What is a Cryptocurrency Exit Scam?
Exit scam refers to a fraudulent practice in cryptocurrency where a developer launches a cryptocurrency makes profits from various investors and finally abandons the project and disappears with the funds. An exit scam can happen before or during a cryptocurrency launch. Developers planning such fraudulent activity often announce the launch of the cryptocurrency on social media platforms and hire influencers to promote the specific cryptocurrency. They also initially promised huge profits and long-term qualities of the cryptocurrency to attract many investors into purchasing.
Exit Scams, also known as rug pull, are among the most common crimes committed in cryptocurrency. It can also be considered a planned crime where the developers disappear just after the investors invest their money into the cryptocurrency. The value of the specific cryptocurrency drops down when it is revealed as a scam. This way the investors lose all their money. Exit scams supposedly take place in several ways and in addition to the developers, there are other promoters and early investors who get involved in this fraudulent practice.
One of the possible ways scammers try to attract investors is by offering high returns on the cryptocurrency. Promising high returns has become one of the most common ways to attract investors. Exit scams have become quite popular over the years. The scammers can easily launch crypto coins or tokens and sell them to investors while remaining anonymous. They do not have to make much effort and can still earn a lot from the money stolen from the investors. Investors should consider many factors before purchasing a cryptocurrency because of the rapid rise of such fraudulent practices in the cryptocurrency industry. It is a complex process and investors need to be aware of all the possible risks associated with the process.
Common red flags of exit scams
- Anonymous developers: The investors must always verify the credentials and other details of the developers of the specific cryptocurrency before investing any of their money into it. The anonymous developers may find many possible ways to attract investors by offering desired promises. The investors should be aware of this trap and should extract the details of the developers behind the project. The credentials of the developers should be verifiable and identifiable. It is also not possible to exactly know the value of a cryptocurrency project if the names of the developers or promotors remain anonymous. This is one of the easiest ways to identify an exit scam in cryptocurrency.
- Extravagant promises: It is important to understand that the main goal of such scammers is to attract as many investors as possible to purchase their cryptocurrency. They offer promises of higher returns to simply hype their projects. Investors should be aware of these fake promises and firsthand understand the goals of such projects. In most cases, such scam projects do not project anything about their goals and how much the investors can make out from them.
- Improper documentation: As mentioned earlier, these scammers mostly focus on marketing their crypto coins or tokens by offering big promises. In this process, there are high chances of them missing out on other important factors. A verified project is supposed to have a white paper that is written like a research paper addressing all the problems and clear methods used for designing the blockchain network and cryptocurrency. Investors can easily identify a verified white paper by its professional look and how the details are conveyed. In some cases, scam projects do not care to produce the key document making it easily susceptible to investors.
- Lack of project pages or websites: Valid cryptocurrency projects normally create websites and project pages that explain the working and designing of their blockchain network. Developers behind such valid projects are clear about their goals and would want to remain transparent to their investors as well. Scammers usually forget these factors as they do not have a specific goal that can be offered to the investor. Hence the investors should check the website or project pages of the specific cryptocurrency to get a clear idea about their existence and motives.
- Aggressive marketing and promotional offerings: The promotors or developers behind such potential scams heavily market their projects through most of the social media platforms and online forums. Instead of developing the project, their main focus relies on marketing strategies. Investors need to be aware of their aggressive marketing strategies and check whether the claims made by them are true.
Some examples of exit scams in cryptocurrency
- One of the popular exit scams was carried out by cryptocurrency startup Confido in 2017. The project raised around $375,000 through an Initial Coin Offering. The developers then deleted their websites and disappeared overnight with the money from the investors.
- In April 2022, Thodex, a Turkish cryptocurrency exchange stopped its operations without any prior notice and disappeared with the funds invested by over 391,000 active traders.
- LoopX another cryptocurrency startup committed an exit scam by launching Initial Coin Offerings (ICOs) that earned up to roughly $4.5 million.
Conclusion
Scams and fraudulent activities have started becoming common in almost every industry. The growing popularity of cryptocurrency has attracted a large number of people. Traders interested in cryptocurrency should always be aware of the complexity of the whole process. It requires critical thinking and reliable resources to choose the right cryptocurrency and start investing in it.
Exit scams remain one of the most common crimes carried out in cryptocurrency. New investors must be aware of such fraudulent practices before purchasing a cryptocurrency. Valid cryptocurrency projects will always have the details of the developers, proper websites or project pages and most importantly they will have a specific goal to further develop the cryptocurrency project. There are many strategies available that can help investors not fall into such potential traps. In the end, it is always the responsibility of the investors to not get attracted to such scammers and their projects and lose their money.