Cryptocurrency success stories are becoming a daily occurrence. Tales of individuals investing relatively modest amounts into the emerging market and reaping massive returns generate a lot of enthusiasm, which can lead some investors to make ill-advised decisions. We have already covered a few fraudulent coins on CoinCodex, and we would like to present some useful tips for identifying and avoiding cryptocurrency scams.

Be wary of Ponzi and pyramid schemes

Just like in traditional finance, fraudsters in the cryptocurrency world are attempting to lure investors into Ponzi schemes and pyramid schemes. If someone is promising you that they have a revolutionary or secret investment strategy that will yield abnormally high returns, it is very likely that they are running a Ponzi scheme. If the operator of the investment is not clear about what they are going to do with your money, there is a strong possibility that the only thing that is sustaining the returns is the incoming money from new investors into the scheme.

Pyramid schemes are similar to Ponzi schemes, but not quite the same. The simplest way to avoid pyramid schemes is to stay away from investment opportunities that reward you for recruiting new investors.

Avoid cryptocurrencies that fail to disclose basic information

If the cryptocurrency does not disclose the name of its owner or the address of its company headquarters, there is a very high likelihood that you are dealing with a scam coin. Always research background information on cryptocurrencies you are interested in, and stay away from those that are secretive about their origins. Additionally, if the cryptocurrency's source code is not available to the public, that also represents a massive red flag and it is best for you to avoid it.

If it sounds too good to be true, it probably is

When the operators of a cryptocurrency are promising extremely strong returns or the value of their coin is seemingly constantly increasing without volatility, assume that the coin or project is not genuine. Investments guaranteeing high rewards at low risk are suspicious in traditional finance, and this fact does not change when dealing with cryptocurrencies. Fraudulent cryptocurrency schemes also aggressively recruit new victims through online ads, social media, phone, and (e)mail, BitConnect, Ethconnect and Bitcy.biz being the finest examples of such aggressive approach. You should ignore any unsolicited offers from these projects.

Popularity does not necessarily imply trustworthiness

While most cryptocurrency scams affect only a relatively small amount of people before their schemes collapse or their operators vanish, there can be exceptions - at CoinCodex, we have identified many of the telltale signs of fraud and suspicious behavior in the Bitconnect project, which continues to maintain a high degree of popularity.