Ignorance and greed have been described as the fuel that has powered the engine of most scams and financial malpractices.

There is a growing trend within the cryptocurrency industry that portrays the characteristics of a time-bomb waiting to explode. Almost everywhere you turn, there is a certain coin to mine, a product to invest in, or a cryptocurrency based MLM that promises extraordinary payouts. The number of individuals who subscribe to these programs, on a daily basis, rises exponentially.

Before this current wave of events, there have been similar cases where money making programs, that looked too good to be true, appeared and sucked people in, only to suddenly collapsed. Victims of such scams have always been left in pains and regrets, for those who lived through the disappointments.

Why do scams persist?

One question that remains to be answered is the reason why the public keeps falling for this agelong trick, despite their own previous painful experiences or those experienced by others within the space. Another major issue that persists is how to identify such schemes, for what they truly represent, in the early stages, especially as it relates to cryptocurrencies.

According to Bob Wood, the founder and CEO of Nexxus Partners, scams of all kinds feed on two ingredients to create their perfect storm: ignorance and greed. Wood explains that new technologies are not understood by most people, enabling scammers to twist the facts just enough to include some truth mixed with deception, so as to occasionally fool individuals.

Wood says:

“If any guilt is to be found with most people, it is not for perpetuating a scam, but for not fully vetting the claims.”

Wood points out that scams are often propagated within social circles based on trusted relationships, often in churches, work associates and other social groups. In such cases, he notes that the people often look to the reputation of the presenter, trusting that they would never try to cheat them, instead of asking what has been done to fully prove or disprove the opportunity claims.

The categories of cryptocurrency scam

Wood categorizes cryptocurrency scams into two groups:

1. Opportunities pretending to be cryptocurrency

According to Wood, the fundamental principles of cryptocurrency includes decentralization, privacy, unlimited use, controlled supply, and transparency with a public ledger, called a Blockchain, and publicly disclosed source code for anyone to verify. Any entity that does not satisfy these requirements cannot pass for a genuine cryptocurrency.

The biggest culprit in this category, as noted by Wood, is Onecoin.

“OneCoin is an illegal Ponzi scheme, promising unrealistic returns on investment that only come from new investor’s money,” he says.

2. Real cryptocurrencies with no real value creator

Wood has classified under this group, those cryptocurrencies that may have passed the fundamentally required principles but have failed to deliver value to the marketplace to drive buyer demand with a user benefit.

Wood explains that building a cryptocurrency is usually a simple process and can be achieved within a couple of days for less than the cost of one Bitcoin. However, he says that the real challenge is building a market for the coin with an ecosystem to use the coin for real value exchange.

The majority of the 3,534 cryptocurrency coins are listed here.

Proper education is the solution

Wood further explains that value creation is what companies must do in order to increase the price of their stock in the marketplace. A typical example that he points out is what Ethereum did with their own internal currency, the Ether coin.

“Ethereum provides a development platform for Blockchain applications,” he explains.

“Programmers pay Ethereum for the processing power that they consume in Ether coins. It’s actually a brilliant strategy to drive buyer demand for the Ether coin. This was reflected earlier this year when the Ether coin went from $0.50 to $21.50 in less than 6 months. That’s a good example of real value delivery.”

Wood concludes by making clear that cryptocurrency is a grassroots movement that will create trillion dollar industries and reshape human culture. He says that it will also eventually enjoy transaction volumes approaching that of Visa and MasterCard. However, he advises that individuals should get the required education to be able to differentiate between a genuine opportunity and one which is not.