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Pretty much any new cryptocurrency can be a time bomb - there is no way to predict its exchange rate or find out how committed its developers are, let alone figuring out if there are any backdoors in the code.
Cryptocurrency world looks like a New York’s exchange in old movies. A giant room filled with screaming people. Even experienced users who are involved with crypto long enough find it hard to navigate through all this information. Pretty much any new cryptocurrency can be a time bomb - there is no way to predict its exchange rate or find out how committed its developers are, let alone figuring out if there are any backdoors in the code.
So the question is: is it worth investing your resources in these cryptocurrencies?
Miners and traders are the primary players on this oversaturated market and in most cases also are the early adopters and the first missioners of a currency. They create buzz about the cryptocurrency which leads to increase of its hashrate and exchange rate. Miners and traders have vested interest in popularization of the currency therefore spreading the word and attracting new users for them is crucial.
Some of these people are hawks looking to skim off easy profits; others are in it for the long run aspiring to become coin millionaires in a few years. Whatever the case, all these people are in need of reliable information which they are trying to find on specialized forums.
Tech-savvy con artists have long since figured out the ways to scam unsuspecting users and are also well aware of these forums. Not bringing in anything new they use functioning out-of-the-box solutions to lure their victims under the pretense of launching a unique cryptocurrency. Open source is a cornerstone of any given coin and that’s why the original technology can be easily replicated and put to use with marginal costs.
Scammers are usually great at finding out new trends. Oftentimes, while average Bitcointalk user is just getting to know a new technology, they are already busy kicking off a new fork. New coins are being launched every day and over 50% of them are a scam.
The best defense against a virus infection is a timely vaccination. Listed below are common signs of a fraud:
While Darkcoin source code had been partially restricted, community engaged in a heated debate about its “true anonymity” and whether it was instamined. The squabble didn’t go unnoticed and within a short period of time some insightful con artists released a “DRK based” coin.
After the first success absolutely identical coins started to spread like mushrooms after a fresh spring rain - x11, x13, x15, Xn coins. All of them were announced as PoW/PoS hybrids. The creator of X11Coin has gone missing 4 days after the launch with the huge premine which he successfully dumped on the first day of trading.
Developer of the FlashCoin deleted all IPO related data as soon as he had gathered 5 BTC. Shortly after getting listed on Bittrex exchange he sold his coins for about 4000 satoshis and disappeared.
One can still find BurnerCoin trade history:
Furthermore, 2 coins from each mined block (during the PoW phase) went to the “developer” through the build-in script embedded in the source code.
Sometimes it seems that people themselves want to be deceived:
There are more coins that are worth having a look at:
Apart from unambiguous scam techniques, all these coins share two common traits: their source code is always placed on the same file sharing system and they don’t have Linux binaries.
The average costs for carrying out a scam is negligible while the profits exceed 20 BTC (~10,000$). One coin that is worth mentioning in particular is AsiaCoin. Duping users into following this coin has resulted in 300 BTC (~160,000$) in profits for scammers.
Looking to capitalize on the ever-so-valued anonymous transactions feature, active members of Coin Mill group couldn’t help but notice CryptoNote. This technology has one key quality; it provides fully anonymous transactions along with un-traceability for the users who make them.
The anonymous transactions feature is in high demand among crypto-anarchists. With different levels of success it has been implemented in a number of cryptocurrencies. Since CryptoNote is open source software, it didn’t take long for coin mills to figure out how to make it serve their own selfish ends. That’s how CN forks were born:
All these coins used same file sharing service; their announcement threads looked alike stressing the slogans such as 'only CPU mining' and ' ASIC resistance.' Also most of their devs used “newbie” accounts. This indicates that the coins were launched by the same group of people. All of these coins were short-lived and the person created them disappeared with the ill-earned money.
At first glance, the scheme was a no-brainer - newbie account, PoW/PoS etc. Still, the idea of a “continental” coin gained a lot of attention.
The coin got listed on major exchanges such as Cryptsy and Mintpal and had been traded for a while with ~2000 satoshi price.
For quite some time nobody had been able to notice a hidden 3 billion coins premine (“developers” did quite a job on this). The premine exceeded the number of issued coins three-fold.
One can only wonder why users who had gotten involved with the coin early kept encouraging other people to invest in AsiaCoin even when the scam was revealed. The answer turns out to be very simple; they got too much of investments in and wanted a no-loss way out.
But because of the inferior code, the coin became the victim of successful 51% and double-spend attacks. Eventually AsiaCoin was delisted from all major exchanges leaving the users with nothing but losses.
Scammers never miss out on opportunities to cash in on prominent technologies and ideas. They exploit someone else’s fame and make money on people’s gullibility. In order to pull that off they act under the pretense of state of the art currency. These charlatans employ the names of well-known projects without making any improvements in the source code, it’s too costly. Their real goal is to create an illusion and get people to believe in it.
One should likewise not rely upon the honesty of exchange owners. Even a major exchange won’t save you from scammers. Exchanges accept any coin they want and simply wipe them out once the pump-n-dump is over. It’s their business. Have you ever seen any kind of criteria for a coin to be listed on an exchange? They are nonexistent.
We must transition from the Wild West market into a civilized one. And now, seeing that the Altcoin hype has cooled down, it should be easier to achieve since the number of paper chasers should go down as well. Be cautious and trade safely.
Finally, not every pump-n-dump coin is planned as a scam from the beginning. Sometimes developers who are trying to create a “new Bitcoin” tend to overestimate their capabilities or lose interest in their project as it progresses. And that’s when they come to the conclusion that it is time to cash out and move on to a new project. From the public’s perspective this kind of coin will look like a typical pump-n-dump despite the fact that developers have planned otherwise.
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