How to Identify Scam Coins?

“If it looks too good to be true, then it’s probably a scam.

There’s no free lunches”

The technology underpinning cryptocurrencies can be extremely complex for

many to wrap their heads around. The technical nature of cryptocurrencies

and the usage of complicated computing jargon could easily confuse anyone,

even tech-inclined individuals. The absence of any regulations and a general

lack of understanding of the cryptocurrencies further compound the problem,

creating a conducive environment for bad actors to create coins and schemes

that serve to exploit the ill-informed.

Given that the cryptocurrency market has attracted many due to the

possibility of acquiring massive returns on their investments, the market

has morphed into a speculative hotbed for many to wager their money in

the hopes of getting quick profits. With the sheer number of

cryptocurrencies and tokens to choose from, it is tough to sieve out the

good ones from the rotten ones. In an environment with little check and

balances, the crypto world is a fertile breeding ground for scammers. The

most important thing to consider before delving into this revolutionary

yet infant industry is knowing what NOT to invest.

It’s pretty common now to hear of investing opportunities in the

crypto world that promises a daily or monthly rate of return. Let’s be

honest, the allure of overnight riches is a tantalizing proposition for

anyone, and that can foster an impulsive motivation to participate in

such schemes. Practically speaking, however, it is close to impossible

to generate consistently fixed profits. Offering fixed returns require a

constant revenue source, and unless they sell a product or service to

substantiate their revenues, the only way to sustain high, guaranteed

profit rates is through a Ponzi scheme. Ponzis are fraudulent scams

that generate returns for old investors using investments from later

investments, without any legitimate operations.

There are generally 3 common fraudulent schemes in the cryptocurrency

community that promotes unrealistic claims, which includes:

1.Cloud Mining Services

Mining is a process where advanced computing hardware is used to solve

complex mathematical equations to secure the transactions within the

cryptocurrency network, and “miners” will be rewarded with the

cryptocurrency for their efforts. Fraudulent cloud mining websites offer

anyone the opportunity to get in on a Bitcoin mining operation and earn

mining rewards by just providing initial capital upfront without the need

for you to buy your own computing hardware. It’s a Ponzi scheme that

pays you out as long as there are a continuous pool of new users, and if

that dries up you will loose all your funds!

2.Bitcoin Investment Packages (BIPs)

BIPs are high-yielding investment programs that promise high returns

with small payout structures. You start by buying a subscription package

which qualifies you to receive a constant payout every day or every week

and are usually very profitable at first. However, due to the Ponzi

structure it employs, BIPs have a limited life cycle and would shut down

once there are little new users left. More often than not, BIPs will tend use

complex buzzwords to confuse those interested to know how they actually

make the profits, so as to seem credible.

3.Multi-Level Marketing (MLM) Schemes

A common trait of MLM is the ambiguity of their actual offerings or

services, depending mostly on referral schemes. Some typical referral

structure entails individuals promoting a certain Cryptocurrency-related

investment scheme and the only way to participate is to click on their

referral links. MLMs are extremely easy to identify since the main source

of revenue generation is through affiliate marketing rather than dealing

with actual cryptocurrencies.Good examples for MLM Scams related to the

cryptocurrencies are ONECOIN AND CENTURIONCOIN!

In summary, here are the common features to look out

for:Guarantees of high profit/interest

rates,Referral/affiliate schemes,Ambiguous details on

how it actually works,Minimal to no information on

founding team or company,Difficulty in withdrawal of

funds.

Non-Existence of Code Base

Given that the majority of Cryptocurrencies are open sourced,projects

that are close sourced, or those that do not reveal their code base, seems

to be less credible. Although not all cryptos that are closed-source are

scams, all cryptos that have been branded as scams do not reveal

their code base or simply doesn’t have them.A huge reason

why they’re closed source could also be due to the fact there is no code

base at all. You can check out their codes at Github, and if the

cryptocurrency doesn’t provide the links to the code, then it is definitely

shady. An open source code allows the code base to be made freely

available to anyone and may be redistributed and modified. The nature of

open-source codes is that it allows anyone to look at and review the codes.

Not only is this more transparent, the community can inspect the protocol

and suggest improvements to the code base. Leveraging on the community

could be very beneficial to the project, since “a thousand brains are better

than one”.

Absence of Key Information

No White Paper

A white paper detail all the information that you need to know about a

particular Crypto, from its purpose to its mechanics to its coin dynamics.

White papers form the bedrock of any crypto, and its absence signals a huge red

flag. Given the fact that a majority of Cryptos do not have any track record of a

working product, it’s even more important to conceive a white paper to

publish the necessary information needed for investors.

Ghost Team Members

This refers to the absence of information on the founders and the developing

team. The credibility of any project depends on a large extent on the

experience, stature and expertise of the founding developers. More often

than not fraudulent coins and schemes will not publicly disclose

information about the founders, for obvious reasons. If information on

them can’t be found, then it’s credibility is doubtful.

There are certain unique traits of a cryptocurrency that includes

decentralisation, full transparency through a public ledger, and

an open source code that anyone can see. Scams and Ponzi

schemes do not possess these common characteristics and are

usually centralized and opaque.The best way to avoid falling into

these various scams and shady schemes is to identify common

characteristics as listed above. More importantly, it pays to

acquire knowledge and understanding of how cryptocurrencies

work and the underlying technology that powers them. Arming

yourself with the right knowledge would safeguard you against

these scams!