Scam Coins: How to Identify and Not Invest in Them
Many people find cryptocurrencies mysterious. Inadequate understanding is definitely a cause, but there are other reasons. For one, the first-ever and most popular cryptocurrency, Bitcoin, has an anonymous founder, namely Satoshi Nakamoto. We don’t know who this person is, but he/she is among the world’s richest.
There’s much smoke around Bitcoin, although one thing’s for sure—it’s not a scam. However, several crypto-based projects misuse the domain’s trustless and decentralized nature, committing frauds and scams. Beware!
Warning Signs For New Scam Coins
In the following paragraphs, let’s provide some red flags. Never invest either your time or money in projects that have them.
An Anonymous Team
Not everyone is Satoshi, so check the team behind a crypto project. The executives of Confido, a scam coin that robbed investors of $375,000, had new LinkedIn profiles with mostly new followers.
Miscreants often forge identities and put up fake biographies, so always look for social proof. Check and cross-check their social media activity on LinkedIn, Twitter, Telegram, and Discord. But do remember that it’s possible and easy to purchase likes, tweets, and even followers. Usually, past projects and experience are good credibility markers.
Scam coins usually put up unnaturally flashy websites, promising investors extravagant returns. Unsubstantiated claims of profit maximization are often their primary promotional technique. For instance, PlexCoin offered a 13x monthly return but ended up duping investors of $15 million.
Do your homework and read the white paper. It’s your best shot at understanding whether the project is serious and has depth. Focus on the problem statement and proposed solution, critically examining its feasibility. Cross-check if it’s too good to be true or doesn’t have a sound business model.
Absence of Tokenomics
Shady or no tokenomics is a typical sign of scam coins. For any crypto project to be successful, there must be a solid science of token creation and management. This involves distribution techniques, methods for maintaining stable pricing, governance, and mass adoption.
Never trust projects that do not update token sale figures or keep investors in the dark. Approach projects that don’t engage in token vesting with suspicion, as they aren’t expressing long-term commitment. Additionally, the absence of token burning or token halving policies limits the chances of maintaining scarcity and price structure.
Lack of Roadmap
Projects that do not have a comprehensive timeline for initiation, conceptualization, execution, and implementation are sure to fail. You can identify scam coins by their lack of feasibility. Many projects get off to a positive start but falter in the long run unless they have pragmatic and achievable goals.
Moreover, transparency regarding the project’s stages of development is of utmost importance. The community demands updated progress information so that investors know where they stand. A promising project will surely respect this demand, whereas scam coins will shy away.
Dubious Coin Names
Scam coins often misuse the names of famous crypto or tech personalities. For instance, it’s common knowledge that Elon Musk is a bitcoin enthusiast; therefore, scammers use his name to dupe unsuspecting users. On one occasion, malicious actors faked his name to conduct a crypto lottery, defrauding 400,000 pounds from a user.
Certain scam coins are also named after Mark Zuckerburg, the founder of Facebook. So, if you come across any projects offering you $MARK and $MUSK, be sure that they are scam coins. Their website may look authentic, but transactions are most likely to compromise your accounts.
Two Popular Scam Methods
Pump & Dump is the most popular mode of operation for scam coins. They artificially inflate the price through bulk purchases, paid recommendations, and so on. Once the price goes up substantially, the scammer sells off their holdings, deriving a substantial premium at the cost of other investors.
Another common way of defrauding people is through crypto exit scams. In such cases, the team promotes a coin strongly but disappears with the investors’ money after an ICO or the likes. Tracing these scammers becomes very difficult due to the ecosystem’s decentralized and anonymous framework. In 2020, a DeFi project named Yfdex.Finance duped investors of $20 million only two days after a formal launch.
A Word of Reassurance
A lot is happening in the crypto space recently, with new projects emerging globally every day. We are witnessing world-changing innovations, no doubt, but everything’s not breezy. The DeFi industry, like any other, has frauds and scams—traps to capture your hard-earned money.
You needn’t worry, though. Airdrop Alert has got your back, bringing you the latest information, updates, and ways to spot scams. Knowledge is power, and that’s what we offer. Follow us, stay safe.