Smart Contracts Protocol: The Evolution from Security Assurance to Fraud Tool

Cryptocurrencies and blockchain technology are redefining the concept of financial freedom, but this revolution also brings new challenges. Scammers no longer rely solely on technical vulnerabilities; instead, they turn the blockchain smart contracts protocol itself into a tool for attack. Through carefully designed social engineering traps, they exploit the transparency and irreversibility of blockchain to convert 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 also more deceptive due to their "legitimized" appearance. This article will reveal, through real case analyses, how scammers turn the protocol itself into a vehicle for attack and provide a comprehensive solution ranging from technical protection to behavioral prevention, helping users navigate safely in a decentralized world.

1. How do legal protocols become tools for fraud?

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

(1) malicious smart contracts authorization (Approve Scam)

Technical Principles:

On blockchains like Ethereum, the ERC-20 token standard allows users to authorize a third party (typically a smart contract) to withdraw a specified amount of tokens from their wallet using the "Approve" function. This feature is widely used in DeFi protocols, such as certain DEXs or lending platforms, where users need to authorize smart contracts to complete transactions, staking, or liquidity mining. However, scammers exploit this mechanism to design malicious contracts.

Operation method:

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 grant unlimited access (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:

In early 2023, a phishing website disguised as an upgrade to a certain DEX 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 the victims are even unable to recover their losses through legal means, as the authorizations were voluntarily signed.

(2) Phishing Signature

Technical Principles:

Blockchain transactions require users to generate signatures using their private keys to prove the legitimacy of the transactions. Wallets typically pop up 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 instant 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 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 has suffered a signature phishing attack, with multiple users losing NFTs worth millions of dollars due to signing a forged "airdrop claim" transaction. The attacker exploited the EIP-712 signature standard to forge a seemingly safe request.

(3) fake tokens and "Dust Attack"

Technical Principles:

The openness of blockchain allows anyone to send tokens to any address, even if the recipient hasn't actively requested it. Scammers exploit this by sending small amounts of cryptocurrency to multiple wallet addresses to track the activity of the wallets and connect them to the individuals or companies that own the wallets. Attackers start by sending dust and then try to find out which ones belong to the same wallet. Ultimately, the attackers use this information to launch phishing attacks or threats against the victims.

Operation method:

In most cases, the "dust" used in dust attacks is distributed to users' wallets in the form of airdrops. These tokens may carry names or metadata (such as "FREE_AIRDROP"), enticing users to visit a certain website for details. Users are generally eager to redeem these tokens, and then attackers can access the users' wallets through the contract address attached to the tokens. Covertly, dust attacks employ social engineering to analyze users' subsequent transactions, pinpointing users' active wallet addresses to carry out more precise scams.

Real Case:

In the past, a token dusting attack on the Ethereum network affected thousands of wallets. Some users lost ETH and ERC-20 tokens due to curiosity 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 blockchain, making it difficult for ordinary users to discern their malicious nature. Here are a few key reasons:

• Technical Complexity:

Smart contract code and signature requests can be obscure and difficult for non-technical users to understand. For example, an "Approve" request may appear as hexadecimal data like "0x095ea7b3...", making it hard for users to intuitively determine its meaning.

• On-chain Legitimacy:

All transactions are recorded on the blockchain, seemingly transparent, but victims often only realize the consequences of the authorization or signature afterwards, at which point the assets are irretrievable.

• Social Engineering:

Fraudsters exploit human weaknesses, such as greed ("Get $1000 tokens for free"), fear ("Account irregularity requires verification"), or trust (disguised as customer service).

• Deceptive Elegance:

Phishing websites may use URLs similar to the official domain (such as adding extra characters to a normal domain) and even increase credibility through HTTPS certificates.

3. How to Protect Your Cryptocurrency Wallet?

Blockchain security faces scams that coexist with both technical and psychological warfare, requiring a multi-layered strategy to protect assets. Here are detailed preventive measures:

• Check and manage authorization permissions

Tools: Use the authorization check tool of a blockchain explorer or a dedicated authorization management platform to check the authorization records of the wallet.

Action: Regularly revoke unnecessary authorizations, especially unlimited authorizations to unknown addresses. Before each authorization, ensure that the DApp comes from a trusted source.

Technical details: Check the "Allowance" value; if it is "unlimited" (e.g., 2^256-1), it should be revoked immediately.

• Verify links and sources

Method: Manually enter the official URL to avoid clicking on links in social media or emails.

Check: Ensure that the website uses the correct domain name and SSL certificate (green lock icon). Be alert for spelling errors or extra characters.

Example: If you receive a variant from the official website (such as additional characters or subdomains), immediately suspect its authenticity.

• Use cold wallets and multi-signatures

Cold wallet: Store most assets in a hardware wallet and only connect to the network when necessary.

Multisignature: For large assets, use multisignature tools that require multiple keys to confirm transactions, reducing the risk of single point failure.

Benefits: Even if the hot wallet is compromised, the assets in cold storage remain secure.

• Handle signature requests with caution

Steps: Carefully read the transaction details in the wallet pop-up each time you sign. Some wallets will display a "data" field; if it contains unknown functions (e.g., "TransferFrom"), refuse to sign.

Tools: Use the "Decode Input Data" function of the blockchain explorer to analyze the signature content, or consult a technical expert.

Suggestion: Create a separate wallet for high-risk operations and store a small amount of assets.

• Responding to Dust Attacks

Strategy: Do not interact after receiving unknown tokens. Mark them as "spam" or hide them.

Check: Use a blockchain explorer to confirm the source of the token. If it is a bulk send, be highly vigilant.

Prevention: Avoid disclosing 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 unilateral victory of technology. When hardware wallets build a physical defense and multi-signature diversifies risk exposure, the user’s understanding of authorization logic and prudence in on-chain behavior become the last bastion against attacks. Every data analysis before signing, every permission review after authorization, is a pledge to their own digital sovereignty.

In the future, no matter how technology iterates, the core defense always lies in: internalizing security awareness into muscle memory and 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 and cannot be altered.