Many cryptocurrencies are being released every week, and a lot of them are rip-offs from the bitcoin source, designed for a scam. As per this article on How to Create Your Own Cryptocurrency, it is not too difficult a task.
If a developer is just reusing code from GitHub and changing some simple parameters, that’s something a competent coder could do in “literally 30 minutes” -Kolin Evans, developer of the Quark cryptocurrency
Other than that, there are ICO scams, wallet hacks and fake wallet apps. In November, 2017 Confido, a cryptocurrency startup raised $375,000 through an ICO and disappeared overnight. In another example a Reddit user posts about losing his Ethereum due to a phishing attack, and all it took was a tiny typo in the URL she typed in.
So here are our top tips to avoid scammy coins that will drain your profits quicker than you can imagine:
The Absence of Documentation:
The absence of a white paper signals a huge red flag. It is the most important piece of information needed to know all about the dynamics of a crypto. Also, look for quality. As simple as it sounds, scammers don’t pay too much attention to these details.
Too Good To Be True:
Scam projects will often make bold claims about the investment opportunities and offer a daily or monthly rate of return. However, in reality, it is highly impractical to generate consistent fixed profits, except in the case of Ponzi scheme. Ponzi scams are fraudulent as they have no constant revenue source. They merely generate returns for old investors by making use of money from new investors. OneCoin, one such Ponzi scheme raised $350 million before it was busted.
No Code Base:
Majority of the cryptocurrencies are open-sourced. Beware of any crypto projects that do not reveal their code base or don’t provide any links to the code at all.
Open source means there will be some sort of community talking about the development and progress of the coin. This will require you to research and find out where that community hangs out. It may be Reddit, Discord, Slack or numerous other. Although with ICOs it can be a bit difficult, however for established coins that are a work-in-progress, there should ideally be some sort of community backing the coin.
Name Dropping and Fake Profiles:
Using big names and fake profiles of the team behind the coin: this one can be an easy one to detect as most scammy coins will either use social media profiles that have been stolen or recently created. Look for warnings signs such as teams from other countries. If there are big names mentioned, pay attention to these and verify by going to their original social media profiles, e.g. LinkedIn, Twitter, Facebook etc.
Scam ICOs are easy to spot from a mile away. Like if you don’t have 10000% confidence on the idea and the team then it just isn’t worth it. I even try to talk to the developers over phone before investing, if they make excuses, deny, or aren’t convincing enough then it doesn’t make any sense to buy [into] that ICO- ethswagholder, Reddit