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This article features a comprehensive guide on identifying scam coins.

Identifying Scam Coins, Scam Coins, crypto scams, crypto fraud, cryptocurrency scam

The technology underpinning cryptocurrencies can be extremely complex for many to wrap their heads around. The technical nature of cryptocurrencies and the usage of complicated computing jargon could easily confuse anyone, even tech-inclined individuals. The absence of any regulations and a general lack of understanding of cryptocurrencies further compound the problem, creating a conducive environment for bad actors to create coins and schemes that serve to exploit the ill-informed. (See more: Coins, Tokens & Altcoins: What’s the Difference?)

Given that the cryptocurrency market has attracted many due to the possibility of acquiring massive returns on their investments, the market has morphed into a speculative hotbed for many to wager their money in the hopes of getting quick profits. With the sheer number of cryptocurrencies and tokens to choose from, it is tough to sieve out the good ones from the rotten ones. In an environment with little check and balances, the crypto world is a fertile breeding ground for scammers. The most important thing to consider before delving into this revolutionary yet infant industry is knowing what NOT to invest. (See also: A Guide To Fundamental Analysis For Cryptocurrencies)

Here at Master The Crypto, we’ve created a list of common characteristics that many potential Ponzi schemes or scams possess so that you can avoid such dealings.

Guide on identifying scam coins, Identifying Scam Coins, Scam Coins, crypto scams, crypto fraud, cryptocurrency scam

Unrealistic Claims

It’s pretty common now to hear of investing opportunities in the crypto world that promises a daily or monthly rate of return. Let’s be honest, the allure of overnight riches is a tantalizing proposition for anyone, and that can foster an impulsive motivation to participate in such schemes. Practically speaking, however, it is close to impossible to generate consistently fixed profits. Offering fixed returns require a constant revenue source, and unless they sell a product or service to substantiate their revenues, the only way to sustain high, guaranteed profit rates is through a Ponzi scheme. Ponzis are fraudulent scams that generate returns for old investors using investments from later investments, without any legitimate operations.

“If it looks too good to be true, then it’s probably a scam. There’s no free lunches”

There are generally 3 common fraudulent schemes in the cryptocurrency community that promotes unrealistic claims, which includes:

  1. Cloud Mining Services

Mining is a process where advanced computing hardware is used to solve complex mathematical equations to secure the transactions within the cryptocurrency network, and “miners” will be rewarded with the cryptocurrency for their efforts. Fraudulent cloud mining websites offer anyone the opportunity to get in on a Bitcoin mining operation and earn mining rewards by just providing initial capital upfront without the need for you to buy your own computing hardware. It’s a Ponzi scheme that pays you out as long as there are a continuous pool of new users, and if that dries up the whole thing collapses and you’ll lose all your funds.

Prominent Cloud Mining Scams: Hashinvest, Biteminer, Hashpoke, Cointellect, HashOcean, Gawminers

  1. Bitcoin Investment Packages (BIPs)

BIPs are high-yielding investment programs that promise high returns with small payout structures. You start by buying a subscription package which qualifies you to receive a constant payout every day or every week and are usually very profitable at first. However, due to the Ponzi structure it employs, BIPs have a limited life cycle and would shut down once there are little new users left. More often than not, BIPs will tend use complex buzzwords to confuse those interested to know how they actually make the profits, so as to seem credible.

For a list of prominent BIPs, see here.

  1. Multi-Level Marketing (MLM) Schemes

A common trait of MLM is the ambiguity of their actual offerings or services, depending mostly on referral schemes. Some typical referral structure entails individuals promoting a certain cryptocurrency-related investment scheme and the only way to participate is to click on their referral links. MLMs are extremely easy to identify since the main source of revenue generation is through affiliate marketing rather than dealing with actual cryptocurrencies.

Prominent MLM Scams: Onecoin, Centurion Coin

In summary, here are the common features to look out for:

  • Guarantees of high profit/interest rates
  • Referral/affiliate schemes
  • Ambiguous details on how it actually works
  • Minimal to no information on founding team or company
  • Difficulty in withdrawal of funds

The best thing to do when you hear claims along the lines of “Earn a fixed amount of returns daily!” is to turn back and run!

(Read also: Guide to Airdrops: What is an Airdrop and How You Can Get Free Coins)

Non-Existence of Code Base

Given that the majority of Cryptocurrencies are open sourced, projects that are close sourced, or those that do not reveal their code base, seems to be less credible. Although not all coins that are closed-source are scams, all coins that have been branded as scams do not reveal their code base or simply doesn’t have them. A huge reason why they’re closed source could also be due to the fact there is no code base at all. You can check out their codes at Github, and if the cryptocurrency doesn’t provide the links to the code, then it is definitely shady. (Read also: Guide to Verifying Cryptocurrency Transactions)

Identifying Scam Coins, Scam Coins, crypto scams, crypto fraud, cryptocurrency scam

An open source code 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. Not only is this more transparent, the community can inspect the protocol and suggest improvements to the code base. Leveraging on the community could be very beneficial to the project, since “a thousand brains are better than one”.

(See also: Crypto ICO vs. Stock IPO: What’s the Difference?)

Absence of Key Information

  1. No White Paper

A white paper detail all the information that you need to know about a particular coin or token, from its purpose to its mechanics to its coin dynamics. White papers form the bedrock of any coin, and its absence signals a huge red flag. Given the fact that a majority of coinsdo not have any track record of a working product, it’s even more important to conceive a white paper to publish the necessary information needed for investors.

  1. Ghost Team Members

This refers to the absence of information on the founders and the developing team. The credibility of any project depends on a large extent on the experience, stature and expertise of the founding developers. More often than not fraudulent coins and schemes will not publicly disclose information about the founders, for obvious reasons. If information on them can’t be found, then it’s credibility is doubtful.

(See also: Dangers in Cryptocurrency Investing)

Other Useful Links

There are a few resources that compile the numerous opportunities that are identified as scams and Ponzis. These websites are:

All in All

There are certain unique traits of a cryptocurrency that includes decentralization, full transparency through a public ledger, and an open source code that anyone can see. Scams and Ponzi schemes do not possess these common characteristics and are usually centralized and opaque.

The best way to avoid falling into these various scams and shady schemes is to identify common characteristics as listed above. More importantly, it pays to acquire knowledge and understanding of how cryptocurrencies work and the underlying technology that powers them. Arming yourself with the right knowledge would safeguard you against these scams!

You can review an example of a rigorous coin analysis here: Cryptocurrency Review: Analysis on Aragon

Beneficial Resources To Get You Started

If you’re starting your journey into the complex world of cryptocurrencies, here’s a list of useful resources and guides that will get you on your way:

Identifying Scam Coins, Scam Coins, crypto scams, crypto fraud, cryptocurrency scam

Trading & Exchange


Read also: Crypto Trading Guide: 4 Common Pitfalls Every Crypto Trader Will Experience and Guide To Cryptocurrency Trading Basics: Introduction to Crypto Technical Analysis.

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