How to spot and prevent Token Scams ? A Complete Guide

How to spot and prevent Token Scams ? A Complete Guide

What is a Token?

Crypto tokens are digital assets based on some other coin's blockchain. A blockchain is a digital ledger that stores data in linked segments. This data can be in the form of transaction records or smart contracts, which are full-fledged programs that run on the blockchain. When a cryptocurrency's transactions are confirmed, for example, they are collected into a block, which is subsequently added to the blockchain. When a cryptocurrency doesn't have its own blockchain and instead relies on the blockchain of another cryptocurrency, it's referred to as a token.

How do tokens work?

Each cryptocurrency token represents a traded product. Coins, Points, certifications, in-game items, and so on are examples of this. This means crypto tokens can be used to represent a company's shares or central committee voting rights. They're regularly used to boost income in crowd sales. As a result, they're sometimes called cryptocurrency assets, crypto assets, or crypto equity.

A digital token's creators can choose whether or not to put it on a cryptocurrency exchange. Users will be able to buy and sell the token in this manner when the initial coin offering has ended. Tokens issued by the Ethereum Code maybe frozen in the event of a hack or government action. This means that until the unfreezing occurs, no cryptocurrency tokens can be moved.

Types of scams: 

Demanding Crypto-Only Payments:

If a seemingly trustworthy person or retail establishment claims that they don't accept any currency other than Bitcoin or Ethereum, it's almost certainly a hoax. Because bitcoin and other altcoins are such a new asset class, analysts predict credible banks will only accept crypto if they also accept US dollars via wire transfers, checks, credit and debit card payments, and cash.

The Exit Scam: 

When an insider raises funding for a project and then closes or departs the enterprise with that cash, this is known as an exit scam. As a result, the investor is left with a bag of tokens that have no intrinsic value. This can happen with either a token initiative or a fund-raising exchange.

Ponzi scams:

The revenues from new investors are used to pay existing investors. To attract new investors, cryptocurrency scammers would use bitcoin as a bait. It's a circling scheme because there are no real investments; it's all about luring new money into the plan. The promise of large riches with little risk is the core allure of a Ponzi scheme. These investments, however, are always risky, and there are no guarantees of profits.

Fake cryptocurrency exchanges:

Scammers may entice investors by promising a fantastic cryptocurrency exchange, as well as additional bitcoin. However, there is no exchange in reality, and the investor does not realize it is a scam until after they have lost their money. To avoid an unfamiliar exchange, stick to well-known crypto exchange markets. Before providing any personal information, do some research and check industry sites for specifics on the exchange's repute and legitimacy.

Initial coin offering (ICO) scams:

The crypto equivalent of a stock's first public offering (IPO) is an initial coin offering (ICO). An ICO can be used by businesses to obtain cash for a crypto project, such as a token, software, or related service. The investor obtains a new issuance of coins in exchange for pledging funds.

Traditional theft and hacking:

Crypto markets have certain distinguishing characteristics when compared to regular asset markets. To exchange bitcoin, you'll need a crypto wallet, which might be a digital or physical device. Both public and private keys are stored in these wallets. The former is a public address that maybe used to deposit cryptocurrency into a wallet, similar to how routing and bank account numbers can be used to make direct deposits.

How to avoid scams? 

Here are some simple criteria that investors can use to distinguish between fake and legitimate tokens,

Look for the project's website and whitepaper: 

This is the most reliable way to tell if the cryptocurrency you're investing in is legitimate. Every token has a whitepaper that explains all of the underlying foundations and technologies that went into the creation of the blockchain that supports it. It can be accessed on the blockchain developer's official website.

Track the creators: 

It's crucial to learn as much as possible about the people behind the scenes. There should be enough information about them on social media. There are reasons to be concerned if the creators are unknown.

Be wary of fakers: 

The value of well-known figures' consultants is generally understood among investors. Scam artists frequently create fake videos portraying well-known people and fool investors by providing false information. In such cases, delving further is frequently advantageous. To confirm the accuracy of the information, investors should trace it back to its source.

Be wary of claims of high profits in a limited time: 

Among investors, the worth of a well-known figure's consultancy is well appreciated. Scammers frequently make fake movies of well-known people in order to deceive investors by offering incorrect information. In such circumstances, digging further is frequently beneficial. Investors should follow the material back to its source to ensure its correctness.

Keep an eye on the URLs: 

The majority of fraud incidents involve untrustworthy websites. It is hazardous to visit a website if the lock icon does not appear in the address bar next to it. Also, make sure the URL is using 'https' rather than 'HTTP,' as the latter is insecure. 

Conclusion:

Some websites provide all of the publicly available information required to validate the legitimacy of a tokens. Make it a point to see if it's trading on any of the major exchanges, as they do their own due research. It may take longer to take a cautious approach, but it could save your life.

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