The motivation of many people is money. Whether this is good or bad, I want to leave open. This can be discussed for a long time - but in many cases it is fact. And just this desire (you could also say greed) for fast money has already cost many people enormous sums of money - invested in scam projects - cost. In many other cases, it is not the greed but the hope "to make more of your life, to become financially free and live a life others only dream of." No matter how we turn the tide, the story is always the one same:
Make a person feel more out of their lives. Give him the feeling that everyone but everyone can realize their own dreams. Because with the right network, perseverance, discipline and, of course, the right 'business' anyone can do it.
Several years ago, the term "Exit Scam" was influential and almost synonymous with the crypto industry. We are talking about a time about 2-3 years ago when the market was full of cash grab companies that might have looked good on paper but had little to no substantial value behind them. We're talking about companies like Bitconnect or OneCoin, which lost millions and billions of investor money. And we also talk about companies like Plus or CloudToken who are still trying to do so today.
So with today's Scam Guide, we'd like to give you a sneak peek of the hottest Red Flags that you can use to explore new projects. Even if the article is a bit longer, it is worth reading until the end, so that you make no mistakes on your next investment!
Scam alarm - how it all started
Let's start with the notion of exit scams: in the basic sense, an exit scam is a fraudulent system in which the organizers disappear after an initial ICO (or a permanent pay-in wave through MLM) with the funds of investors, after already a considerable sum of money was acquired.
To quantify the term "sizeable amount of money", a small example: the plus token scam alone cost investors more than $ 3 billion.
Bitconnect and OneCoin as Scam pioneers
Other notable and prominent examples include Bitconnect and OneCoin, the former case being probably the most famous Altcoin scam ever made. Alone through Bitconnect investors lost more than $ 3 billion - the mesh was similar to the actions of some well-known companies currently on the market: a one-time investment is rewarded with (guaranteed) high returns and interest rates. We are talking about 5-10% per month, So let's assume 10 percent interest a month - so a system can repay the money paid back to the investor for at least 10 months until it needs fresh money for the first time. This fresh money in turn can now be the paid-in money of other members. With this simple trick, companies can easily finance themselves over a period of several months (up to years).
Already here everyone should pause for a moment and ask themselves the following question:
Would you a stranger on the street whose home address and name you do not know (= no imprint) 100 euros in the hand press when he tells you that you not only get a brilliant pen, but he rings every month with you and you pay back 10% interest. If you support him to recommend pens for 100 euros, '(after all, you do that with cinema visits too) then you get 15 euros on top. Awesome, right?
Not? You have no interest in that? Phew, luck!
After this short introduction we would like to take a look at the Red Flags and start with our Scam Guide.
Scam Guide - Important Red Flags
The principle behind an exit scam is relatively simple. First of all, the executives (also called founding members) launch or suggest a new crypto platform / software / technology based on a promising concept. Now there are exactly two ways to raise money:
Execution of an Initial Coin Offerings (= ICO). This type of fundraising is actually passé since 2017. The negative experiences have made many people startled and deleted the term ICO from the vocabulary of many scammers.
Marketing the product through multi-level marketing. No, MLM is generally not a scam. It is a (legitimate) special form of direct selling. Often (but not always) MLM is the sales strategy of Scam companies.
The reasons for multi-level marketing are manifold:
Passing on the risk to many 'small business owners' and individual distribution partners
fast and efficient development of a large sales structure
'Fair pay' -> who does nothing, does not deserve anything '
Collecting high sums by the principle, small cattle also makes crap
'Experienced' networkers already have a large network and know how acquisition works
Giving opportunities through active participation opportunities in sales
Now that sufficient funds have been collected, the sham operation is maintained for a few months and finally closed. The investors have lost their money and the 'leaders / leaders' are living with the collected money. However, on the way there are usually a number of red flags (so-called red flags) that investors should look for. Let's take a look at these:
Scam Note 1: a missing / bad whitepaper
A new technology, a new system or a new coin is touted. The first question that should be asked is: Is there a white paper (as usual in science) that describes the ideas of the system or coin? What about the token metric, for example? How many tokens will exist and how accurate is the distribution? Other questions include: What percentage of the start-up team and how much is distributed to the investors? Is the roadmap of the coming months visible and realistic? These are all questions that you should ask yourself.
