The technology behind cryptocurrency and blockchain offers so many world-changing possibilities, and there are many ways companies can use the technology for good. Frustratingly, some persist in using the technology to perpetuate scams. Today, we cover two of those scams and give viewers a few tips on how to spot scam companies and scam coins in the future.
Highlighted this week are two companies making the news for all the wrong reasons: Bitconnect and USI Tech have both collapsed after allegations of fraudulent activity.
Both companies fit the definition of a Ponzi scheme: i.e. “a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading.”
Bitconnect and USI Tech both promised insane returns and unrealistic gains via automated trading and cryptocurrency mining. These promises, with no regard to the actual market price of cryptocurrencies, should have been an immediate red flag.
In addition, Bitconnect and USI Tech took custody of people’s currency, defeating the entire purpose of cryptocurrency and blockchain technology, which entails a trustless system.
It is unfortunate that many people were introduced to cryptocurrency by way of scams, so it is important to learn how to spot fraudulent schemes as well as how to recognize valid projects. Unfortunately, events like these are what usually precede government regulations, which can in turn block real, valid uses of the technology.
When you try to find new projects or coins to support, Mark recommends asking yourself the following questions to see if any red flags pop up.
- What do the influencers say?
- What is the company trying to do? (And are they holding your money hostage to do it?)
- Google them.
- Research on GitHub (for a more technical look at their history).
- Who’s on their team?
For more news about cryptocurrency, profiles on (legit) companies, and all your Bitcoin questions, join us each week for Ask Doctor Bitcoin.