Each month, new cryptocurrencies get released, and these new tokens and coins are accompanied by a series of initial coin offerings (ICOs). Despite the fact that cryptocurrencies were pummeled in 2018, the interest among a broad pool of investors in these options has grown. Scammers are attracted by all of these reasons. After all, if investors are prepared to put money into a highly speculative cryptocurrency, they appear to be equally eager to put money into fraudulent tokens or ICOs. The following are some of the pointers one can use when assessing the viability of a coin or token.
1. Team
Who are the creators of the project? This is probably the most important consideration an investor should make. Personalities infer how authentic a project is. If, for whatever reason, you do not like what you see, chances are that you should not invest. An example I would give is of a pastor, who might have used his religious following to get investors to engage with his project dubbed Nurucoin that has since been determined to be a rug pull.
2. Token sales
During fundraising, any ICO will rely on some form of currency system. Legitimate projects make the token sale’s progress transparent for everyone to see. As the ICO progresses, keep an eye on the token sale figures. Better yet, keep an eye on the token sale over time to observe how it spurs. In some cases, the project owners deliberately make it a daunting task for anyone to follow the progress of the ICO. For any investor, this should be a red flag.
3. Whitepaper
Most if not all of the crypto projects will have a document that explains the technology being used and also the utility or purpose of the project. A whitepaper is basically a written statement on how the project was built, it’s inner workings and the purpose for it’s existence. A lot of technical jargon gets thrown, sometimes with the possible effect of impressing the investors but also to confuse them. You might not understand the terminologies used but you can always look at the fundamentals as Jim Rohn put it Success is neither magical nor mysterious. Success is the natural consequence of consistently applying the basic fundamentals.
Warren Buffet, an American businessman tried to give his explanation as to why he would not invest in Crypto. His assertion was if he was able to buy 1% of the farmland in the United States he would generate revenue from the yield the farmland would produce. If he was able to buy 1% of the apartments in the country he would generate revenue from the rent earned. What would the Bitcoin generate for him say he decided to buy? In a sense, the value of Crypto is predicated on its price appreciation and what people are willing to pay for it. Not necessarily on the utility it produces.
4. Liquidity pool management
Every time an investor buys a token, they typically swap using well-established cryptocurrencies i.e Ethereum for the coin in a decentralized exchange (DEX). As more and more investors put their Ethereum into the liquidity pool, the price of the coin rises. At a certain point, the scammers then pull the rug by taking the valuable Ethereum and living the investors with worthless tokens.
Project owners can promote such schemes in a variety of ways, including using social media influencers to promote the coin to unsuspecting investors, who are then compelled to invest in the project. It should be noted that this is not an entirely new thing, as in the past we used to have snake oil salesmen who would essentially do the same. The only difference is that it is now taking place in the digital space.
In conclusion, the blockchain is a technological leap forward, but it is important that people get to understand what they are investing in. Regulation is one of the main points that blockchain enthusiasts appear to be against, but it is becoming increasingly necessary as people continue to be scammed.
Symatech Labs is a Software Development company based in Nairobi, Kenya that specializes in Software Development, Mobile App Development, Web Application Development, Integrations, USSD and Consultancy.