Cryptocurrency is all over the media recently, especially due to the emerging partnerships and also the extreme volatility of the market.
If you have heard anything about cryptocurrency you have probably heard about some sort of scam coin – unfortunately there definitely are a lot of them. We are going to discuss what exactly is a scam coin, and what you can do to identify a one before investing.
If all you have heard about crypto is scam coins, please do some research to understand the amazing benefits cryptocurrency and blockchain technology can provide across a wide variety of industries.
What is a scam coin?
A scam coin is a cryptocurrency that does not provide the value that it promises, is based on false pretenses, or is a literal ponzi scheme.
A scam coin that does not provide the value it promises can exist in two ways – either the development team couldn’t meet their ambitious promises (like a lot of Kickstarter projects), or the team never intended to meet their promises in the first place. The second point is more of the definition of a true scam coin, however, a failed development also leads to a loss of money so can be viewed as a scam coin in its own right.
A scam coin can be based on false pretenses. Usually in this instance they will run an ICO (Initial coin offering) where they accrue obscene amounts of money for a vague project goal. In this case, the scam coin may infer their false partnerships to improve the view of the coin. Partnerships can massively increase price as they imply that the technology is in place and working as planned. One coin, CTR Token, was promoted by Floyd Mayweather Jr and DJ Khaled, and boasted partnerships with Mastercard and Visa. It has recently been revealed that this scam coin had no partnerships with either company.
A ponzi scheme scam coin, also commonly seen as a ‘lending platform’. These coins will promise daily returns on investment, such as 1% on your compounding investment every single day. Seems too good to be true? That’s because it absolutely is. A scam coin like this may increase in price in the short term, but they will eventually complete some sort of exit scam which will lose a lot of people a lot of money.
Ponzi Scheme Scam Coin Examples
Bitconnect is the most famous ponzi scheme scam coin. During the rise of bitconnect there were a number of Youtubers promoting this service to their followers. With some research, most of the community easily identified this project as a scam coin. Unfortunately, not everyone saw through the crazy promises of returns such as 1% returns daily, and Bitconnect soared in price. It reached over $400 with a market cap of almost $3B! It’s now trading for less than $1.
There were numerous red flags regarding this project, the most notable being this Bitconnect promotional event, with the now infamous Carlos Matos – also known as the Bitconnect guy who touted off ridiculous phrases such as ‘I am right now independently, financially independently’ and ‘What’s-a what’s-a what’s-a what’s-a what’s-a what’s-a what’s-a what’s-a what’s UP, BITCONNEEEEEEEEEECCT’. The video is definitely worth a watch if you haven’t seen it to get a grasp of what this was truly like.
Bitconnect had a tiered lending system in place, where the more money you invest or ‘lend’, the more interest you can earn on your lent money and the faster you can get your capital back.
The price was rising very fast. Then Bitconnect exit scammed. They suddenly announced they were shutting down its lending and exchange services.
When Bitconnect exited, they reimbursed loans in the form of their token, BCC. As you can imagine, with the loss of service and the massive influx of BCC tokens on the market, the prices dropped hard.
This was just one of the lending scam examples.
This is a scam coin similar to Bitconnect, that was promising a 7-day average rate of 1.23%. The white paper was very short, only a page, which is absurd. Furthermore, the more you ‘lend’, the more you stand to gain, and the quicker you get your money back. Sound familiar?
How to identify a scam coin
There are many coins the community dubs as a scam coin, and this truly can hurt the crypto space – but it also helps naive investors. There currently are large market cap coins that seem to fit the bill of scam coin. We are not going to list them, but saying this should encourage the message: Know how to identify a scam coin and do your own research to avoid them.
The way to avoid investing in a scam is to do proper research.
Start with the white paper, make sure it makes sense, they have a good development plan and it sounds plausible.
Research the team. You want to be able to find out who they are and what their job history is at the least realistically.
Look into any partnerships or advisers they have and ensure they are truthful by using legitimate sources.
See if the project has met their goals in the past. If they have, this can be a good indication.
There are more factors that you can look at to assess whether a coin is a scam coin, but this is a good starting point for beginners.
The main takeaway should be, in order to not invest in a scam, do your own proper research and if you have even a slight feeling that it is a scam then do not invest.
Additionally, there are so many amazing projects in crypto. Do not be deterred because there are a few labelled as a scam coin. If you are properly informed you will be fine.