Many people find it difficult to comprehend the technology that underpins cryptocurrencies. And tech-savvy individuals can be confused by the technological nature of cryptocurrencies and the use of complex computing jargon. The lack of legislation and a general lack of understanding of cryptocurrencies exacerbate the issue, making it easier for bad actors to build coins and schemes to take advantage of the uninitiated.
Given that the cryptocurrency market has attracted many investors due to the potential for huge returns on their investments, it has morphed into a speculative hotbed where many people are betting their money in the hopes of making fast profits. It's difficult to separate the good from the bad because there are so many cryptocurrencies and tokens to choose from. The crypto world is a fertile breeding ground for scammers in an ecosystem with few checks and balances. Before diving into this revolutionary but still young industry, the most important thing to remember is what not to invest in.
Here is a list of characteristics that many possible Ponzi schemes or bitcoin scams share, so you can stay away from them.
Unrealistic Claims
It's pretty normal these days to hear about crypto investment opportunities that offer a regular or monthly rate of return. Let's face it: the allure of instant riches is a tantalizing prospect for everyone, and this may lead to a hasty decision to engage in such schemes. However, it is almost impossible to achieve stable fixed income in practice. Offering fixed returns necessitates a consistent revenue stream, and the only way to maintain strong, assured profit rates is through a Ponzi scheme unless they offer a product or service to substantiate their profits. Ponzi schemes are deceptive schemes that pay out dividends to early investors using funds from later deposits, with no legal operations.
There are three schemes that promotes unrealistic claims
1. Cloud Mining Services
Mining is a method in which specialized computational technology is used to solve complex mathematical equations in order to protect the cryptocurrency network's transactions, and "miners" are rewarded with cryptocurrency in exchange for their efforts. Fraudulent cloud mining websites claim to allow everyone to join a Bitcoin mining operation and receive mining rewards by simply paying a small amount of money up front, eliminating the need to purchase your own computing hardware. It's a Ponzi scheme that pays you out as long as there's a steady stream of new customers, but if that stops, the entire system crashes and you lose everything.
2. Bitcoin Investment Package
BIPs are high-yielding investment plans with limited payout structures that offer high returns. You begin by purchasing a subscription kit, which entitles you to a consistent daily or weekly payout and is typically very lucrative at first. BIPs, on the other hand, have a short life cycle due to the Ponzi scheme they employ, and will shut down until there were few new users remaining. In order to appear trustworthy, BIPs will often use complicated buzzwords to confuse those curious about how they make their money.
3. Multi-level Marketing Schemes
MLMs are known for the complexity of their actual products or facilities, which rely heavily on referral schemes. Individuals promoting a cryptocurrency-related investment scheme, with the only way to participate being to click on their referral links, is a popular referral structure. MLMs are very straightforward to spot because their primary source of income is affiliate marketing rather than working with real cryptocurrencies.
Non-existence of Code Base
Given that the majority of Cryptocurrencies are open-source, projects that are closed-source or do not disclose their code base seem to be less trustworthy. Although not all closed-source coins are scams, all coins that have been labeled as scams do not show or do not have their code base. One of the main reasons they're closed source is that they don't have any code base at all. You can look at their source code on Github, and if the cryptocurrency doesn't have links to the source code, it's probably a scam.
An open source code base is one that is freely accessible to all and can be updated and redistributed. The essence of open-source codes is that they are available for everyone to look at and study. Not only is this more straightforward, but it also allows the group to inspect the protocol and propose code changes.
Absence of Key Information
1. No Whitepaper
A white paper contains all of the necessary details about a coin or token, from its function to its mechanics to its coin dynamics. White papers are the foundation of every coin, and their absence is a major red flag. Given that the majority of coins lack a track record of a functioning product, creating a white paper to publish the required details for investors is even more critical.
2. Ghost Team Members
This relates to the lack of detail about the company's founders and development team. The reputation of any project is largely determined by the founding developers' experience, stature, and expertise. For obvious reasons, most fraudulent coins and schemes do not publicly reveal details about their owners. If no information about them can be found, their integrity is questioned.
Final Words
Decentralization, complete accountability via a public ledger, and open source code that anybody can see are all characteristics of a cryptocurrency. Scams and Ponzi schemes, on the other hand, commonly lack these qualities and are concentrated and opaque.
Identifying common traits, such as those mentioned above, is the best way to avoid falling victim to these various scams and shady schemes. It is also beneficial to gain awareness and understanding of how cryptocurrencies operate and the technology that underpins them. You will protect yourself from these scams by arming yourself with the necessary information.
