Scams and scandals have become a common occurrence in the cryptocurrency space lately. Many of these scandals have involved millions of dollars. To help people avoid these scams, governments are warning their citizens about suspect businesses.
One such example of a cryptocurrencies-related warning is a statement issued by the National Internet Financial Risk Analysis Technology Platform (IFCERT) of China. In this warning message, the watchdog mentions common scams and cryptocurrencies with dubious business models. IFCERT has also identified 421 potentially fraudulent companies. The types of companies have been divided into the following categories:
This category includes the cryptocurrencies with a multi-level marketing (MLM) business model. These projects offer significant returns on investments and high commissions for affiliates who convince others to join.
A recent example of this type of scam is PlexCoin. Caught in Dec 2017, the company, PlexCorp, was offering 1,300% plus returns. PlexCoin had already raised more than $15M USD when it was caught.
These companies offer tokens that can only be traded on their platform. Price manipulation is a central part of this scam. The investors create price manipulation by acquiring a large quantity of the coin in a relatively short time-period. The coin purchase creates an impression that the coin is
actually valuable and other people should purchase it.
The scammers keep selling their coins to new investors until they achieve their targets. After the scammers achieve their target, they leave the investors wanting their money because it becomes either hard or impossible to withdraw their funds.
In relation to cryptocurrencies, “a hard fork is a permanent divergence from the previous version of the blockchain, and nodes running previous versions will no longer be accepted by the newest version,” according to Investopedia.
This category includes all the companies that do not have a genuine code, besides not having a framework to operate a blockchain. These same companies guarantee good returns on investment based on the fact that they are a fork.
There are a number of currencies with attributes of a fraud business. It is the investors’ responsibility to study in detail what the company is offering them and if its business model makes any sense. Of course, it’s easier said than done. Therefore, scam alerts like these are a good starting point for currency investors looking for genuine investment opportunities.