The crypto community consists of vibrant and selfless individuals who are willing to go to any lengths to contribute to the mainstream status of cryptocurrency. So also exist some bad eggs, which are using crypto as a mask for their scams and fraudulent schemes. One could argue that the prevalence of scams in the crypto space is as a result of the unavailability of regulations upholding ethical practices in the space.
Also, understanding the technical aspect of crypto which includes the protocols and the underpinning technology is tasking. Although crypto is now a global phenomenon, its underpinning technology and how it functions remains a foggy topic. The combination of these factors has contributed to the speculative nature of the crypto market which serves as a catalyst to the influx of scam coins. These nefarious individuals are aware that investors are looking for get-rich-quick schemes which they effectively use as the selling point of their scam coins.
Therefore, we can say that investors that remain ignorant of the telling signs of scam coins will become victims of these nefarious schemes. Hence, this guide shall highlight some of the identifying factors of scam coins.
Claims that a project will generate steady of fixed returns monthly is perhaps the most glaring sign that a project is a fraud. As mentioned earlier, scammers capitalize on the greed of investors by promising unrealistic profits which do not rely on quality business structure. A project will generate steady income for its investors only if it involves the selling of products or the offering of services. If the project doesn’t involve any of the two, then it must rely on a Ponzi scheme. As we all know, Ponzi schemes are frauds and they are bound to crash regardless of how long they keep generating returns. Therefore, you should be on the lookout for projects that do not have business structures to back their revenue claims.
No Code Base
It is a common practice that developers make their code base available to the public. This assures investors that the project is already in the development phase. For closed source projects, there is no way for investors to ascertain the viability and the authenticity of the project. Therefore, scam coins are always closed source coins, but not all coins with hidden code base are frauds. Fraudsters, in general, do not make their code base public because they do not exist. You can inspect the code base of coins on Github or better still, request for the link of the codes from the developers.
Open-sourced codes make it possible for improvements as anyone can modify the code or correct flaws that could hamper the functionalities of the protocol.
No Key Information
Apart from the non-existence of the code base, fraudulent schemes mostly do not give out key information which helps interested investors verify their validity. This information includes:
Whitepapers are crucial as they contain the purpose of coins/tokens, the token distribution, its features and the various rewards available to token owners. The unavailability of a whitepaper means that investors are left in the dark about the true nature of the coin. If we consider that a majority of coins that are at the ICO stage do not have a working a product, then it is important that developers offer interested investors a draft of the workings of the project and why they should invest in it. Projects that do not have whitepapers are most likely scam coins.
In addition to whitepapers, another important tool which illustrates the commitment of the development team to the success of their projects is roadmaps. They give the timeline for the various upcoming developments and projects which will help the coin gain traction. If the team does not present a clear roadmap, then it shows that they are not setting official deadlines for each phase of the development and this could mean that the coin is a scam. Also, it is easier for projects that are not in line with their original roadmaps to fail.
Accessing and verifying the team behind the project is one of the easiest ways you can identify scam coins. Usually, the development teams of scams hide from the spotlight and they give little or no information about themselves. Even when they do, the information is mostly fabricated or an impersonation of respected figures in the crypto space. Therefore, it is imperative that you investigate each member of the team. Check their personal social media accounts for any discrepancies that would suggest that they are not who they claim to be.
Also, connect with the members of the development team, ask questions and even query some of their strategies. Doing this will help you assess the commitment level and the technical know-how of the team.
Unless there exists a global standard for cryptocurrency and a task force which will ensure that developers adhere to the standards, the influx of scam coins will continue to plague the crypto space. Till then, you and I are burdened with the task of investigating and verifying the authenticity of coins. You can back up your analysis and make emotion-free investment decisions by signing up for our live trading signals which will help you find winning coins.