How to Spot a Cryptocurrency Scam

Don’t be fooled.

Earlier this year, US-based cyber security firm CipherTrace reported that a whopping USD 1.7b was lost in cryptocurrency scams in 2018 alone — of which 55.8% was attributed to thefts from cryptocurrency exchanges and infrastructural services such as wallets, while the remaining share constituted exit scams such as fraudulent Initial Coin Offerings (ICOs), phony exchange hacks and Ponzi Schemes.

Given the alarming rate of cryptocurrency scams at this point, the ability to identify a scam right at the getgo is a vital skill to have. While cryptocurrency investments may have proven to rain riches on the lucky ones, we musn’t forget to be extra careful of the black sheeps grazing in the shadows.

To assist you in identifying scams and not falling prey to it, the Malta Financial Services Authority issued a Guidance Note to the Public regarding Cryptocurrency Scams. Now, if you’re too lazy to go through the entire document, we’re here to help. Here’s a very brief summary on the essence of the guidance note.

Common Red Flags for Cryptocurrency Scams According to the MFSA

(a.k.a. please take a step back and think twice IF you spot these)

(i) Unrealistically high rates of return, higher than the market average;

(ii) Easy withdrawals which may be made at ‘anytime’;

(iii) Promises that any funds deposited are 100% guaranteed;

(iv) The business being unregulated;

(v) Lack of documentation or the use of documentation which is copied from a legitimate business;

(vi) Aggressive selling techniques which put pressure and rush you to secure a sale;

(vii) The Absence of physical local offices;

(vii) Contradiction between documents and spoken information;

(ix) Not answering and avoiding hard questions;

(x) Lack of information being provided on the website, or within the whitepaper;

(xi) The use of buzz words such as ‘no risks’, gains guaranteed’, ‘become a billionaire’, ‘free services just register’.

A Few More Red Flags We Think You Might Find Handy

As an added bonus, we’d also like to add a few other signs that could suggest something fishy going on in the background.

(i) Anonymous teams.

This could signal an attempt at limiting liabilities, or a sign that the reported achievements don’t actually match up. You don’t want to be handing your hard-earned money to people you can’t even perform any due diligence on, do you?

(ii) A community that only blabbers about airdrops and receiving tokens.

A lack of in-depth conversations with regards to the project is a huge sign that the community is based off nothing. This also speaks a lot about the substance (or lack thereof) within a project.

(iii) Whitepapers with poorly thought-out ideas.

This is even worse if you identify a bit of plagiarism going on. Many scam projects try to fill out whitepapers with technical jargons that have been copied and pasted from other reports just to make it look and sound impressive — and hopefully grab the attention of poorly-informed investors. If you’re finding difficulty in processing ideas the white paper is trying to convey, don’t hesitate in getting a second opinion.

(iv) Limited updates on the project.

A lack of openness with regards to the progress of the token sale, the amount raised and how the company intends to use the funds in the long run can translate to a huge, flashing warning sign. Coupled with FOMO (Fear of Missing Out), this is a remarkably useful tool when it comes to drawing the attention (and monies) of poorly-read investors.

In a Nutshell

Ultimately, it is important to perform sufficient due diligence before committing to a cryptocurrency project and above all, trust your intuition. Bearing all the above pointers in mind, you would already be a step ahead of your counterparts in dodging the rotten time-and-money-wasters, and be on your way to investing in the right cryptocurrency project.

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