Cryptocurrency

How Can You Tell if a Cryptocurrency is Legitimate? Read Our Guide To Find Out

How Can You Tell Which Crypto Coins 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 stuck at home to evaluate their finances and explore investment opportunities, the sector has seen unprecedented growth which looks set to continue.

Despite this, cryptocurrencies remain volatile, with even the big hitters like Bitcoin seeing wild spikes in value over short periods of time. With new crypto coins appearing at a near daily rate, and an at times overwhelming volume of information and new technology out there, it’s important to know what you’re doing when looking to invest in a digital currency. We’ve put together a guide so that, whether you’re purchasing Bitcoin or about to buy Tether, you know you’re making a secure and sensible decision.  

 

Watch out for Pump and Dumps

Pump and dumps are one of the most common scams seen in the cryptocurrency sector, they were used to fleece over $2.8bn from unsuspecting investors in 2021. The way these scams work is fairly simple, but they 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 have been secured and the coin’s price has inflated significantly, the scammers rapidly sell their holdings and make off with the profits before the coin’s price inevitably plummets.

To avoid falling victim to a pump and dump scam, research any coin thoroughly before making an investment. Currencies with vague or undisclosed backers should be avoided, while resisting the urge to jump on emerging trends can help you steer clear of being duped. Watch out for previously unknown coins that are suddenly subject to extensive social media attention and skyrocketing values – these are the hallmarks of a pump and dump scheme.

 

Pay Attention to Marketing Campaigns

Marketing plays a big part in the cryptocurrency industry. It’s how developers spread the word about their new projects, attract interest, and secure investors. However, the way in which these marketing campaigns are implemented can give you an indication as to a coin’s potential legitimacy, and learning how to spot the signs of illicit activity can save you from dire financial consequences.  

Genuine companies will use their social media platforms to present educational and informative content. Developers will be keen to demonstrate the technological benefits that their coin offers, with attempts made to generate organic social media growth and awareness.

On the other hand, fraudulent coins may 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 best 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 will have dedicated social communities themselves. 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 into a digital currency, spend some time in the coin’s community and watch out for potential red flags. Vague or absent input from developers can be a bad sign, while coins with no community at all should be avoided altogether.

 

Check the Whitepaper

A whitepaper 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, objectives, and the technical specifications, goals, and proposed timelines of the coin itself. Legitimate cryptocoins often provide supplementary documents alongside their whitepaper, including further technical information and legal information on the company and its business practices.

Watch out for whitepapers that are scant in detail or poorly conceived, while whitepapers full of promise of substantial financial return or the revolutionary, unrealistic technological benefits of their coin are often indicative of fraud. Cryptocurrencies with no whitepaper should always be avoided.

 

Conclusion

Making the decision to take the plunge and begin investing in digital currencies can be a simultaneously exhilarating and nerve-wracking experience. Conflicting stories of overnight wealth and financial ruin work to inspire hope and dread all at once, while the sometimes intelligible technical newspeak and industry jargon can overwhelm even the quickest of learners.

New, burgeoning industries are often awash with scammers and rogue traders, looking to cash in on the naivety and lack of awareness seen in some newcomers to the industry. 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 you’re investing in legitimacy. 

 

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