Yes and if there is no whitepaper? Then often only the 'transparent' business presentations of the competent sales partners, who can draw on many years of know-how in the IT and blockchain industry, help. (Careful, irony).
Scam Note 2: Unrealistic Profit Promise
This Scam Note # 2 is probably the point at which most people are lured: the promise of high profits.
In short, a company that promises you guaranteed high interest income is mostly fraud. For example, after its launch, Bitconnect promised its regular customers a 1% daily return - a figure that would turn an initial investment of $ 1,000 into just over $ 50 million in just three years.
Ethereum co-founder Vitalik Buterin pointed out at that time already that it is a Ponzi scheme. Rightly so, because within a few months BitConnect closed all its services and websites, resulting in a total loss of investors. As I mentioned in the introduction, such systems can theoretically only exist for a few months (at worst a few years).
Ben Samcho, the CEO of the Israeli platform CryptoJungle, summarized this pretty well:
Do a proper search. Do not blindly believe that someone guarantees you 6-8% per month. Are you looking for the basics and the proofs: Are the given partnerships really real? Over what period of time could the promised profits be paid? In addition, you should be extra careful with MLM systems that pay out commissions on multiple levels.
Scam Note 3: the team behind the project
Already in 2017, a number of ICOs were able to collect significant amounts of money from investors, although the organizers did not provide any specific information about the actual management staff of the project.
Often, the scammers were so brazen that images and their identities were copied and adopted by various social media platforms - fictional CEOs that did not exist. On the other hand, one should always be alert when there are indications like these:
Internet searches show no results for the management
there is little information about the founding members
the founders are touted as 'holy' and are the non-plus ultra
Scam Note 4: (k) a working product?
If a project can not show a marketable product, but only a prototype, then general caution is required. Because an investment, as an expression of the expectation of the future, always involves risk. However, most scam companies already have (k) a working product - at least that's how it is faked.
As I explained in the introductory section, interest rates of 6-8% can be paid out mathematically without any problems over a period of at least 12 months. From the moment that a single-time investment has paid off, the fresh money of the new customers is used.
A supposed 'live demo' of an arbitrage software or the like is therefore no guarantee for a functioning system or even a proof. Such a promise of return in combination with a company that is still extremely young is called danger in the square. A short thought experiment on this:
6 to 8 percent guaranteed per month: why borrow?
Let's say that a company has programmed incredible arbitrage software and has $ 50 million in equity capital. In addition, we expect a promised return of 6 to 8 percentage points per month. If the software works as stated, the program would generate $ 3-4 million each month. Let us now consider the following scenarios, which may result from the initial situation:
The company has no interest in getting more investors on board, as it generates $ 3-4 million each month.
The $ 50 million was not equity but debt needed to develop the software. The company has no interest in getting more investors on board because it repaid the borrowed capital after about 12 to 18 months (= break-even point) and now generates between 3 and 4 million dollars a month.
The company needs (for whatever reason) further capital. With 6 to 8 percent guaranteed, it seeks accredited investors who are just waiting to invest their millions profitably.
The attentive reader may well realize that in all three of these scenarios, no private investors and especially small investors are needed. The message behind it: no reputable company with such a 'return system' needs retail investors. It either does not need any outside capital or obtains this from a few, few major investors.
Scam note 5: no imprint
Last, but not least the classic among the scam projects: the missing imprint. From the mouths of the scam promoter I hear the following phrase already sounding:
The company has its headquarters but not in Germany, but on the Virgin Islands. This has tax reasons and the imprint obligation exists only in Germany.
This is basically completely correct and I do not want to contradict it in the first place. However, it is also clear that without a legal notice, a private investor can not find out more about the management or its headquarters. In other words, the investor trusts 100% of its upline and its promises. Legal claims can not be asserted under any circumstances and so with the missing imprint the last piece of puzzle fits.
With today's (detailed) Scam Guide we want to give you a good overview of the Red Flags. We want to protect you from scams and sharpen your senses for any projects.
