How to avoid and stay safe from Cryptocurrency Scams

Aug 16, 2018
4 min read

The growth of the blockchain technology, combined with the development of the internet and online services have brought many positives to users. Unfortunately, they go hand-in-hand with innovative internet frauds, most commonly referred to as a scam.

Scam is officially defined as “an illegal plan for making money, especially one that involves tricking people”. Thanks to the anonymity provided by online transactions, it is now easier than ever to take advantage of people’s naivety. It does not come as a surprise that the crypto world, which is largely based on anonymity and autonomy, has been heavily affected by scams. As dozens of new cryptocurrencies and ICOs are launched monthly, the investor’s appetite for more opportunities to earn quick and easy profits keeps growing. The crypto world provides a comfortable environment for people with fraudulent aims, looking to prey investors, organizing elaborate ICO scams behind promises of innovation and richness. According to different outlets, the crypto world saw the launch of significant amount of scam initial coin offerings. This damages the industry more than investors only. It is becoming harder for legit ICOs to grow and promote their product. People build a mistrust barrier that stops them to invest, because even ICOs with brilliant PR campaigns have turned out to be elaborate fraud schemes, taking off with millions, even billions of dollars. How can you stay safe? Fortunately, we have a few tips on protecting yourself from scam ICOs, which will help you determine whether a certain ICO or a cryptocurrency is legit or a scam. 1. Check out the whitepaper The whitepaper is the foundational document of any ICO or cryptocurrency. It reveals its goals, model, strategy, as well as future plans for the project. It helps investors differentiate the ICO from the competition and how the team plans to execute their ideas. Any organization that does not provide a whitepaper should be avoided, though there have been cases of fraudulent ICOs forging convincing whitepapers. 2. Who sits behind the project – team and company? Getting to know the team behind the project is of great importance, before finally deciding to invest in it. The crypto world is full of superstar names that can attract a large pool of investors. If you do not recognize any of the names of the developers, it is essential to do an extensive background check. Do not just trust what is written on the organization’s website, but instead check social media or LinkedIn for more information on each team member. Make sure that it is, in fact, a real person and that their past work is relevant to their current project. Furthermore, make sure you check that the company is incorporated. All legitimate companies have completed the incorporation process before they begin operations. Most countries have online registrar services, where you can see if the company is registered and if it complies with the laws in the country. 3. Achievability It is of great importance that if all the promises made by the developers of the project are actually realistic and feasible. The ICOs and cryptocurrencies that succeed are usually the ones that are well structured and have achievable aims and plans. Projects that have an established timeline and keep investors informed about changes are unlikely to be crypto scams. 4. Lack of transparent communication and misleading promises All legit ICOs have open and transparent communication with investors. In case the team is not answering simple due diligence questions by the community, keep in mind that you might be in trouble if you invest in the ICO. Furthermore, ICOs that promise you fixed profits, as well as make statements that are too good to be true, are highly likely to be fraudulent. Due to the volatile nature of the crypto market, it is highly unlikely they will be able to offer you fixed return on investment. 5. Lack of smart contract external audit and progress information If you can’t find proof of the smart contract audit done by an independent cybersecurity company and reviewed by the community before the start of the token sale, bring out the red flag. Furthermore, the progress of the development of new blockchain projects is usually available on Github or Bitbucket. If a project claims to be an open-source one, but its bucket is empty, this suggests that the company’s focus is to promote their token and collect investments, rather than be actually interested in the network’s development. The crypto world thrives thanks to the brilliant work of some of the greatest IT specialist in the world. It is a progressive movement, that’s strives for innovation and technological progress. Sometimes companies with already developed products and services seek the help of investors through ICO launches, in order to develop their offer to a new level, instead of venture capitals, etc. Such ICOs are a secure option for investors. It is unfortunate that scammers have decided to take advantage of the cryptocurrency community. Hopefully, with the five steps above and the continuous information updates on the internet, investors will learn how to recognize and avoid fraudulent organizations. Later this week, we will see which are the projects that are leading the crypto scam ranking. Source, CRYPTOKEN MEDIA Written by Angela Angelova Content Manager at Cryptoken Media