How Can You Tell if a Cryptocurrency Is a Scam? | Crypto Briefing

Key Takeaways

There are no clear cut rules for identifying scams. Instead, users should equip a broad framework for measuring projects.
Using a variety of back tests, thorough research, and public visibility, individuals can arrive at a degree of certainty about a project’s legitimacy.
Staying safe means staying skeptical, especially if someone is promising riches.

If you’ve been around in the cryptocurrency space for a while, then chances are you’ll have come across your fair share of crypto scams. Projects likeBitconnect, OneCoin, and CentraTech have become notorious for their role in duping unsuspecting investors into handing over money for little more than smoke and mirrors.

But how can you tell if a cryptocurrency is a legitimate project or just a scam?

There are no hard and fast means for determining whether or not a project is genuine. However, there are several ways that investors can arm themselves with enough knowledge to make an informed and rational judgment.

Types of Cryptocurrency Scams

There are various types of cryptocurrency scams, so it’s worthwhile knowing what to watch out for.

Exit Scams

Unfortunately, exit scams are the best-known type of crypto fraud for a reason.

In the days of the ICO boom, exit scams became all too common. Founders would generate massive hype about their project, only to disappear once investors had handed over their funds.

Often, these kinds of scams take the form of Ponzi schemes, using existing “investors” to help spread the word to more victims. Unfortunately, fraud can be more difficult to spot when a fellow enthusiast is the one marketing it. OneCoin and BitConnect both illustrate how successful this tactic can be, having raised $4 billion and $2.6 billion, respectively.

However, other tactics may be used, as in the case of CentraTech, which used the marketing services of Floyd Mayweather and DJ Khaled to sell its services. Both ended up settling with the SEC for charges brought against them due to their role in promoting the scheme.

Exchanges have also provided fertile ground for exit scammers. Last year, the CEO of IDAX disappeared with user funds, and there are still some who believe that the death of Quadriga CEO Gerald Cotten was fabricated as part of an elaborate exit scam.

Twitter Scams

Twitter scams typically involve someone posing as an industry leader in an attempt to get people to send them cryptocurrencies.

It doesn’t necessarily involve someone within the crypto sector either. Paris Saint-Germain footballer Kylian Mbappé has been targeted several times by crypto scammers using his name to promote their efforts, including having his Twitter account hacked.

Phishing Scams

In general, phishing scams aim to get people to hand over details that will give fraudsters access to their funds. In crypto, this could be private keys to your wallets, or perhaps login details to your exchange accounts. Scammers will pose as official…