Investing in Fraudulent Cryptocurrencies

March 23, 2023

There is a rising concern, raised by some, regarding the scams that are posing a possible threat to investors, in particular to those who are beginners in the world of crypto trading. This issue is growing as the cryptocurrency craze has caught the interest of investors across the globe.

Many people, in their pursuit of instant wealth, are falling prey to con artists, who prey on unsuspecting investors in the general population.

Scams Involving the Purchase of Cryptocurrencies and How They Operate

Source: Dan Pepijin of TNW (The Next Web).

At least 39 Initial Coin Offerings (ICOs) were introduced in September, according to TNW. In October, at least 33 other cryptocurrency businesses plan to debut their initial coin offerings. A cryptocurrency or blockchain company, especially a startup, may have a CO event where they sell tokens that reflect ownership of their underlying blockchain in an effort to raise funds for product development or scaling an existing platform.

Unfortunately, a lot of con artists have hopped on the cryptocurrency bandwagon to release a variety of fraudulent cryptocurrencies on unwary investors who mistakenly believe they are getting a deal on the next Bitcoin. This article aims to offer a thorough primer on how to recognise and stay away from “shitcoins” in the cryptocurrency sector.

The primary factor for ICO frauds’ success

The straightforward concept is that an ICO enables you to get a small portion of the future Bitcoin at extremely low costs; you can anticipate an increase in the token’s worth as well as the value of the coins you purchased during the ICO.

For new investors, unless they have very deep funds, joining the Bitcoin ecosystem is fairly expensive at the current price of $4,534 per BTC. You would have made 96,479% returns on your investments today, as Ethereum trades up about $300.77, if you had missed the early Bitcoin rush but had been wise enough to purchase Ethereum during its ICO at $0.311 per ether.

Investors are on the hunt for an initial coin offering (ICO) that promises to be the next big thing in the blockchain ecosystem due to the large ROI (Return of Investment) that investors can expect in the success of new cryptocurrencies. Unfortunately, some dishonest people are profiting from investors’ enthusiasm for ICOs by selling subpar coins in ICO scams.

An illustration

Law enforcement officers stormed a location in Mumbai in April to put an end to a cryptocurrency scam going by the name of OneCoin. Authorities detained 18 OneCoin promoters and seized more than $2 million in investor monies.

Later, it was revealed that, prior to the raid on their offices, the OneCoin promoters had transferred roughly $350 million abroad via a payment processor in Germany.

To emphasise the point, OneCoin’s scammers were able to defraud unwary cryptocurrency investors out of at least $352 million before they were discovered.

When BitConnect was announced in May, the cryptocurrency market was in a frenzy (BCC). BitConnect not only defrauded investors through an ICO, but also persuaded them to enlist the help of their friends and relatives in a Ponzi scheme to defraud many more people.

Many investors didn’t think twice before parting with their money to purchase the scam since it promised returns of up to 480%+ in cash (not cryptocurrency) each year and even a profit guarantee of up to 91.25% a year with “zero risk.” According to reports, BitConnect’s $95,719,935 market cap is based only on its promise to pay you for transferring them Bitcoin.

So how can you be certain that you are not purchasing shitcoins? We’ll go over eight different caution signs below.

Anonymity for team members and project developers

When launching new Altcoins or cryptocurrencies, many cryptocurrency scammers like to pretend that no one actually knows who the person behind Bitcoin is in order to maintain their anonymity.

The makers of new coins should be brave enough to stand behind their creations because cryptocurrencies aren’t the financial industry’s pariah any more.

Consider your purchase carefully if you can’t uncover any useful information on the creators or key team members. When you do locate the identities of the inventors and team members, you should take the time to perform your due diligence in confirming their credentials and making sure that their claims are consistent.

All types of investments involve some level of latent risk, however some may be more risky than others. When you buy in a new cryptocurrency, you do so knowing that you could lose some or all of your money. Because of this, seasoned investors do their research to evaluate the risk against return of an investment before making one.

However, if a cryptocurrency promises you a certain amount or percentage return on your investment, it is probably a scam since it removes the element of risk from investments.

Marketing hype

Even if an ICO isn’t a complete hoax, its underlying token may not be worth much more than the paper on which its value is printed. You should pause and reconsider your motivations for investing in the specific cryptocurrency before you put money in any ICO.

Do you support the ICO because it has solid business principles or just because the sales pitch makes you feel good? Additionally, you should refrain from investing in an ICO because the sales pitch is constantly thrust upon you via advertisements, emails, social media, or a persistent friend.

Unspecific coin features, duties, and functions

When Bitcoin first appeared, it was designed to address the specific issues of inflation, governmental interference, and the devaluation of fiat currencies. To offer a blockchain-based method of enforcing smart contracts, Ethereum was developed. The relative transactional anonymity that Bitcoin lacked was intended to be filled by Monero, and Litecoin served as the silver-based Bitcoin.

Every new cryptocurrency that has demonstrated reasonable success odds has an original function, role, or feature supporting its core value. As a result, you should be cautious of any cryptocurrency that doesn’t clearly outline how useful it is.

Activity on Github and the idea of ongoing growth

The majority of cryptocurrency development teams have at the very least a programmer profile on GitHub for their project. More than 20 million developers may be found on GitHub, where they collaborate to manage projects and evaluate code.

Any cryptocurrency that doesn’t have any significant Github activity is probably using cloned or even stolen code, and you’ll be investing in it because of its flashy website and convincing sales material.

Github activity is generally a good indicator of authenticity, yet occasionally a lone ranger may operate alone without consulting or showcasing their work to other developers.

Be wary of relevant comments on Reddit and YouTube.

In order to sell snow to Inuits, con artists frequently produce good sales literature. Therefore, if the developers have produced the ideal profile, website, or whitepaper and are using the appropriate language and concepts, it might be difficult to identify a fake coin.

A review of comments about the cryptocurrency, its creators, or its team on Reddit or YouTube, however, can give you unbiased third-party insight about the authenticity of such cryptocurrencies. Even though there is frequently a lot of trolling on these forums, you can rest assured that anyone making unsubstantiated claims regarding cryptocurrencies must do so.

Amount needed to be raised by the ICO

A cryptocurrency startup’s desire to raise a specific amount of money through an initial coin offering (ICO) can be a useful indicator of its legitimacy.

To raise money for product development, new feature development, or service scaling to gain a greater market share, cryptocurrency firms typically sell tokens in an ICO. It might be challenging to estimate how much a business needs to raise in an ICO in order to satisfy the credibility test.

Scammers won’t mind, though, disappearing into thin air with a few hundred thousand dollars’ worth of Bitcoin. Consequently, you should exercise particular caution when dealing with businesses that aim to generate tens of thousands or single digit millions through an ICO.

Be especially cautious when dealing with stimulants and premined currencies.

You can learn more about how shitcoins are distributed by following the steps taken to get them into stakeholders’ hands and the broader market. Simply put, (intentionally/intentionally) distributing coins unfairly across the board is what happens when a cryptocurrency uses a “Instamine” distribution procedure.

In an instamine, a bigger portion of the total coin supply is mined during the initial few hours of the launch. Because there are so many coins available, a small number of people wind up controlling the cryptocurrency’s price control mechanisms, giving them complete control over how much the currency is worth.

A “premine” distribution scheme, while not always a sign of fraud, implies that the cryptocurrency’s developers already have some of the currency before it is listed on an exchange. As a result, the coin’s developers may opt to sell off their premined coins and leave the cryptocurrency once the coins are listed on an exchange and start to rise in price.

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Sushil Kumar

I am Buzznc Staff and I am Senior Editor !

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