Crypto Scams Myths: Crypto Project Failures are Not Scams
Since Bitcoin’s success back in 2009, thousands of crypto projects have been launched within the global crypto markets; according to Coinmarketcap, the market capitalization for cryptocurrencies across the globe stands at around $1.05T as of mid-2022. And while quite a few of them (like Ethereum, Dogecoin, and Solana) have witnessed massive success so far, it’s only natural that out of the numerous crypto projects out there, not all manage to achieve success on a grand scale.
As Matt Johnson, crypto analyst and chief executive of Primary Vision, notes, about one in every four of the crypto projects created in the past decade have failed, with their developments having been halted or abandoned. For example, in very recent times, we saw the stablecoin TerraUSD lose its peg and plunge into a death spiral, along with its sister token LUNA.
Now, when a crypto project fails, it’s very natural for investors and participants in the broader crypto market to question the project’s legitimacy, and term it a ‘crypto scam’. However, even with the abundance of cryptocurrency scams, crypto traders have to be wary of on a regular basis, not every failed crypto project can be labelled a crypto scam.
What exactly are crypto scams, then? And how to be safe from scams related to crypto? In this post, I attempt to answer these questions for you.
Why Do Crypto Projects Fail?
There can be many reasons for the failure of a crypto project, namely poor business planning, loss of traction, personal issues on the end of the developers, and of course, frauds and scams.
According to Alex Benfield, a crypto analyst at Weiss Ratings, one of the primary reasons why a crypto project may fail is the lack of strong community support. As Benfield puts it: “Crypto projects tend to fail when they don’t gain any traction or build a strong community following. Even weak crypto projects can survive when they are able to build a loyal community following. A strong community can drive in new investors to a project through continued social media posting and bringing in new awareness to said project.”
On the other hand, Matt Johnson, the chief executive of Primary Vision, gives the following reasons as common causes for the failure of a crypto project: the abandonment or halting of project development, loss of funding, community disinterest, and rug pulls.
For those not in the know, a ‘rug pull’ is a malicious move where the development team behind a project vanishes overnight, abandoning the crypto project they used as a front for the scam and taking the funds invested by its community.
Not All Failed Crypto Projects are Scams: What Exactly are Crypto Scams?
Fraudsters are always finding new ways to commit cryptocurrency scams, and the amount of crypto scams has grown right alongside the crypto industry throughout the past decade. As a crypto investor, you must know what are the common crypto scams, so you can be knowledgeable enough to spot them.
What are the Most Common Cryptocurrency Scams Investors Face?
Among the most common crypto scams, there are:
- Fake websites or wallets: Crypto scammers sometimes create copies of popular crypto trading platforms or wallets to trick new users. The fake websites usually have similar domain names and interfaces as the actual sites they mimic. These fake websites usually work as phishing pages; this way, all your personal and financial details you enter (like your crypto wallet’s password or recovery phrase) end up with the scammer.
- Pump and Dump Schemes: Fraudsters would sometimes hype up a crypto coin through social media pages or emails. Entrapped, crypto traders would then rush to buy this coin, further driving up its value. Once the price is suitably inflated, the scammers sell their own holdings, causing a market crash that leads to the crypto’s value decimating.
- Phishing crypto scams: Users are sometimes sent fraud emails and messages by scammers, asking them to click on a website link. These links usually lead to specifically created websites that ask for users’ private key information and suchlike.
- Giveaway crypto scams: Cryptocurrency scammers might promise to match or even multiply the crypto users send to them in a giveaway scam. The pull of this ‘golden opportunity’ might lead people to transfer funds quickly to these fraudsters in hopes of an instant return.
- Fraudulent ICOs (initial coin offerings): Fraudsters may announce a new crypto coin and offer to send users the new coins in exchange for their investment. This is perhaps the most common kind of crypto scam, with several ICOs in the past few years that have turned out to be fraudulent.
How to be Safe from Scams Related to Crypto?
Here is a list of a few things you can check before investing in a crypto project, so you can be safe from scams:
- You should not consider investing in any crypto project that does not have a clearly-worded whitepaper explaining the project.
- Any crypto project that guarantees you bug returns will very likely turn out to be a scam since no investment can ever ‘guarantee’ you future profits.
- Excessive marketing for a crypto project is also a red flag.
- Remember to research a bit on the backgrounds of the developers and team members before investing in a crypto project. Unnamed team members are another sign that the project might be pulling a crypto scam.
- Most importantly, any crypto project offering free money is very likely a scam.
Above all, the most important thing you can do to be safe from scams is to do your own research before you go about investing in a crypto project. Make sure to interact with the community on social media, ask questions, and do proper background checks on the developers and the project itself.
As always, consider your risk appetite before investing, and put in only the money you can afford to lose in any crypto investment.
Good luck with your future ventures into the crypto world!