A few years ago, the term Exit Scam was coined with the crypto industry. This happened when the market was largely filled with investment programs that looked great on paper and attracted people’s money but didn’t actually have intrinsic value or were much less valuable than it was written on paper.
Exit Scam Nightmare
Exit scam in its fullest sense can be seen in a scam scheme in which the organizers of an ICO or similar fundraiser disappear after collecting substantial amounts of money from investors. During November 2017, when the crypto market was at its peak, the owners of a third-party cryptocurrency-based startup named Confido disappeared overnight after collecting substantially $175000 worth of their supporters. As a result, the volume of Confido-related and CFD-enabled crypto market jumped from $6 million to under $ 70000 in just seven days.
Other highlights include Bitconnect and OneCoin, the first one being perhaps the most famous of all Altcoins scams ever. These frauds each cost more than $ 3 billion to beginner investors, and the native Bitconnect token, BCC, was even among the first 10 cryptocurrencies in terms of market volume.
So in order to gain a better understanding of exit scams and their awareness, the Cointelegraph News Agency organized a conversation with Ben Samocha, founder and CEO of Cryptojungle, which is an Israeli pioneer digital platform for practical and detailed guidance. According to him:
“You will never know exactly when these things are going to happen. For example in the case of Bitconnect, I never imagined they would continue to work so long and I thought they would disappear much sooner”.
Concerning how investors evaluate when Exit Scam is likely to be, Samocha noted that actively pursuing project information such as confirmation of partnerships, certifications, etc. by following the company’s blockchain wallets and their level of media involvement will be very helpful. For example, if the project’s online media outlet suddenly drops or stops one or two months after its emergence, this can be considered as a definitive sign that something suspicious is happening.
Clear warnings that should be considered abot Exit Scams
The principle behind an Exit Scam is quite simple. Initially, promoters launch or propose a new cryptocurrency platform based on a satisfying concept. Organizers will then be able to raise significant amounts of money through the ICO, and then they will escape and leave investors in this difficult position. Along this route, there are warnings that investors should consider. Below are some prominent examples in this area:
Exit Scam Warning | Low-quality white papers
Many Exit scams have whitepapers that are not well researched and of poor quality. For example, they may have sections that have been copied directly from other projects or maybe full of spelling and rules errors.
Exit Scam Warning | Unrealistic forecasts about profitability
Another definitive sign of a project being suspicious is that it has some bizarre claims about its financial performance. Bitconnect, for example, promises a 1% daily income as soon as it emerges that its profits will turn a $ 1000 investment into just over $ 50 million in exactly three years.
Vitalik Buterin, the co-founder of Ethereum, strongly criticized the Bitconnect project at the time, calling it the Ponzi scheme. Vitalik’s forecasts came true, and a few months later, Bitconnect shut down all its lending and trading services, leading to a projected market decline of $ 2.7 billion in December 2017; to $ 17 million at the end of March 2018. Samocha notes that:
“Do your research properly and do not believe false promises without backing, such as a 6% profit guarantee. Look for basic principles and evidence. Do they claim to participate? Ask for transparency, get close to your partner and confirm. In addition, be very careful of MLM models that have several layers of benefits. This means that you get a commission not only from the people you nominate but also from the people they nominate”.
Exit Scam Warning | Team Details
In the year 2017, a number of ICOs were able to raise substantial amounts of money from investors, while the organizers of these ICOs did not provide any tangible details about the project’s key personnel. In addition, a number of past projects have used the likes, tweets, and followers on various social media platforms to increase their online credibility. Therefore, it is very important for people to research the sponsors and promoters of a particular ICO that they are interested in.
Exit Scam Warning | Lack of a working product
If a cryptocurrency project has only theoretical support and does not have a working model, it is likely that the final product that is being imagined will never be created. It is true that a number of technologies have been developed without any background, but in the case of crypto, any pioneering idea should ideally be supported by several functional platforms at the time of fundraising.
How best to avoid exit scams
By now, it’s clear to you that most crypto scams are focused on an ICO. But note that in the past there were more complex cases, such as Bitsane, a fraudulent venture that operated for several years before it closed.
To better understand some of the security aspects of exit scams, Cointelegraph arranged a conversation with Koinly, a tax calculation and tracking platform for crypto portfolios, founder Robin Singh. Concerning security, he said:
“When investing in a crypto product or company, you need to research like other investments. Do you understand the product? Can you confirm the numbers displayed by the promoters from different sources? Do you see evidence of demand for this product? Is the team behind this product real? Most fraudulent companies use LinkedIn accounts to evade accountability, and it’s always a good idea to verify their existence”.
He also points out the following aspects and believes that the following are generally useful to crypto investors:
Investors need to be sure that they are offered a certified and practical product that has already attracted some popularity.
Investors should avoid investing in a purely theoretical product with a multi-year roadmap.
Investors should keep in mind that although the sense of global investment is diminishing after the emergence of an Exit Scam, people are still eager to invest in Bitcoin, and the price of $ 10000 recently has confirmed this.
Nischal Shetty, Managing Director and Founder of WazirX, India’s largest digital currency exchange, similarly noted that when investing in an emerging cryptocurrency project, the most important thing to keep in mind is whether the founders have a good track record or Not.
In addition, potential investors should look for project founders on Twitter, LinkedIn, and possibly Facebook, to see if they have been active in the crypto area for at least a few years. In addition, on what the victim of an Exit Scam has to do, Shetty told the Cointelegraph:
“Filing a complaint with your country’s cybercrime department is a good start. The cybercrime team can track the location of such fraudsters. If the fraudsters are clever, they will often use techniques that allow them to remain anonymous or that they will use a different identity. The best way to control this is to make sure there is enough general information about the founders. Founders who have a good social standing do not commit fraud, and even if they do, it will be easy to prosecute”.
Ultimately everything comes back to the right judgment
It must be perfectly clear to you that the security of your financial assets is entirely your own. Making money through crypto trading and investing requires a good amount of effort from the investor, so investors should always research well and get the tools they need before embarking on specific crypto projects.
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