How to Avoid a Cryptocurrency Scam

Not all cryptocurrencies are legitimate

OneCoin
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The rapid rise in popularity of cryptocurrencies like bitcoin and litecoin have spurred a whole new market, where different types of virtual coins utilizing blockchain technology seem to pop up on a daily basis. Some of these cryptocoins are simply rudimentary clones with not much to offer, while others present fresh and unique features to a space that continues to grow exponentially.

Many of these newly-released offerings eventually fail, sometimes due to lack of community interest or because of code base and developer issues.

A select number of altcoins (any cryptocurrency that is not Bitcoin) do succeed, however, gradually gaining market share over time. Then there are those cryptocurrencies launched with seemingly nefarious purposes, designed to make money for just one group of people – its creators.

A fairly well-known altcoin some say could fall into this category is OneCoin, which has been reported by some news outlets to be a Ponzi scheme rather than a legitimate cryptocurrency. It should be noted, however, that the Swedish government closed its investigation without bringing any charges against the new cryptocurrency.

Red Flags

When you are researching a cryptocurrency, look for any red flags. There are many things that can seem off-kilter with a new cryptocurrency right from the outset; oddities and inconsistencies that raise alarms throughout the crypto community.

One of the main benefits of publicly-traded cryptocurrencies lies in the transparency of their transactions, a feature made possible by blockchain technology.

With a public blockchain, all peer-to-peer transfers (currency or otherwise) are validated and added to a ledger that can then be viewed by anyone at any time. This lack of secrecy adds a level of accountability that allows for such a system to work without the need for an intermediary third-party to facilitate and regulate its transactions.

Any cryptocurrency should be backed by a private blockchain. In a new cryptocurrency, look for one that offers an open source codebase and a decentralized architecture. There should also be wallet software available. Everything should be traded publicly, not within a private system that is closed and centralized. 

Watch the websites that turn up in support of a new cryptocurrency. If several websites, YouTube videos and social media presences pop up suddenly with fervent commenters posing as crypto enthusiasts who viciously attack anyone who speaks negatively about a new cryptocurrency consider that a red flag and proceed with caution.

Be wary if:

  • promised commissions for signing up others. 
  • promised that upsell memberships will alleviate exhorbitant fees required to withdraw your own money.
  • you cannot use your own machinery to mine a cryptocurrency. 
  • any country's government brands a cryptocurrency a pyramid scheme or a ponzi scheme.

The Inevitable Fall

There are no active exchanges to buy or trade OneCoin. The Italian Antitrust and Consumer Protection Authority fined the startup cryptocurrency 2.5 million euro for being, in the IACPA's words, 'a pyramid scheme.' Other European and African countries may be following suit.

How to Avoid a Cryptocurrency Scam

OneCoin certainly won't be the last cryptocurrency that finds itself fighting governments over its legitimacy. Thankfully, there are ways to protect yourself from falling victim to a money grab. Here are some of the keys regarding what to look for.

  •  A public blockchain where all transaction records are freely accessible
  • An open source code base
  • Core wallet software from which you can send and receive coins
  • An active and knowledgeable community
  • The ability to purchase and trade a currency through reputable and well-known exchanges

Remember, if it sounds too good to be true it usually is.

Do not let a scam discourage you from participating in the exciting world of cryptocurrencies, of course, but do your homework before investing.