How to Spot a Legit Scam

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The modern consumer is pretty savvy. When a charming gentleman or lady phones from a private number claiming to be from Microsoft, we don't give him access to our computer. We politely, but sternly, tell him to go away.

If an email from our 'bank' arrives declaring that our privacy has been breached and we should urgently click a link that contains every letter of the alphabet, we casually delete the email and get on with what we were doing.

But when we see the brand-new car our friends have bought with this thing called Bitcoin, sometimes we can get a bit too excited.

Those that jumped onboard bitcoin a decade ago cleaned up from their initial coin offering (ICO), with the price surging from just $0.003USD in 2010 to over $8000USD in July 2018. I bet that guy is who spend 10,000 Bitcoins on a pizza is hurting real bad right about now.

Seeing numbers like that can have our eyes spinning like cartoon cash registers, and Bitcoin is not the only cryptocurrency that’s gained momentum. There are presently 1707 cryptocurrencies out there on the ICO list — a number that’s climbing each day.

So how do you determine which ones are legit and which ones are scams?

What is a Ponzi Scheme and How do I Spot One?

In the world of investment, one of the most common scams is a Ponzi scheme. This is where the con artist makes all kinds of promises about return on investment, without ever actually investing your money.

These silver-tongues can massage your ears with guarantees about the next great cryptocurrency ICO – which doesn’t actually exist. They then deposit the first investments on a false dividend to inspire confidence and make the next big move. They will ask for more and more investment into a cryptocurrency ICO that doesn’t actually exist. Luckily, the Australian Securities and Investments Commissions has some advice on how to spot these snake-oil salesmen from a mile away:

  • Watch for inflated rates of return. If they are offering over 10 percent a month or 120 percent a year, then it’s probably too good to be true.
  • Trust no one. Be aware that con artists can literally pop up anywhere, and may even make it into your personal communities. It is common for scammers to look for people in small communities like sporting clubs, church congregations, etc. Always double check who is in the ICO founding team to see if their project is legit.
  • Don't believe everything you hear. They will often try and convince you that they have invested in the cryptocurrency ICO themselves and achieved great success.

Cryptocurrency Parodies and Scams

Dogecoin was a popular internet meme that used images of Shiba Inus — a Japanese dog breed — with a selection of comical captions. The viral meme eventually became a cryptocurrency, with Dogecoin launched in 2013 as a parody of bitcoin.

It was all fun and games at first, but it’s lack of security made it attractive for scammers, who came to create fake digital wallet companies for Dogecoin.

People were lured in by the humorous side of the currency, but were left less than amused when scammers took money invested into these fake digital wallets.

Although Dogecoin still exists, it has since been purchased by blockchain API developer Block.io.

The biggest direct scam, though, was the combined ICO's Pincoin and iFan which were launched by a company called Modern Tech in Vietnam this year.

Around 32,000 investors tipped USD $660 million into these ICOs, before the company's offices in Ho Chi Minh were abandoned in April and the founders nowhere to be found.

Where can I find information on ICO scams?

It’s all well and good to have a chuckle at obvious scams when they have been dragged through mainstream media, but what about the rest of the digital currencies out there?

You can do your own research by putting the ICO's name through popular social media platforms like Reddit and Facebook or logging on to the Bitcoin Forum - Index to see if there is any chatter. Another safe bet is by looking at the Medium blog to see if aspiring writers have tapped into the credentials of these new ICOs.

You can do a bit of background digging yourself on BitConnect which describes itself as an 'all in one bitcoin and crypto community platform'. Here you can find out what reliable people in the industry think about these ICOs and the people peddling them.

ICORating is another website where these ICOs are audited and ranked. These lists can be sorted and you can see the investment ratings and risk profiles of ICOs which can give you a solid platform on which ones you should be investing in. It pays to do your research first.


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