“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!