Friday, April 19, 2019

How To Identify A Scam Coin

The cryptocurrency space has seen wide growth and development in recent time. The awareness the industry has gained and the massive opportunities in it has equally made it a den for scams and dubious activities. For an investor to flourish in the industry, there is a need to be armed with the knowledge of how to identify scam coins in the space. This will enable proper safety of investors in the space. Here are safety tips as well as characteristics of scam coins.

Unrealistic Profit

One of the major features of a scam coin is the promise of unrealistic profit. Naturally, the nature of man is to obtain huge profits with little or no investment; this often makes investors very vulnerable to scams with unrealistic profit.

An investor must be conscious of the fact that it is impossible to generate consistent fixed profit. Also, the offering of fixed returns requires a constant revenue source, and unless they sell a product or service for substantiating their revenues, the only way to sustain high, guaranteed profit rates is through a Ponzi scheme.

Ponzi Schemes are fraudulent scams that generate returns for old investors using investments from new investors, without any legitimate operations.

There are three prominent forms of fraudulent schemes in the cryptocurrency space. These are: cloud mining services, Bitcoin Investment Packages (BIPs), and Multi-Level Marketing (MLM) Schemes.

Absence Of A Code Base

The open source nature of most Cryptocurrencies gives them credibility, while crypto projects that are closed source, or those that do not reveal their code base are usually less credible. Though it is not all Cryptos that are closed source are scams, those that are scams do not reveal their code base. To access the code base of most crypto projects, visit Github, and if a cryptocurrency doesn’t provide the links to the code, then it is shady.

Open source codes allows the code base to be made freely available to anyone and may be redistributed and modified. The nature of open-source codes is that it allows anyone to look at and review the codes. This gives transparency and authenticity to a project.

Absence Of Key Information

When a cryptocurrency project does not have key information such as the white paper and the team members, then it is possibly a scam.

A white paper contains all the information that an individual needs to know about a particular project; it includes its purpose, mechanics, and coin dynamics. This forms the bedrock of any cryptocurrency project, and its absence signals a scam.

Also, when a crypto project has ghost team members, it is likely a scam. This is when information on the founder and the developing team is absent. Meanwhile, the credibility of any project depends on a large extent on the experience, stature, and expertise of the founding developers.

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