Definition of ‘Scam Coin’ - A scam coin is a fake cryptocurrency that was created to make money for the creator while stealing money from people who supported and invested in the coin.
What is a scam coin?
Scam coin Definition - Scam coin is a fake cryptocurrency created to take the money of those who invest in it. One of the most notable scam coin cases was the Squid Game Token. This cryptocurrency made claims about what users would be able to do with the coin and rose to popularity along with the show it was named after.
However, buyers soon found out that there was no way to sell the coin after buying in. After just a few weeks, the developers pulled the coin down and disappeared with the investors' money.
This is one of the many types of scam coin operations currently out in the wild. They can be difficult to distinguish from legitimate cryptocurrency investments. And due to the popularity of cryptocurrency, the number of scam coins is constantly growing.
Types of scam coins
There are several types of scam coins around today, though some are more popular than others. These scams usually apply historical scamming techniques to the modern nature of cryptocurrency, which can make them harder to spot for the inexperienced.
Rug pulls (a.k.a. fraudulent ICOs)
The first and most prominent type of scam coin is the rug pull. The Squid Game Token mentioned earlier is an example of this type of scam coin. It's when a new coin comes on the market, generates a lot of hype, and then before anyone has time to realize that it's a scam, the developers lock down trading of the coin, take the investments, and disappear.
This tactic is usually paired with an inability to cash out. It's only after investors buy into the coin that they realize there is no way to convert to another coin or back to a fiat currency. This makes it nearly impossible to undo the damage caused by this type of scam.
The way that cryptocurrencies are created is through mining. Mining generally requires a sophisticated computer and a lot of time. The result of mining, however, is whole crypto coins, which can end up being worth a substantial amount of money.
Most people, however, don't have the resources or know-how to perform mining themselves. That's the issue that cloud mining exploits.
Cloud mining scams claim to offer cloud mining services. Assuming this were true, it would mean that you could pay a subscription fee to have coins mined for you. When the coins are mined, they're sent to your cryptocurrency wallet.
Of course, this isn't what happens. The scammers do little more than create a website and take payments, never delivering on their promise and eventually disappearing before attracting too much attention.
As cryptocurrency investors will know, investing in cryptocurrency requires that you have a cryptocurrency. This wallet stores access to your coins, similar to a real wallet or debit card.
Because there is limited regulation at best over who can create and manage cryptocurrency wallets, scammers will create fraudulent wallets. These wallets either don't exist, so you're just sending your crypto to the developer, or they're not private, so the developer can see your information and take your coins.
How to spot cryptocurrency scams?
Unfortunately, it's often the case that victims of scam coins only find out that they've become a victim after it's too late. And there is little recourse when this does happen in most cases. To avoid being scammed, you can look for some of the following hallmarks of a scam coin.
One of the fastest ways to check if a cryptocurrency is a scam coin is to look at the attached materials. Scammers will rarely go through the trouble of creating their documentation and legal writings, especially since that could risk leaking information about their scam.
Instead, they'll copy existing materials from other coins. If you find that a cryptocurrency coin is using materials from another coin's documentation or that the documentation is templated, then there's a good chance that this is a scam coin.
A push to persuade others to invest
Another easy way to spot a scam coin is to beware of referrals. Scam coins will often offer rewards for referring others to the cryptocurrency as well as publish push notifications and advertising campaigns to bring others on board.
This is usually in an attempt to involve as many people in the scam as quickly as possible. Avoid cryptocurrency investments that use these tactics.
Bitcoin investment packages
A less common (but still prevalent) type of scam coin is the Bitcoin investment package (or "BIP"). BIPs offer an investment in Bitcoin that pays returns periodically, usually weekly or monthly.
This can seem appealing to those who only want to use cryptocurrency as a means of acquiring extra cash quickly. However, these scams are just using the money from new investors to pay existing investors most of the time, and eventually, when new users stop joining, they take their money and leave their investors behind.
Too good to be true
The last way to check if a cryptocurrency is a scam coin is to ask yourself if it seems too good to be true. Cryptocurrencies can be a great investment, but the odds of it being a guaranteed life-changing investment are slim at best. Any cryptocurrency making guarantees or promises that seem extraordinary are likely to be scams rather than stable, reliable investments.
How do scam coins work?
Scam coins work by convincing people to invest in a cryptocurrency that isn't real or will be removed from the market shortly. The money is taken by the developers, who disappear before the scam garners too much attention.