We have already discussed what to pay attention for when investing, how to choose an altcoin, and how to spot a fake team. But crypto hunters—fraudulent projects — as well as useless coins are just waiting for investors at every step. How to know that something is wrong a mile away or at least to throw out a shitcoin that accidentally got into your portfolio before it starts stinking too much?
In May, the U.S. Securities and Exchange Commission (SEC) tried to remind people about the risks of ICO investments by launching its own "fraudulent ICO,” HoweyCoins. The token was named after the Howey test used in U.S. law for identifying securities.
The organizers of HoweyCoins emphasize the advantages of combining blockchain and tourism, and, at first glance, the project site looks transparent and informative. You can find there an eight-page white paper, all the "necessary" team members, including CEO, developers, head of legal, head of partner development, and head of PR and marketing. On the top of the main page, a countdown for the presale with a 15 percent bonus is launched (it is constant at 14 days 22 hours, only the minutes and seconds change). The project site even contains reviews from celebrities that are so "loved" by the commission.
After clicking on the "buy coins" button, the user enters a page with the regulator's warning revealing that it is a hoax: "If you responded to an investment offer like this, you could have been scammed. HoweyCoins are completely fake!" writes the SEC, pointing to the following signs of a fraudulent offer that may be found in HoweyCoins:
Claims of high guaranteed returns;
Claims of SEC's approval;
Buying tokens with a credit card;
Presale, which is likely to lead to a pump and dump scheme.
"Fraudsters can quickly build an attractive website and load it up with convoluted jargon to lure investors into phony deals. But fraudulent sites also often have red flags that can be dead giveaways if you know what to look for," said Owen Donley, Chief Counsel of the SEC’s Office of Investor Education and Advocacy. By the way, Donley appears on the fraudulent website as CEO and chief architect of HoweyCoins under the name of Josh Hinz, which is also a ploy often used by scammers.
On All Sides
Even if you learn to masterly single out fraudulent projects, these are not the only dangers that lie in wait for an investor in the vastness of crypto space. As noted by ICO advisor Andrey Sergeenkov, "ICO investor’s risks are not only those of getting into a fraudulent venture, but also a chance that the project will never become workable and popular, and you end up with nothing but trash tokens."
The organizer of the Useless Ethereum Token ICO openly stated: "You're going to give some random person on the internet money, and they're going to take it and go buy stuff with it. Probably electronics, to be honest. Maybe even a big-screen television. Seriously, don't buy these tokens." This did not prevent useless tokens from collecting 310 Ethers in July of last year (about $65,000 at that time). "Enough to buy 61 TVs," as written under this amount. "I had a feeling someone would waste their money," the project creator wrote ironically.
Not everyone is so honest with their investors. In June, Michael Rosenblat and Aaron Pardes, the CEO and CTO of Tradenostix, a platform for crypto traders, launched a funny site called "Do I Own a Shitcoin?" You can typr a coin ticker in the search box, and you'll see what the site's authors think of your investments.
BTC (Bitcoin): "Is this a serious question? Bitcoin is king. Bitcoin is gold. Bitcoin is God."
ETH (Ether): "Praise Lord Vitalik and his creation. Might be a shitcoin one day, but HODL for now."
It is worth noting that the estimates are not updated depending on the events in the market and at the time of the site's launch, Ether was trading at around $500. Unfortunately, since that time it's highest price was $538, and by now, it has fallen below $200. So, probably, if the creators had actively maintained the site, they would have adjusted the forecast or would have noted that the aforementioned "one day" has already come.
BCH (Bitcoin cash): "Definitely not the real Bitcoin, but a competitor (mid to upper-tier shitcoin)."
EOS: "Mid-tier shitcoin, mainnet launch was delayed due to vulnerabilities. Let's see how they do." Since June, EOS has also changed a lot.
XRP (Ripple): "Do you like centralized 'cryptos'?"
LTC (Litecoin): "This is a fast shitcoin . . . may as well HODL."
USDT (Tether): "I mean . . . this is kind of shit. Trade with real USD if you desire . . . "
ADA (Cardano): #HODLGANG . . . solid tier shitcoin right here! Until people make scam ICOs on top of it then dump to crash price."
