How to spot a crypto scam?
Crypto currencies have become one of the most sought-after investment assets in the past decade. With the digital revolution entering a new phase of Web3 and blockchain futures, the world of crypto currencies has only become more relevant and populous. One of the factors in crypto currencies has been its lack of regulation and higher level of anonymity, which has littered the incoming industry with frauds, scams, and criminality.New forms of strategized fraud at mass have taken root in this environment and has made many possible investors afraid to invest in new crypto currencies, out of fear that they may be played. Blockchainand cryptocurrency technology isdeveloping at a rapid pace, and even experienced investors may find it hard to keep up with the terminology.There’s no guarantee that any cryptocurrency or blockchain-related startup will be legitimate or successful, however we have outlined some steps that can help you to be as sure as possible that you’re not falling for a scam
Who’s the face of the coin?
The first and most important factor to look out for when choosing a cryptocurrency is the developers and administrative team behind the project. One of the most common crypto scams is the “ICO drop” in which an influencer promotes an ICO (Initial Coin Offering) which is an early investment into a crypto currency venture. Influencers garner large exposure for the ICO to gain seed investments, but as soon as the venture reaches its potential height of seed investments the company can then move to sell off its value of coin and rake in potentially millions leaving regular investors in the sun.
The best protection against this fraudulent tactic is to thoroughly research the individual team members of a project before you invest. For instance, a red flag would be if you’re unable to find any information about a particular developer or founder on LinkedIn or other social media outlets. If profiles do exist, check to see if their activity seems to match up with
the number of followers and likes they accrue. Individuals who rarely engage with their followers and yet have thousands of fans may not be real.
After determining if the development team is real, it’s vital to see if their qualifications measure up. Do the founders have the experience they claim to have? Is it relevant to the current project at hand? What is their history or track record in finance or coding?
Follow the Money
ICO’s depend upon a token or currency system to facilitate the crowdfunding process. This allows the average investor access to the company’s progress in sales and total figures, a cautious investorwould do their homework and study a token’s sales history and track record to evaluate its legitimacy and value. Legitimate companies and endeavors make the system itself and the progress of the token sale easy for potential investors to view. Look for the token sale figures as the ICO is ongoing. If a company makes it difficult for anyone to chart the progress of its ICO, this is a major red flag. Some scam ICOs will hide their token sale progress under the pretense of individual contribution addresses; this prevents potential investors from seeing exactly how much has been raised and how much time remains in the sale.
In many of these cases, there might be an external pressure adding a sense of urgency to potential investors, special deals, limited prices, or huge bonuses with starting from the beginning, even if there isn’t evidence of a successful sale going on at the same time.
Analyze the Whitepaper
The best way to know that you are investing a financially sound and secure concept is by pouring over the cryptocurrency’s or ICO’s whitepaper, which is the foundational document for the project. A whitepaper lays out the goals, background, concerns, strategy, and timeline for a blockchain related project implementation. The first step toward analyzing a whitepaper is
to thoroughly analyze the contents, check to see if the whitepaper has complimentary resources as well, including financial models, legal concerns, SWOT analysis, and a roadmap for implementation. A whitepaper should answer all of the questions a potential investor might have about what sets this particular project apart from its competitors, how it aims to be
successful, and the measures it will take to achieve its goals. Companies not offering whitepapers should be avoided at all costs.
Still, it’s possible for a fraudulent company to put forward a convincing whitepaper, as was thecase with the biggest example of an Initial Coin Offering (ICO) scam, Bitconnect. It roclaimed itself to be an open-source cryptocurrency that guaranteed investors 40 per cent returns. However, Bitconnect unfortunately turned out to be a Ponzi scheme that cost its
investors an astounding $3.45 billion. No matter what a venture’s marketing, PR, or website may seem like, the whitepaper will show the reality of the project by revealing a company’s carefully conceived implementation plan or finding out the company was primarily a front and not an enhanced digital currency.
Does the plan add up?
While it may seem obvious, ICOs, and cryptocurrencies with the greatest chances for success are those that have the fundamental structure to outlast their competitors. Many launches,
even highly-publicized ones, have sputtered after initial interest faded. Your best chance of a successful investment relies on a company having an achievable, feasible set of aims. The
company should have a compelling concept for the time being, but it also must be able to carry that concept over into execution over the short and long terms alike.
Going along with the question of feasibility is the issue of transparency. Companies that have outstanding concepts and models are more likely than others to want to be as transparent as possible with the broader community. Look for companies that aim to keep potential investors up to date with regular, detailed progress reports on a company website or on social media. It’s also useful to look if a company has a timeline for what has taken place in the development process, as well.
Crypto’s Nature is Volatility
Even the most successful ICOs and cryptocurrencies are slammed for being fueled by speculative investing. The idea of getting rich quick on an investment in a hot new project is tempting enough to draw seasoned investors and beginners into risky areas.
Keep an eye toward caution as you look for new investment opportunities in the ICO and cryptocurrency spaces. Be aware that projects sounding too good to be true likely are. Spend time scrutinizing every detail, and assume that the absence of a piece of crucial information may be an attempt to hide an unsound model or concept. Look for outside sources to verify the legitimacy of any project before making an investment, and always ask questions that you can’t already find the answers to.
The cryptocurrency and ICO spaces offer tremendous opportunities for investors who have done their homework and are able to make sound investment decisions. They also feature
pitfalls, which can lead to large amounts of money being lost due to scams, frauds, or even legitimate businesses that are simply poorly designed and unlikely to succeed.
The most important thing an investor can and should do when considering diversifying their assets into crypto, is their homework. Do research, investigate the company’s
team, the administration, their plan, its whitepapers and remember that no matter what is expected or accounted for is not the complete picture.
Crypto is volatile by nature, diversifying assets into the future comes with great risk and cost, we at NodusBank advice caution
If you are a partner of Nodus contact us, we are more than happy to explore wealth management opportunities and help you settle on your best next move
