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What is a scamcoin?

What is a scamcoin?

A scamcoin is a fake cryptocurrency that scammers create to steal money from people who invest in it. Often, it is a clone of an existing or already-mined coin. 

The creator of a scamcoin will often promote it as an investment that will allow investors to earn massive profit and passive income rates. However, scamcoins never deliver on their promises. 

As soon as many people buy or invest in it, the creator takes out all the money and disappears, leaving investors with no way to recover their money.

Scamcoins are the Ponzi schemes of the crypto world. For every genuine crypto project, there are dozens of scamcoins out there. This is one reason some people do not trust cryptocurrencies or the blockchain industry.  

While some scamcoins are obviously fake because they do not run on a blockchain, others have backdoors in their code that allow the creators to control the entire supply of tokens. 

Although scamcoins and shitcoins are similar because they do not have any real value, shitcoins do not deliberately set out to scam people. Interestingly, some shitcoins yield short-term profits if the investor is careful or lucky.

On the other hand, if an investor buys a scamcoin, they almost always lose their money. And in extreme situations, the scammers hack into the investor’s crypto wallet and steal more from them. 

Why are scamcoins so common?

As the value of Bitcoin and other early cryptocurrencies grew, many scammers saw an opportunity to steal money from eager crypto investors. However, the main trigger was the success of Initial Coin Offerings (ICOs).

ICOs are a form of cryptocurrency that a startup uses to raise funds for a new project — a coin, app, or service. Each investor receives a unique coin or token in exchange for their monetary investment in the company. 

Between 2016 and 2017, many startups raised billions of dollars through ICOs. Scammers capitalised on this wave of success to create scamcoins and deceive people into investing in them with no intention of using the funds to build anything valuable. 

Types of scamcoins 

Scammers have found different ways to defraud people through scamcoin schemes; these are the three main methods: 

ICO scamcoin

In an ICO scamcoin scheme, the creator gives out tokens in exchange for investment in a project. The idea is that the investors will own some part of the project (or its profits) when it finally takes off. 

But, in reality, there is no project, and the investors end up with worthless coins. ICO scams are less common today, but they remain a source of concern in the crypto market. 

Fortunately, investors can easily avoid this by participating in genuine ICOs using websites like the Binance Launchpad or Coinlist. These sites carefully vet projects before listing them, thereby reducing the chances of investing in a scam.

Ponzi scheme scamcoin

A Ponzi scheme is a scam where the scammers use money from recent investors to pay ‘profits’ to earlier investors. The victims believe that the profits are from legal business activities; however, they come from investments from other unsuspecting people.

The scheme works until there are not enough new investors or the scammer decides they have amassed enough funds. At this point, they shut down the investment platform or stop paying out the profits and the initial investments. 

These scams are purely based on marketing hype and always promise enormous returns. Typically, a network of insiders promote the scamcoin on Telegram or other social media platforms and share fake results to lure many unsuspecting investors as quickly as possible. 

Rug pull scamcoin

A rug pull is a crypto scam where the coin developers suddenly abandon the project and disappear with investors’ money. It often happens on decentralised exchanges where the scammer drains a coin’s liquidity and renders it useless. 

First, the scamcoin creators would get a coin or token to trend on Twitter or TikTok to create a false image of it thriving in the market. Users then buy and deposit the token and a genuine coin, like Ether, in a liquidity pool. 

Users hope that the token’s price will increase and they can trade it for more Ether. But, the scammers drain the ETH liquidity of the pool using a backdoor code in the smart contract, leaving investors with worthless coins.

How to detect scamcoins

Scamcoins creators often target people who want to get rich quickly by investing in crypto. While some crypto may yield good returns, they are not get-rich-quick ventures. 

Always be patient and do your research to avoid investing in a scamcoin. Be careful to follow the following tips: 

  • Investigate the website and token whitepaper of the crypto project to see if it is legit. A legit crypto website and whitepaper are well-written and informative. 
  • Do not invest in a crypto project if the whitepaper is too technical and confusing. 
  • Never invest in crypto with money you cannot afford to lose. 
  • Do not believe every social media post that promotes a coin. 
  • Do not believe promises of return that you know or feel are too good to be true. 
  • Lastly, do not share your private keys or wallet addresses with anyone. It is safe to store them offline where hackers cannot steal them.

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