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This article provides a comprehensive guide to identifying fraud coins.

The technology underpinning cryptocurrencies can be very complex for many to wrap their heads around. The technical nature of cryptocurrencies and the use of complicated arithmetic jargon could easily confuse someone, even technically inclined individuals. The lack of regulations and a general lack of understanding of the cryptocurrencies compound the problem further, creating a favorable environment for bad actors to create coins and systems that serve poorly informed use.

As the cryptocurrency market has attracted many due to the possibility of acquiring massive returns on their investments, the market has turned many into a speculative hotbed of their money, hoping to always bet fast profits. With the sheer number of cryptocurrencies and tokens to choose from, it’s hard to pick the good ones out of the lazy ones. In an environment with little control and balances, the crypto-world is a good breeding ground for scammers. The most important thing to consider before you dive into this revolutionary yet infant industry is knowing what NOT to invest.

I’ve created a list of common features that many potential Ponzi systems or frauds possess, so you can avoid such trades.

Unrealistic claims

It is quite common now to invest in investing opportunities in the crypto world that promises a daily or monthly return. Let’s be honest, the allure of overnight wealth is a tempting offer for anyone, and that can encourage an impulsive motivation to participate in such schemes. Practically speaking, however, it is nearly impossible to consistently make solid profits. Offering fixed returns requires a constant source of income, and unless they sell a product or service to underpin their revenue, the only way to uphold guaranteed profit rates is through a Ponzi scheme. Ponzis are fraudulent scams that generate returns for old investors with investments from later investments, without legitimate operations.

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

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

1. Cloud mining services

Mining is a process that uses advanced computing hardware to solve complex mathematical equations that reward transactions within the cryptocurrency to secure the network, and “scarce” the cryptocurrency for their efforts. Fraudulent cloud mining sites offer everyone the opportunity to get Bitcoin on a mining operation and earn mining rewards by just buying a starting capital in advance without the need of providing for you to buy your own computer hardware. It’s a ponzi scheme that pays you how long it’s a continuous pool of new users, and when that dries up the whole thing collapses and you will lose all your funds.

Prominent Cloud Mining Scams: Hashinvest, Biteminer, Hshpoke, Cointellect, Hashocean, Gawminers

2. Bitcoin investment packages (border inspection posts)

Border control posts are high-yield investment programs that promise high returns with small payout structures. You start with a subscription package to buy that qualifies you every day to receive a constant payout or every week and are usually very profitable on the first. However, due to the structure Ponzi employs, border checkpoints have a limited lifespan and would shut down once there are few new users left. More often than not, border checkpoints will tend to use complex buzzwords to confuse prospects as they actually make profits in order to appear credible.

A list of prominent GDPs, see here .

3. Multi-Level Marketing (MLM) Schemes

A common feature of MLM is the ambiguity of its actual offerings or services, usually on referral schemes. Some typical referral structure brings individuals to promote a particular cryptocurrency related mutual fund and the only way to participate is to click on their referring links. MLMs are extremely simple, since the main source of revenue generation through dealing with actual cryptocurrencies as affiliate affiliate is more likely to identify marketing.

Prominent MLM Scams: BitConnect, Onecoin, Centurion Coin

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

Guarantees for high profits / interest

Referral / Affiliate Systems

Ambiguous information about how it actually works

Minimum to no information about startup team or company

Difficulties in withdrawing funds

Non-existence of code base

Since the majority of cryptocurrencies are open source, projects that are sourced close, or those who do not betray their code base, seem less credible. Although not all cryptographic features that source closed are scams, all the cryptographic features that the brand has been identified as a fraud does not reveal their code base. A big reason why they shut source is also due to the fact it could not be a code base at all. You can check their codes on github, and if the cryptocurrency does not provide the links to the code, then it’s definitely shady.

An open-source code allows the code base to be freely accessible to anyone and redistributed and modified. The kind of open source code is that it allows someone to see and check the codes. Not only is this more transparent, the community can inspect the protocol and suggest improvements to the code. Building on the community could be very useful to the project because “a thousand brains are better than one”.

The lack of key information

No whitepaper

A whitepaper detailing all the information you need to know about a particular crypto, of its purpose on its coin dynamics of its mechanics. Whitepaper forms the foundation of every crypto, and its absence signals a huge red flag. Considering the fact that a majority of cryptos do not have a track record of a working product, it is even more important to conceive a whitepaper that will publish the necessary information required for investors.

Ghost Team members

This refers to the lack of information about the founders and the development team.The credibility of a project depends to a large extent on the experience, stature and competence of the founding developer. More often than not fraudulent coins and systems will not publicly disclose information about the founders, for obvious reasons. If information about it can not be found, then credibility it is doubtful.

Usefull links

There are a few resources that compile the numerous possibilities that are identified as fraud and ponzis. These websites are:

All in all

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

The best way to avoid falling into these various scams and to avoid sinister plans is to identify common traits, as listed above. More importantly, it is worth gaining knowledge and understanding of how cryptocurrencies work and the underlying technology to give them the powers. Arm yourself with the right knowledge and you will be protected against these scams!