In recent years we hear more about fake cryptocurrencies and their telegram scams.
There are millions of telegram groups linked to cryptocurrencies. Anyone can start a crypto-telegram group. Young and impatient people who are interested in fast returns are the primary prey to these groups.
Let me explain with an example. In this regard, I would like to explain my friend’s experience with one of these crypto frauds.
One fine morning John got a mail from an unknown company. The mail stated that
“Do you want to earn good money from cryptocurrency? Then here is in-a-lifetime chance to do so. We are a ——– company and are starting a new crypto coin that has the potential to be the next big cryptocurrency. To know more about the coin, please visit our website and have a look at our white paper.
To increase the liquidity, we have taken all the necessary steps. We are making an investment pool and offering our crypto coin at a discount for selected members.
If you want to participate in the coin distribution campaign, do enroll yourself today. If you are lucky you might have a chance to win crypto coins at 40% discount.
Once the coin gets listed in the crypto exchanges, you can enjoy the premium price at which the coin trades”
In simple words, the mail was telling my friend to invest in their coin. They would like to give the coin at 40% discount than the listing price. As a result, my friend can buy the coin now at 40% discount and can sell the coin on the listing day to enjoy the profits.
With full of anxiety and greed, my friend clicked on the link and has entered his details. After a few days, he got a second mail with a payment link and asked for the details of his wallet address.
As he made the payment and sent his wallet address, in no time, he got his new coins deposited in his wallet. The next minute he called me and has told me what happened.
But I was a bit skeptical about the process, and I asked, how was he selected and how many members participated in the coin distribution. He said that he has no idea.
He said that the coins were ERC 20 tokens and has paid some amount in ether to get the coins deposited in his account. I warned him to be away from such practices as they might turn out to be scams.
But he said that he got the links in the telegram from an authenticated friend, and he has full confidence in it. So, he did not listen to my words.
Finally, the listing day has come, and the coin is listed on the exchange with the prescribed price tag. Hence my friend has a 40% increase in his investment on the listing day itself. He seems to be very happy and informed the same.
But I was still skeptical and told him to withdraw the funds. But he denied it.
On the next day, he got another mail from the same company saying that –
“The coin has a big update, coming next week. Hence there seems to be a jump in the price of the coin by 50 to 60% in the next week. So, hold on!”
As a result, my friend has bought some more coins the next day assuming a price rise in the coming weeks.
As the mail said, the price rose another 60% in the next three weeks. My friend was surprised by the move. Now he thought of removing his investment.
So, one fine day, he tried to swap the coin with Ethereum. But to his surprise, there was no liquidity for the coin in that exchange. He was shocked and called me immediately.
I too checked the exchange and has gathered some information about the coin. Finally, I got to know that the developed has rug pulled the investors. The developers have sold all their coins for Ethereum and have disappeared with investors’ money.
Later, the exchange has to delist the coin for lack of liquidity.
What is a “rug pull”?
Rug pull is an act where the developer or an insider runs away with investors’ money by creating a worthless cryptocurrency.
In simple words, he first sells his worthless crypto coin to all the investors and collects money or worthy crypto currencies in exchange. As a result, his crypto coin or token becomes worthless and will not trade in exchanges.
How do rug pull scams occur?
In a Rug pull scam, the developer, or the promoter, promotes and attracts investors through various platforms. He somehow convinces people to invest in his coins or tokens.
The developer offers these coins or tokens through coin distribution or airdrops. The dumb investors buy them and wait for the coin to list in exchanges. Then 3 things can happen.
- Either the coin will not list on exchanges
- Or the coin lists on exchanges, but will not have liquidity
- Or the coin lists on exchanges and will gain liquidity from the investor pools. Investors are encouraged to trade in these coins with premium and standard cryptocurrencies like Ethereum and bitcoins. As a result, there will be a false raise in the prices. In the meantime, the developer will sell all the coins and will run away with the money.
Investors often get doomed with such new cryptocurrencies. Hence one should be cautious before investing in a new cryptocurrency.
Beware of telegram groups
Telegram groups are the main platforms where the crypto scams start. People in groups can be easily cheated through these groups.