OMG (OmiseGo): "Shitcoin, but HODL it . . . why not? You are holding shitcoins anyways."
DOGE (Dogecoin): "Such shit, very coin, but HODL for that yearly pump."
The site does not have individual descriptions for every coin. The same descriptions are displayed for some tickers, and they change several times as the page is updated, for example:
ZEC (Zcash), DASH: "It's not Bitcoin, but we're hopeful for the future," "You chose wisely.” But sometimes Zcash is also described as: "That's some solid shit right there."
XEM (NEM), ETC (Ethereum Classic): "Not bad," " Good job! You selected a top-tier shitcoin, not a shit-tier shitcoin," "You chose wisely," "Hodl that shit."
BCC (BitConnect): "Sell this shitcoin and start over," "This is pure shit," "You chose poorly," "If this was an actual shit, it would be violent diarrhea," "You made a shit decision," "Supershit,” and "Megashit."
DGB (DigiByte), BCD (Bitcoin Diamond): "HODL!!!" "HODL this shit," "Not bad," "You chose wisely," "It's not Bitcoin, but we're hopeful for the future," "That's some solid shit right there," and "Good job! You selected a top-tier shitcoin, not a shit-tier shitcoin."
In a discussion at Reddit, Rosenblat noted that the project got a lot of engagement and they also decided to make an email list to "actually inform people about coins." On the site, you can leave your email and subscribe to receive news.
To Live as a Scam, or to Die as a Good Coin?
Another "explorer" of questionable projects is the site called Dead Coins. Coins there are divided into four sections: "deceased," "hack," "scam," and "parody."
The latter include TheresaMayCoin, MtGoxcoin, SilvioBerlusCoin, Mariocoin, Boringcoin, Obamacoin, Thesmurfscoin, Lebowskis, JesusCoin, Trollcoin, Vodkacoin, WeAreSatoshi, Scamcoin, Asscoin, Sexcoin, CryptoMeth, and HoweyCoins.
More than 680 "deceased" coins belong to projects that deleted their sites, stopped communicating with the community, whose developers disappeared or the token price dropped to zero. At the same time, they were not necessarily scams, as some of them simply could not successfully develop the proposed idea into a working project due to technical or financial issues.
The "hack" section contains a less number of coins — just 12. These include the projects that were hacked, but in most cases, these are projects with malicious software. That is, users downloaded an official client that stole money from their wallets (projects like Oreocoin, Thecoin, TraderCoin, YinYuanCoin, JunnonCoin, MouseCoin, Chichicoin, and CopyCoin).
Finally, about 200 projects are collected in the scam section. And, unlike the "deceased" that have already harmed users and are at rest, many fraudulent projects represented on the site are still live (Vyigrat, Zerocoin, ZECD, Commodity Ad Network, FuturoCoin, Farad, PM7, USI Tech, VeroCoin, Aladincoin, and PIP). This section represents the greatest practical benefit, and among other steps for proving the project's transparency, the investor can enter the name of a project on the site and find out if the coin they liked is on the scam list.
While many traditional companies are trying to get their minute of glory by carrying out "blockchain rebranding" (Riot Blockchain, Long Blockchain), then fraudulent crypto projects try to cash in at the expense of the name of the major players in the cryptocurrency industry. The Kraken project included on the Dead Coins scam list has nothing to do with the popular exchange. The site reports that the developer of the project stole the coins through a swap process, whose participants, as expected, received new coins, but they had no value. The developer "did not contact the exchange to swap the coins and closed all the communication channels making off with the swapped coins." At the same time, the site of the project is still up and running.
Ben Davenport, a co-founder of blockchain security startup BitGo, has resently publsihed "The 10 Shitcoin Commandments":
Shitcoins can’t buy happiness. Or, in the long run, anything else.
There’s a shitcoin born every minute.
If you have to ask if your coin is a shitcoin, it’s a shitcoin.
A shitcoin saved is worthless.
A fool and his shitcoins are soon married.
If you can’t identify the shitcoin-holder in your first 30 minutes at the table, check your portfolio.
Better to remain unlaunched and be thought a shitcoin, than to launch and remove all doubt.
Only other people own shitcoins.
You can rail against shitcoins all day long and offend no one, as long as you don’t name a specific coin.
BCH is a shitcoin.