How can you tell which cryptocurrencies are legit?
In recent years, the cryptocurrency industry has seen an explosion in popularity. Due in part to the pandemic, when people took the time they had at home to evaluate their finances and explore investment opportunities, the sector saw unprecedented growth that looks set to continue.
Despite this, cryptocurrencies remain volatile, with even the big hits like Bitcoin seeing wild spikes in value over short periods of time. With new cryptocurrencies appearing at an almost daily rate, and a sometimes overwhelming amount of information and new technology out there, it’s important to know what you’re doing when you want to invest in a digital currency. We’ve put together a guide so that whether you’re buying Bitcoin or going buy Tetheryou know you are making a safe and sensible decision.
Watch out for Pump and Dumps
Pump and dumps are one of the most common scams seen in the cryptocurrency sector, it has been used to over $2.8 billion from unsuspecting investors in 2021. The way this scam works is quite simple, but it can be devastatingly effective. Fraudsters take an unknown, low-value coin and launch a concentrated, aggressive marketing and PR campaign to generate hype and excitement around the currency. Once enough investors are secured and the coin’s price has inflated significantly, the scammers quickly sell their holdings and make off with the profits before the coin’s price inevitably drops.
To avoid falling victim to a pump-and-dump scam, research any coin thoroughly before making an investment. Currencies with vague or unknown backers should be avoided, while resisting the urge to jump on emerging trends can help you stay away from being scammed. Watch out for previously unknown coins that are suddenly subject to extensive social media attention and soaring values – these are the hallmarks of a pump and dump scheme.
Pay attention to marketing campaigns
Marketing plays a huge role in the cryptocurrency industry. This is how developers spread the word about their new projects, attract interest and secure investors. However, the way these marketing campaigns are implemented can give you an indication of a coin’s potential legitimacy, and learning how to spot the signs of illegal activity can save you from dire financial consequences.
Genuine companies will use their social media platforms to offer educational and informative content. Developers will be eager to demonstrate the technological benefits their coin offers, with efforts being made to generate organic growth and awareness on social media.
On the other hand, fraudulent coins can have over the top social media campaigns, with outlandish claims made about the financial returns involved if you were to invest, and little to no attention paid to the technology or development process behind the currency itself.
Join the community
The crypto world is a digital world, with enormous online communities dedicated to discussing the latest and greatest cryptocurrency news and developments. There is a wealth of information to be gleaned from these communities, getting involved and immersing yourself in crypto culture is one of the best ways to educate yourself as you embark on your crypto journey.
While forums and social media platforms will have countless groups for the broader cryptocurrency industry, most legitimate coins themselves will have dedicated social communities. Usually based on social chat apps like Discord, these communities will discuss the coin and its technology, with developers often contributing to offer updates and answer questions.
Before making an investment in a digital currency, spend time in the coin’s community and look out for possible red flags. Vague or absent input from developers can be a bad sign, while coins with no community at all should be avoided entirely.
Check the white paper
A white paper is the founding document for any cryptocurrency or initial coin offering (ICO) and is one of the most crucial factors in a currency’s success. In it, potential investors should be able to learn about the company’s history, goals, and the technical specifications, goals, and proposed timelines of the coin itself. Legitimate cryptocurrencies often provide supplementary documents alongside their white paper, including further technical and legal information about the company and its business practices.
Watch out for white papers that are poor in detail or poorly designed, while white papers full of promises of significant financial returns or the revolutionary, unrealistic technological benefits of their coin often indicate fraud. Cryptocurrencies without white paper should always be avoided.
Making the decision to take the plunge and start investing in digital currencies can be an exciting and nerve-wracking experience at the same time. Contradictory stories of overnight riches and financial ruin work to inspire hope and anxiety at once, while the sometimes comprehensible technical news and industry jargon can overwhelm even the fastest learners.
New, burgeoning industries are often overrun with scammers and rogue traders, looking to cash in on the naivety and lack of awareness seen in some industry newcomers. It can be difficult to know what to look out for to avoid potential scams, but with this guide you should be able to stop the warning signs of a fraudulent operator and ensure that you are investing in legitimacy.