Cryptocurrencies are evolving at a dizzying pace with some like bitcoin and litecoin becoming a popular means of exchange. Blockchain technology has given birth to a whole new market that keeps providing consumers with more digital currency.
Some of the cryptocurrencies hitting the market don’t have any potential as they are mere imitations of the existing ones but others are valuable additions.
As with any other sector, investment frenzy can lead to unscrupulous dealers and creators looking to cash in. Cryptocurrency scams are wildly common, especially after the success of some digital coins. It helps to learn a few basics of how to avoid cryptocurrency scams before investing in one.
Some digital currencies that are not bitcoin (altcoin) fair well when given the time to realize their potential but others don’t make it very far from a lack of community interest, developer problems or poor code base.
What to Watch Out For
Anyone interested in cryptocurrency should know some of the red flags to look out for before spending money. Some aspects of a new digital coin can seem inconsistent compared to the ones that are functioning. One way to learn if a new entry is legitimate is to listen to the cryptocurrency community.
If a digital coin has some oddities, the experts in the community will point it out. As you look through reviews and testimonials, keep track of experts who throw their weight behind a new digital coin. Look at how they respond to criticism about the cryptocurrency. If negative comments are not welcome, be wary.
Blockchain technology allows for some level of transparency, which is one plus side of publicly traded digital coins. A public blockchain requires peer-to-peer transfers to undergo validation and then they have to be placed in a ledger, which everyone has access to. This setup negates the need for a third party intermediary to monitor transaction for the purpose of accountability.
When a cryptocurrency launches, check to see if it has a decentralized architecture and an open source codebase. Find out if it operates in a private system. Any legitimate crypto coin must also have wallet software. The wallet is for sending and receiving coins.
If it’s not possible for an individual to mine crypto coin with personal machines, that should raise an alarm. Any warnings from regulatory bodies or governments are telltale signs as well.
How to Avoid Scams
Another red flag is a lack of active exchanges where cryptocurrency investors can buy and trade, a seasoned investor will know of the reputable exchanges on the market but for a beginner, conduct thorough research. Once you know which platforms to trust, find out if the new crypto coin is on offer.
An authoritative exchange will not risk offering a digital coin that is not legitimate. Be cautious of enticing promotions from brokers and firms. Some offer commissions if you refer friends or promise hefty bonuses once you deposit money. Always check that a cryptocurrency broker or exchange platform is regulated.
With the promising performance of bitcoin in recent times, it is understandable that some altcoin creators will try to take advantage. Scams involving crypto coin come in many forms. Before pouring money into a new digital coin, find out how to avoid cryptocurrency scams.
The Onecoin Scam
Onecoin is an example of a cryptocurrency that is predicted to fail. There have been allegations that the altcoin is a Ponzi scheme designed to capitalize on the growing interest in this market. The Swedish government investigated the claim but finally closed it without any charges.
The startup digital coin wasn’t so lucky, though with the Italian Antitrust and Consumer Protection Authority, which slapped it with a 2.5 million fine. It is expected that other governments and regulatory bodies from Europe and Africa will be looking further into Onecoin.