We all want to be the first to discover an innovative and possibly profitable altcoin. The reward for investing in a worthy ICO or buying a cryptocurrency while it’s in infancy can be high but so is the risk.
And with crypto, there is also the chance of losing coins, from hackers stealing bitcoin wallets to infiltrating cryptocurrency exchanges.
So, how do you avoid cryptocurrency scams?
Table of Contents
Don’t Take Freedom for Granted
The cryptocurrency market has the potential to change the world and your wallet because of its nature of decentralization, anonymity, versatility, and rapidity. These are all great qualities that provide us with new ways to increase productivity and safety.
But, with more freedom and new securities comes more responsibility and new threats. That’s why we must not take this technology for granted by becoming educated on its potential as well as its faults.
Identifying Potential and Avoiding Scams
At first glance, any ICO or new altcoin may seem like a promising endeavor simply because of the hype surrounding cryptocurrency. It is human nature to want to be included in the next big thing. And in the crypto market, procrastination can mean money lost. But, even more money can be lost when you act without doing your homework.
Do not get sucked in by promises of a big profit, rather, invest your time in a promising company. Promises don’t last, but proven devotion and hard work do.
You can follow these tips to make smart decisions on your cryptocurrency investment.
1. Look for Public Repositories
Any legit cryptocurrency will have a public repository with their developer codes available for viewing or copying. If an altcoin is not listed on repository sites like GitHub or Bitbucket, there is no way of knowing if they even have a code or algorithm for their supposed technology. You can also view developer updates, forks, and supporters through these sites.
2. Social Media Following and Activity
Although social sites can be misleading as bots and fake accounts can be used, it is often hard to create a large following and maintain authenticity. On the other hand, if a crypto business didn’t take the time to create social accounts, make posts, and develop a following, then they probably aren’t serious about sticking around for too long.
3. Large and Diverse Team
You can spot a cryptocurrency scam easily when the team section is missing from the web site. And if they have a list of team members they should consist of engineers as well as business developers, marketers, managers, and designers.
A versatile team shows that they are not just developing an idea but creating a business plan as well. Also, look for advisors included on the project. They act as a board and give legitimacy to the cryptocurrency.
Be sure to double-check that team members are not fake by Googling several to see if they really do exist.
4. Detailed White Paper
No white paper? No way. This is the essence of any ICO’s project and it should be available to the public.
White papers can always be updated and extended, but having at least a general plan shows they put some effort toward the project’s future.
Be wary of generic white papers that are vague and generalized. These documents could be plagiarized.
Technical details about their blockchain, financial plans, and real-world execution and application should be discussed. Also, either in the white paper or own the web site, there should be a thorough timeline of milestones completed and goals ahead.
5. Too Good to Be True
Sometimes, even a sincere cryptocurrency bites off more than it can chew. An idea may sound great on paper, but in a practical sense, it may be lacking funding, support, or technology to be profitable.
Maybe the technology doesn’t exist yet and that means a long waiting game. Also, society might not be ready for certain aspects of the project and there isn’t a big enough market to really move the idea forward.
It may be hard for some people to avoid these types of investment options as the ICO has done a great job of marketing the idea but remember to think practically and ask yourself questions of longevity.
6. Serving a Purpose
With a flood of new digital currencies forming, not all cryptocurrencies need to exist. That is why you should invest in coins that fulfill a need rather than one that just wants to exist for possible profit.
Cryptocurrencies that do not make life easier or, worse yet, make simple tasks more difficult for the majority of people, do not have a promising future.
7. Big Promises
Making promises like a large return on investments and guaranteed success should raise concerns. There are no immediate benefits in cryptocurrency investments and there is always a risk involved. Although many ICOs offer benefits to early investors, nothing is technically free. So, do not get fooled by outlandish benefits, thinking that they outweigh the risk of investment.
8. Coin Value and Distribution
The value of your token or coin determines whether it was a good investment and has a prosperous future. So, when a cryptocurrency does not have a hard cap on the number of coins they plan to release your investment becomes inflated and loses value.
You also want to know how the tokens or coins are allocated. Distribution of wealth keeps coins unmonopolized and valuable as they circulate throughout the network.
Also, research how tokens are used within the network and if your initial investment gives you rights to a certain percentage of stock once the cryptocurrency is live.
Lastly, find out how much of the coin goes to the team and further development of the project. Small amounts of profits should always go toward continued improvements and operations.
Keeping Your Investment Secure
These tips can help you invest intelligently and avoid cryptocurrency scams. Your next step once you find an altcoin is to secure your investment. Keep your cryptocurrency offline in a cold wallet, create a complex password, and use established cryptocurrency exchanges to trade your altcoins.
Every ICO and cryptocurrency is different, not all of these characteristics will apply to every type of fraud. This article should not be taken as guaranteed proof of legitimate cryptocurrencies.