Next Gen Investing

Scammers are creating fake “ChatGPT” and “Bing” crypto tokens—here’s how to protect yourself

Lionel Bonaventure | Afp | Getty Images

Scammers are trying to cash in on the hype surrounding popular artificial intelligence chatbots including OpenAI's ChatGPT and Microsoft's Bing AI.

A search on DEXTools, an interactive crypto trading platform that tracks prices, reveals about 287 tokens that mention "ChatGPT" in their name.

However, Microsoft nor OpenAI, the developer of ChatGPT, have announced an official launch into cryptocurrency.

Turns out, these digital coins aren't actually associated with the viral AI tools and many could be "pump and dump" schemes meant to dupe investors.

A "pump and dump" scheme, also known as a "rug pull," happens when scammers generate a lot of interest in a particular coin that's trading for a low price. They then promote the coin and convince investors to pour money into it in order to drive the price higher.

When the price reaches a certain level, the scammer then floods the market by selling their portion of the coin at the inflated price and rakes in the profit. Traders, on the other hand, are left with a coin that is rapidly decreasing in value due to the increased supply.

Peckshield, a blockchain security firm, detected dozens of newly created "BingChatGPT" tokens, the company said in a tweet on Feb. 20. The firm has identified at least one of those digital coins as having been created by a user notorious for "pump and dump" crypto schemes.

Why are tokens allowed to falsely use ChatGPT and Bing's names?

Legally, fraudsters aren't allowed to name their token after ChatGPT, Bing or any other trademarked name without being affiliated with those companies, but it's difficult to crack down on the practice.

"These things move so fast, by the time a lawyer's letter reaches the right people, the people behind the tokens have likely moved on to something else," James Ledbetter, editor and publisher of fintech newsletter "FIN", tells CNBC Make It.

Scam crypto tokens are commonly deployed on "permissionless blockchains" also known as public blockchains, says Chen Arad, chief operating officer at Solidus Labs, a cryptocurrency risk monitoring and market surveillance company. This means anyone can issue any token (using any name) to users on the platform without needing to be granted permission from an administrator or moderator.

"On the one hand, no one needs to allow activity, which potentially allows accessibility and more open financial services," Arad says. "On the other hand, it creates new challenges like this, where scammers take advantage of openness and new tools are needed to simplify and assess risks like fake impersonation tokens."

How investors can protect themselves

Crypto investors should be wary of newly created tokens that use the name of popular products or celebrities.

For cyber thieves, it can be an effective way of getting the attention of investors looking to make a quick gain, and get them to make FOMO-driven decisions without much thought, says Arad.

One of the most notable examples is the Squid Game token, which billed itself as a "play-to-earn" cryptocurrency, in which users purchase crypto and put it into a virtual wallet connected to an online or mobile game.

A March 9 public service announcement from the FBI warned that some scammers advertise tokens as play-to-earn, telling victims they will earn more in-game rewards by depositing more crypto into their wallet. However, when users stop depositing digital funds, criminals then drain the victim's wallet using a malicious program that the victim unknowingly activated when they joined the game, the FBI warns.

The Squid Game token, however, turned out to be a "rug pull" scheme instead. The developers abruptly abandoned the project before the game was set to launch and managed to steal over $3 million from investors in late 2021, says Arad. And they did this simply by using the name of the famous show at the right time when it was trending, he adds.

The best way to avoid these scams is to stay out of crypto altogether, says Ledbetter. Otherwise, similar to investors in other assets, crypto traders should do their research before purchasing any new token.

Fraudsters are counting on investors making quick, uneducated decisions based on the fear of missing out, says Arad. So, one red flag to watch for is if a cryptocurrency promises that you'll make a lot of money by investing in it.

"Only scammers will guarantee profits or big returns," the Federal Trade Commission's website warns. "Don't trust people who promise you can quickly and easily make money in the crypto markets."

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