The world of cryptocurrency is, unfortunately, a haven for scammers, who prey on innocent investors. Let's examine some methods to spot the next scam coin you might be enticed into investing. How to spot cryptocurrency scam?
14 November, AtoZForex - The popularity of cryptocurrency is spreading and surging across the world rapidly. Similarly, scammers are also on the rise who are threatening the very balance of the cryptocurrency market.
How to spot cryptocurrency scam
According to a ZeroFox report, a new method of a scam involving bitcoin is rapidly spreading across the social networks. As a result, it’s important to be aware of red flags and take preventative measures in order to preserve confidence in the cryptocurrency market. The following may indicate that a cryptocurrency is a scam:
1. The cryptocurrency has only internal exchange
A crucial thing to keep in mind that legitimate cryptocurrencies like Bitcoin and Ethereum have local exchanges where they can be converted into Fiat currency. However, most of the scam cryptocoins are designed in a way that they can be traded only internally, i.e, within its own community.
So a real digital currency can be converted into traditional currency by local exchanges such as Poloniex, Bittrex etc. A real digital currency has no internal exchange, and it can be converted into traditional currency by local exchanges such as Poloniex, Bittrex etc.
2. The cryptocurrency always appreciates in value
Either digital or fiat, a key characteristic of currency is their volatility. Currencies go up and down in value under the influence of market forces. Beware of a coin that only appreciates as it may be a scam. Scammers use their understanding of the human psychology to develop coins that only appreciate in value daily.
They take advantage of our primary instinct to be drawn to profits and trick us this way. However, a genuine coin doesn't behave this way and is guided by the forces of supply and demand.
3. Lack of solid background information
The scam coin doesn't have solid background information or doesn’t share its basic information like the name of the owner or the address of the company’s headquarters and so on. If you want to invest in a cryptocoin, it’s advisable you carry out solid research about its background before proceeding.
4. It promises a return that is significantly huge and consistent
In general, there is no investment that consistently generates huge returns without involved risks. Most of the scam coins contact people through email and other social media by promising recurring profits consistently. Such coins are not real. In general, there is no investment that generates huge returns, without any risks.
5. If it fails to satisfy fundamental cryptocurrency characteristics
A legitimate cryptocoin has the following characteristics:
- Unlimited use
- Controlled supply
- The source code must be disclosed publicly
In fact, most scam coins have a closed source code that the public isn't given access to. To be on the safer side, go with a coin that satisfies the above parameters.
6. Scam coins overly depend on referrals and commissions
This means that the 'coin' has no value on its own and thus no market demand. If turning a profit depends largely on referrals or commission, there is a high chance that such a coin is a scam and you are advised to flee.
Thousands of digital currencies have been introduced in the financial market over the past few years. In order to pick up the real coin from the market, a thorough investigation has to be carried out.
Think we missed something? Do you know other ways How to spot cryptocurrency scam? Share your opinion with us in the comments section below.