If I am my first line of defense, how do I prevent crypto fraud?

  • By Tom Cleveland

  • October 8, 2018
  • 9:40 pm BST

Like it or not, fraud prevention in the cryptocurrency space must be an ongoing personal exercise, even after regulation embraces the industry in a more material way. One only look at the retail forex trading industry to understand that fraud is still a major issue, even after two decades of retail trading activity and regulatory oversight. We tend to fall too easily for the conman’s siren call on the Internet, perhaps, because we cannot see him eye-to-eye, but also because the crooks today are very adept at persuasion and setting traps for our unsuspecting natures. One must be ever vigilant, skeptical, and aware.

Prevention always begins with awareness. Previous articles have built a framework upon which to build that awareness for fraud in this industry. Crooks are clever, well organized, and well capitalized, as well. They use the latest technologies, which tend to be one step ahead of legislators, regulators, and law enforcement officials. If you accept the forms discussed and learn to curb your own greed and gullibility, then you can move to the next step, which is serious due diligence.

According to industry experts, these few tips, related primarily to ICOs, but also applicable to other cryptocurrency investments, as well, may help guide your due diligence process:

  • https://learncfds.com/trading-tips/Research the Team: It may sound simple enough, but, if you are not dealing with reputable people or at least people that have had a great deal of experience in the cryptocurrency field, then you might be headed for danger. Accept that crooks will post convincing, yet fake bios. Check, and keep checking again.
  • Does the Value Proposition make sense: Many entrepreneurs have latched onto ICOs as a method to raise capital for their special idea, without having to go through traditional fundraising avenues, which would require much more documentation. Make sure there is a viable product or service, and not just a “pie-in-the-sky” idea. There should be a “proto-type”, one that customers are already paying money to use.
  • How is the money to be used: According to one attorney in this arena, “If there is no caveat or disclaimer as to where the money invested is going; when the sale is; or any links, news, or video/images to document what they have already done, all you have is a company or group of people who are just taking your money and you for fools.”
  • Ignore the hype – Look for traction: One blockchain industry CEO offers up this advice: “Never invest in a project that talks about the potential future value or returns of their token. Ignore hype and look at actual progression on stated milestones.” Before fundraising efforts begin, there should already be a history of successes, a product, and customers willing to buy it.
  • Do your legal homework: Lastly, check the public record for registrations or licenses. Has the group addressed possible issues with the SEC and other regulators? Do addresses and phone numbers line up with websites? Due diligence, always! The more, the better! 

Lastly, the words of CFTC Commissioner, Bart Chilton, may give you pause: “Potential investors should understand that while the crypto space, including ICOs, is exciting and can hold some potentially profitable opportunities, they are not traditional investment-grade opportunities. They hold, generally, greater risk and are a haven for bad actors. Investors should do deep due diligence to ensure their hard-earned money isn’t lost to some sleazeball.”