent, but victims often realize the consequences of authorization or signatures only after the fact, by which time the assets can no longer be recovered.

• Social engineering: Scammers exploit human weaknesses such as greed ("Get 1000 USD tokens for free"), fear ("Account anomaly requires verification"), or trust (disguising as customer service).

• Sophisticated 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 scams that combine technical and psychological warfare, protecting assets requires a multi-layered strategy. Here are detailed preventive measures:

Check and manage authorization permissions

• Use the authorization check tool of the blockchain explorer to check the wallet's authorization records.
• Regularly revoke unnecessary authorizations, especially for unlimited authorizations to unknown addresses.
• Before each authorization, ensure that the DApp comes from a trusted source.
• Check the "Allowance" value; if it is "Unlimited" (such as 2^256-1), it should be revoked immediately.

Verify the link and source

• Manually enter the official URL to avoid clicking links in social media or emails.
• Ensure that the website uses the correct domain name and SSL certificate (green padlock icon).
• Be wary of spelling mistakes or extra characters.
• If you receive a suspicious variant of a domain name, immediately doubt its authenticity.

Use cold wallets and multi-signatures

• Store most of the assets in a hardware wallet and connect to the network only when necessary.
• For large assets, use multi-signature tools that require multiple key confirmations for transactions, reducing the risk of single point failure.
• Even if the hot wallet is breached, the assets in cold storage remain safe.

Handle signature requests with caution

• Carefully read the transaction details in the wallet pop-up each time you sign.
• Pay attention to the "data" field; if it contains unknown functions (such as "TransferFrom"), refuse to sign.
• Use the "Decode Input Data" function of the blockchain browser to analyze the signature content, or consult a technical expert.
• Create a separate wallet for high-risk operations and store a small amount of assets.

Response to Dust Attack

• Do not interact after receiving unknown tokens. Mark them as "spam" or hide them.
• Confirm the source of the tokens through the Blockchain browser platform, and be highly alert if it is a batch send.
• Avoid publicizing wallet addresses or use a new address for sensitive operations.

Conclusion

By implementing the above security measures, ordinary users can significantly reduce the risk of becoming victims of advanced fraud schemes, but true security is by no means a one-sided victory of technology. When hardware wallets build a physical defense and multi-signature disperses risk exposure, users' understanding of authorization logic and their prudence regarding on-chain behavior are the last bastions against attacks. Every data parsing before signing, and every privilege review after authorization, is a pledge to one's own digital sovereignty.

In the future, regardless of how technology iterates, the most fundamental line of defense always lies in: internalizing security awareness as a habit, establishing an eternal balance between trust and verification. After all, in the blockchain world where code is law, every click and every transaction is permanently recorded on the chain, unchangeable.