Do You Know How To Identify Cryptocurrency Scam Coins?
It is very difficult to understand the technology behind cryptocurrencies. Really complicated computing jargon is used to describe cryptos so it is really easy to be confused. This includes those that are tech-inclined.
Things are made even more complicated by the fact that regulations are mostly absent. There is a clear conducive environment that draws in the scammers. People create fake crypto coins and different scam schemes to take advantage of those that are not informed.
The cryptocurrency industry attracted countless individuals because of the possibility to get really massive returns on investments made. We are looking at a market that morphed into quite a speculative hotbed, one that led many to simply make wagers with their money as they tried to make fast profits.
You can now choose out of countless tokens and cryptocurrencies. There are so many that it is becoming increasingly hard to figure out which ones are scams.
While knowing what the best investment is can be tricky, something that is actually easier is knowing when you should NOT invest.
If you want to avoid being taken advantage of, here are some characteristics of the scams and Ponzi schemes that plague the cryptocurrency world. This will help you to avoid losing money.
There are countless investment opportunities around that promise monthly or daily rates of return. It is so easy to be tempted by the possibility of making money overnight. It is enough to want to participate in a scheme with a set return.
The problem is that it is close to impossible to generate a consistent, fixed profit. Fixed returns mean constant revenues. If a business does not sell services or products to substantiate revenues, the only real way to sustain guaranteed, high profit rates is a Ponzi scheme.
3 common types of fraudulent schemes exist at the moment in the crypto world and promote really unrealistic claims. These are:
- Cloud Mining Services
Cryptocurrency mining uses advanced computing hardware that solves really complex mathematical equations so that transactions can be secured in the network. The miners are rewarded with cryptos for the work done.
The fraudulent cloud mining sites give people the opportunity to be involved in mining operations so that they can earn mining rewards. An investor just needs to provide the initial capital upfront. No computing hardware is used.
The problem with cloud mining services is that they are fraudulent. They are just Ponzi schemes that keep paying money as new users are brought in. When this does not happen, funds are lost and the “business” collapses.
- BIPs – Bitcoin Investment Packages
Bitcoin investment packages have really high yields and basically promise very high returns with just small payout structures. Everything starts with a subscription package you buy. This gives you the possibility of receiving a constant payout every single day or every single week. These are almost always really profitable.
Because of the Ponzi structure that is used, the BIP has a really limited life cycle. It quickly closes as soon as just few users remain.
BIPs almost always use very complex buzzwords in order to confuse people. The goal is to make it really hard to understand how profits are made. At the same time, the buzzwords make everything seem credible.
- MLM (Multi-Level Marketing) Schemes
MLMs in the crypto world usually stand out as being ambiguous about actual services or offerings. They depend on a referral scheme.
The typical referral structure makes individuals promote cryptocurrency-related investment schemes you cannot participate in without clicking on specific referral links.
Fortunately, MLMs are very easy to identify. This is because the main revenue generation source is affiliate marketing, as opposed to anything directly connected with cryptocurrencies.
To Sum Up
The common features you need to be careful with are:
- Guaranteed high interest rates or profits.
- Ambiguous details about how the program works.
- Affiliate/referral schemes.
- Difficulty when it comes to withdrawing funds.
- Little or zero information about the company and/or the founding team.
Base Code Does Not Exist
Most cryptocurrencies out there are open source projects. Because of this, the close sourced projects and the projects that do not reveal the existing code base are not credible.
Not all the coins that are closed-source are crypto scams. However, all the coins that were branded as being scams in the past did not reveal a base code or just did not have it. Basically, in a scam the reason why the source is closed is that it does not actually exist.
If a coin does not present you links to the base code, you have to be careful as the business is shady.
Having open source code is important since it offers transparency. People can just look at codes and review them. The entire community is free to suggest base code improvements.
Key Information Is Absent
Scam coins do not offer some really important information that is meant to help people make an informed investment decision. When the information mentioned below is not present, you should be extremely careful as you are most likely looking at a crypto scam.
- No White Paper
The white paper is very important since it should present all the information needed to analyze a token or a coin. This ranges from mechanics to purpose and dynamics.
A white paper should be seen as the foundation of a cryptocurrency. If it is not presented, it is a HUGE RED FLAG.
Most coins do not have a track record and cannot prove that they work. That is why the white paper is mandatory. It shows investors that the coin is viable.
- Fake Team Members
Basically, if you see there is a lack of information about the cryptocurrency’s developing team and/or the founders, run away! Any project’s credibility relies on experience, expertise and stature. This is highlighted through the founding developers.
The fraudulent schemes and coins usually do not disclose information about founders. Also, some use fake members that are really hired models.
Only trust coins that publicly disclose information about founding members.
A cryptocurrency has some unique traits you want to see. These include:
- Public ledger for full transparency
- Open source code you can see
The Ponzi schemes and pure scams are usually opaque and centralized.
Always identify the warning signs mentioned above. At the same time, do all that you can to learn as much as possible about cryptocurrencies and blockchain technology. If you are knowledgeable, it is difficult to be scammed.