The herd mentality of humans is one of the weak points which prey them on these frauds. People often lose their decision-making capabilities while taking decisions in these groups.
If one person starts buying a coin, the remaining follow just like a goat. Hence beware of telegram groups. Before you make investment decisions, take the help of an experienced person.
Read the white paper completely and try to understand. If you have any doubt, do not invest. Wait for some period until the coin or token gets authenticity. Then trade or invest in it.
How to prevent fake cryptocurrency fraud?
Every day more than 100 new cryptocurrencies come into markets. Hence investors have tons of chances to become billionaires. I think it’s a good point. But do you know that more than half of these cryptos come to zero or disappear in the future?
Hence here are a few tips to save yourself from such fraud.
Buy from reputed exchanges
When a new cryptocurrency is emerging, it takes some time to get listed in reputed exchanges like Binance, Coinbase, Crypto.com, WazirX, and Coin DCX.
Before getting listed in these exchanges, the coin or token gets listed in other small exchanges like UNISWAP, PANCAKE swap, etc.
Trading and buying new cryptocurrencies from DEX such as UNISWAP and PANCAKE swap are a bit dangerous. These decentralized exchanges (DEX) use cryptocurrency pools instead of order books.
As long as the pools exist, liquidity exists in the DEX. But once the pools vanish, you get nil liquidity for the new coin. There will be no one to blame.
These are P2P exchanges and might turn out dangerous to novice crypto investors. Hence, we would suggest you buy new coins that are listed only from reputed exchanges.
On the other hand, in reputed exchanges, or centralized exchanges like Binance, WazirX and CoinDCX, people often buy and sell cryptocurrencies using order books.
Centralized Exchanges make coins available only after they think that these coins are authentic.
Also read: centralized-vs-decentralized-crypto-exchange – which one to prefer?
Reputed exchanges have some criteria to list coins in their exchanges like:
- A Good and authentic product development team
- The meaningful proposition of the coin
- The large and genuine user base
- High user adoption
The coins which pass these criteria will be successfully listed in their exchanges.
Some of the standard centralized cryptocurrency exchanges in India are
Investing and trading in reputed crypto exchanges is more secure. Rug pull or other fraud activities are comparatively less in coins or tokens that are listed in these exchanges.
Never encourage Liquidity pools for new cryptos.
If you want to take a chance and invest in new crypto coins or tokens, then you can do it at your own risk. But never step further into their liquidity pools.
New cryptocurrencies ask their investors to stake their coins in liquidity pools to increase liquidity. They also offer high returns on staking.
But it is not a good idea to stake new cryptocurrencies unless you are very confident in their vision and functioning.
We would suggest you wait till these coins get listed in reputed exchanges to remove the surprise element of rug pull.
The “No value” white papers
Always read or understand the whitepaper of the respective cryptocurrency before you invest.
If you think the white paper carries some value and is going to solve a major tech crunch in the field of blockchain technology, then you are lucky enough to ride on it.
Most white papers often carry no value around them. They are a simple representation of a meme coin. Be careful with them.
The influencer coins or tokens
When a new coin emerges, we would often see big celebrities and YouTubers promoting them. Such proposition is a sign of nearby Rug pull.
Good coins always advertise themselves and are less dependent on influences. Hence be away from such coins and influencers.
The Rug Doctor
The Rug doctor.io is a fantastic website that provides information on a possible rug pull for a particular coin or token. The site analyzes the code of the specific coin for any similarities with other coins or tokens.
Usually, a fake cryptocurrency is a replica of a previous popular coin or token, as the developers concentrate more on deceiving its users than building a proper code.
Hence before investing in a cryptocurrency, check the authenticity of the coin or token on the Rug Doctor website.
Token sniffer is another awesome website for checking scam coins in Binance, Ethereum blockchains, and 10 other chains. It is an Automated contract auditing and scam detection developed by solidus labs.
Any new token can be scanned for its authenticity in the token sniffer using the coin’s address. The token sniffer scans for code anomalies. Any previous coins with similar codes and their working profiles are scanned to check the percentage of similarity. A coin with copied code and a history of rug pull from similar codes are notified to the users, warning them not to be considered.
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