Fake Coin: how to distinguish real blockchain projects from fraud

The builders of the financial pyramids of our time quickly grasp any changes, and they could not miss such a prospective cover for the usual business, like crypto-currencies. One by one began to appear questionable projects, supposedly related to the technology of blockades. The growth rate of bitcoin against the dollar from $ 420 in April 2016 to more than $ 2,300 this summer served as a catalyst for the process. In a fast-growing market, any new ideas automatically receive credit from inexperienced users.


A great role here is played by the complexity of technology. Try to explain in a few words the principle of bitcoin, without resorting to technical terms and flowcharts. However, scammers do not try to do this - their goal is not to scare off potential customers, but to show them a simple way to earn quick money. Anonymity of transactions and gaps in the legislation also simplify the work of the creators of the next "currency of the future" and other "revolutionary financial projects".

Although the technology is new, the methods of work for scammers remain the same. Conventionally existing scam projects (from the English scam - "fraud") can be divided into several main groups, in order of increasing complexity for their identification.


The first of them and the most simple to define - a group of projects with MLM-component. The main method of raising funds for such projects is network marketing and a multi-level referral system of rewards to participants for attracting new investors.

In fact, such projects simply changed the usual sign of "successful business", which provides high profitability, for the role of a block-project, which allegedly earns thanks to the growth of the crypto-currency market. Sometimes projects release their coin-token (coin), sometimes simply limited to numbers in the client's browser. At the same time, the project very rarely has its own blockade and any developments in this area.

We must understand that it is unlikely that a serious high-tech project will base its progress on local offline events and, even more so, use them to raise funds from participants in such lectures and seminars, but ordinary citizens do not pay attention to it.


The second extensive group is the projects for the so-called cloud mining, crypto-currency. A short excursion into the technology of blocking - for the majority of crypto-currencies, computer capacities are required that perform the functions of storing the chain of blocks and processing transactions. For this, the owners of such capacities, "miners", receive a certain reward in the form of the crypto currency they support.

Projects of cloud mining offer to rent for a fee some virtual capacity and promise to pay a part of the income, which in theory should recoup your initial investment in n months, where n is usually more than 12. Some projects may also have a referral system of rewards. Not all projects for cloud mining are skam, but you can only trust those of them who convincingly confirmed the existence of working equipment for mining.

A rare positive example is the mining pool, which is listed as a partner of the Bitfury project, one of the largest companies that manufactures specialized ASIC chips and provides about 10% of the world's bitcoin mining capacities. Calculation on the pool site with an investment of $ 1000 shows a return of about $ 56 per month, which means a payback period of about one and a half years. Mythical 20% of the month most of these projects actually turn out to be a pyramid.


The third group includes projects that seriously approached the issue of creating a suitable legend, and also spent certain resources on the development of their own detachment. For a layman, such projects will be difficult to distinguish from industry leaders and determine their real value. Their creators expect to earn on the withdrawal of the project on the ICO and subsequent speculation with their own tokens on the crypto-exchange exchanges that will agree to their listing.

In general, such projects may differ from just unsuccessful start-ups that could not "fire" for various reasons, only the initial intention of their creators to appropriate all the collected funds. A quite reasonable question arises: how can we distinguish the standing project from the financial pyramid in this case?


To begin with, let's make a reservation that under normal block projects we mean projects that do not have as their primary goal the withdrawal of money from their users without providing in return adequate amount of the contribution of services, services or assets.

At the same time, no one guarantees a multiple increase in investment. So, the main points to which you should pay attention to the investor - the project team, the main idea and confirmation from reliable sources.


It is the team that stands first among our main signs of a good project. Behind any project, one way or another, there are people who realized their idea into something more or less working and submitted to the court of users. Personnel decide a lot, especially in such a difficult from a technical point of view, as a block.

Well, when the founders' identity can be easily identified, and their past - work experience, education, participation in other projects - is also on the surface and is easily detected in search engines. In the case of some services, this alone would suffice to make the right conclusion about the appropriateness of investments.

