Cryptocurrencies have continued to grow in popularity since the first one was issued close to a decade ago. In just a short time, Bitcoin, Litecoin, and Ethereum have emerged as the market leaders in a market that keeps releasing new cryptocurrencies with each passing day.
Unfortunately, scammers have taken advantage of this popularity to come up with all sorts of con games aimed at defrauding unsuspecting investors. One of the biggest scans is the phenomenon known as aux cryptocurrencies’. It simply refers to fake cryptocurrencies offered to investors on all sorts of sites.
It turns out that faux cryptocurrencies are a massive problem, given the scale on which it is happening. Just this month, the Chinese authorities are reported to have found a total of 421 faux cryptocurrencies in February 2019, with over 60 percent of them deployed overseas.
According to China’s National Committee of Experts on the Internet Financial Security Technology (IFCERT), the emergence of faux cryptocurrencies is due to the actions of criminals who present pyramid schemes or financial fraud as actual virtual currencies.
How Can You Recognize Faux Cryptocurrencies?
Before you fall prey to any of the faux cryptocurrencies, you need a good understanding of the things to look out for. The following are three characteristics of fake cryptocurrencies:
- Most faux cryptocurrencies promise huge returns like those offered in pyramid schemes.
- You will know a cryptocurrency is fake if it doesn’t have any real code. Thus they aren’t based on the blockchain and have no ability to generate their own blocks.
- If it isn’t traded on a legitimate cryptocurrency exchange and transactions only take place on proprietary exchanges or over-the-counter, then it is a faux cryptocurrency.
- Platforms that offer faux cryptocurrencies have no known business information or premises.
As mentioned earlier, most faux cryptocurrencies are presented in the form of pyramid schemes. But that’s not the only way investors can lose their money to these kinds of fake digital currencies. One of the things you need to look out for is fake Initial Coin Offers (ICOs).
Role of Fake ICOs in the Perpetuation of Faux Currencies
In a post on quora.com, Shourav Majumder identifies ICOs as prone to fraud. As such, you may identify fake ICOs by looking out for any of the following red flags:
- A newly-established start-up that promises astronomical profits in just a few months without providing a roadmap on how it will achieve that.
- Start-ups that put up ICOs and then provide photos of people who are neither founders or advisors of the project. Where names are provided, there are no links to the individuals’ social media accounts. The only way to find out information about these individuals is by copy-pasting into the various social media sites.
- Founders that come with zero or no credibility. They might be all over the place trying to show you the reasons to invest in the ICO, but they don’t seem to have the ability to deliver on their promises.
- An ICO whitepaper that is full of attractive keywords that mean nothing. What there is to this is nothing but an attempt to hide behind flashy keywords while offering nothing.
Before you fall prey to scammers offering faux cryptocurrencies, you need to do your due diligence. Be wary of ICOs that promise too much in profits in just a short time, since they could turn out to be nothing but pyramid schemes. Watch out for those ads on Facebook.