How to: Identifying if a crypto project is legitimate
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A recent example of a crypto-related fraud was the Squid Game coin. It attempted to capitalize on the success of the Netflix program of the same name.
The growing cryptocurrency industry has piqued the curiosity of many new investors. Because the increase is so promising, new currencies are being released virtually every month. According to CoinMarketCap, a market research firm, there are now over 16,000 crypto currencies exchanged. However, this quick expansion is causing worry since many currencies are established with the express purpose of riding an existing trend or frenzy and defrauding or scamming investors out of their money. In such a situation, how do we tell the difference between valid and fraudulent coins in such a case?
Most coins look identical to an inexperienced investor with their distinct promises of returns and the function they represent. The Squid Game token was an example of a coin-related fraud in the sector. Launched in response to the immense success of the Netflix program of the same name, it gained and lost value at breakneck speed. The creators fled with a million dollars in tokens, leaving the investors high and dry.
However, there are several warning signals that all investors should be aware of before investing in a new coin — or in the cryptocurrency business in general. Here are a few examples:
Also Read: How to: Avoid the 4 most common cryptocurrency scams
1. Verify the project.
As a general guideline, search for the project’s website and whitepaper. It is one of the most reliable methods of ensuring the legitimacy of a crypto project. Every project publishes a whitepaper that explains the project’s goal, idea, and architecture of the underlying blockchain and other technology. The whitepaper is available on the project’s website. Read it and cross-check the information with other sources.
2. Promise of improbable returns
Hold back and learn more about a project that offers great short-term rewards. It takes time for any investment to mature. Given the volatile nature of the crypto sector, investing for the long term is always advisable. Short-term price fluctuations are okay, but severe volatility can be seen as a red flag. Scammers also utilize phishing emails and social media profiles to reach out to inexperienced investors. Take care of them.
3. Follow the URL
Scammers frequently utilize URLs that seem identical to the genuine. If you don’t see a “lock icon” in your browser’s address bar next to a website, it’s not safe to access. Check that the URL begins with “https” rather than “http.”
4. Track creators
Look for the persons behind the initiative, the governing body, the foundation that is supporting it, and so on. A thorough investigation is always a valuable weapon in the fight against fraud. If the project developers remain unidentified, this is a red indicator.
5. Manipulated endorsements
Scammers sometimes try to give respectability to their projects by using the names of important persons and celebrities without permission. They recognize that consumers place faith in well-known speakers and attempt to take advantage of this to defraud unsuspecting investors. While several IT entrepreneurs and business people have expressed support for cryptocurrency, they have only promoted a few currencies. Check the claims.
Also Read: Crypto happens; let’s accept it.
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