It often happens that the personalities of developers and managers remain in the shadows or their personalities do not say anything at all about their qualifications and abilities for the development of the project. In our case, the lack of a dark past for project managers can be written in pluses and move on to other signs.


The main idea of the project is reflected in its marketing company and should be written in large letters on the homepage of the official website and detailed in a document called White Paper. This is a short and understandable answer to the question "What does your project give me?".

If the answer sounds like "20% of the contribution per month" or "45% of the referral reward", then you can not read further. The project, which puts first the most rapid attraction of money and whose whole idea revolves around the redistribution of these investments, in principle can not produce a large added value, than the amount of contributions of its participants.

To simplify the perception of all projects in the field of blockbuster can also be divided into three groups. The first group creates value for a wide range of private users, has a simple and intuitive interface and is reflected in the existing technology, making it cheaper, faster or more reliable. This group includes bitcoins, the main value of which is fast and secure transactions with low commission.

The second group includes projects for business that improve the efficiency of processes within companies. This includes various types of private blocking platforms, such as HyperLedger or Masterchane - a prototype of the block-based service based on Ethereum, created by a group of Russian banks.

The third group includes innovative projects, which in the future can lead to fundamental market changes, but require coordination between a large number of stakeholders, including at the state level. Their adoption will require serious social, legal and political changes. This group includes smart contracts Ethereum, which in the future could make unnecessary the work of lawyers, notaries and some government agencies.

Projects from the first and second groups are more accessible for understanding, try to introduce technologies here and now and receive dividends in the near future. Ideas of projects from the third category may seem to someone utopia, but they have the potential to become a new Google or Amazon.


In any professional environment, including in the blockbuster community, there are trusted sources that have a solid reputation, confirmed by a large number of users and a long history of work.

These can be news sites, forums, developer blogs or just active community members who track all the new information on the Web related to blocking technology. If it is a crypto currency, then the best source of information about it can be one of the crypto-exchange exchanges, such as Poloniex or Kraken. Exchange rate, history and trading volume can often tell much more than a few pages of text.

A competent search for information is one of the most important skills in our time. Of course, the creators of scam projects are interested in self-promotion and the creation of fake positive feedback. In any case, your main defense against irretrievable investments is logic, the ability to read and search information on the Web.

Another positive sign is open source software and software distributed under the GNU / GPL license. This means that any person with the appropriate skills can audit the project code, and in some cases, suggest making improvements to it.


If we talk about real investments in projects based on blockbuster technology, today we can talk about two main ways. The first is to acquire a stake in the company, as in the case of a standard acquisition of a stake in a start-up. As a rule, a legal entity is not registered in the Russian Federation (due to the lack of clear legislation in the field of blocking) and the investment is a venture.

The second method involves investing in the ICO stage, or even after it is carried out through the acquisition of project tokens, usually for bitcoins. The record of this will be stored in the project's blocking library, and revenue can be obtained in the future if the project is successful and the cost of its tokens will increase. Of course, at the ICO stage, tokens are offered at the lowest price, but, unfortunately, it is very difficult to assess its validity.

From an investor's point of view, the ideal situation is where the reward of founders and project developers directly depends on its success in the market, which is analogous to the promotion of top-managers of classical companies through stock options of the company itself.

No matter how innovative and promising the project may be, it may face the unpreparedness of the existing infrastructure - financial, state, social - to accept it at this point in time. Today you can create a smart contract for Ethereum, which will automatically transfer funds from the buyer to the seller when the goods are delivered. But there are few companies that are ready to use these opportunities or even heard something about the blockade. Most of them prefer to pay for the usual bank letter of credit.

Blocking is not a magic substance, which automatically leads to the success of any start-up. For the most part, it's just a globally distributed book for securely storing records about anything - transactions, property rights and other data that is protected from forgery, censorship, deletion of records and always available. These properties are sufficient to optimize the processes in the majority and fundamentally change several sectors of the economy. But these changes will not be either quick or easy.

Thank you for your attention, this material is a translation.

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