Exit scams became popular in the bitcoin sector in 2018. It occurs when dishonest cryptocurrency advocates steal money from investors during or after an initial coin offering (ICO). Exit scams can also happen when a cryptocurrency exchange disappears. Therefore, taking any cryptocurrencies saved on the platform cryptocurrency has become a contentious issue of debate, owing to the two opposing factions attempting to navigate the market.

On the other hand, some prey on the less educated, hoping to take advantage of their ignorance and trick them into handing over their cryptocurrency. This can happen in various ways, and recognizing it can be difficult.

What Are Exit Scams in Cryptocurrency?

An exit scam occurs when a cryptocurrency takes advantage of early investors by literally “drawing out” all of their funds from the market. In other words, the people with the most wallets of a specific new cryptocurrency aim to inflate artificially pump the price through marketing and promotional activities, only to dump their bags on new investors later.

How does the Exit Scam work?

New and promising projects leveraged their power and community to promote forthcoming currencies, promising profits to abandon the delivery process and steal user funds. Recently numerous “exit scams” have been associated with new crypto advancements. Decentralized finance-related initiatives listed on decentralized exchanges are extremely dangerous due to the industry’s abundance of “rug pulls” (another form of exit scam).

The sale of tweets has recently emerged. In other words, by converting a celebrity’s tweet into an NFT, anyone can acquire ownership of it. A few days after the publication, one user paid $639 for a tweet that was quickly deleted5. 

Talk about an authentic exit scam.

How to spot the Exit Scams

The strategies of these so-called scams change with the crypto space. It is difficult to detect the exit scam. Here is some help:

1. No recent independent code audit

While completing a code audit does not guarantee that a rug pull will not occur, good crypto projects provide evidence of having had an independent code audit performed since they can uncover holes that could allow rug pulls to occur.

2. Anonymous coders

There’s nothing to stop the team behind a cryptocurrency from fleeing after a scam and suffering no punishment if they’re anonymous or pseudonymous. 

It’s also tough to assess a team’s trustworthiness if you don’t know who they are.

3. Exaggerated claims

Scammers use hype to inflate the value of their enterprises. Be wary of cryptocurrencies with unrealistic aims. Exit scams employ aggressive promotion, frequently involving YouTube videos and messages on online forums. Why?

Scammers often focus on marketing while doing the bare minimum on everything else, including the project’s website and white paper. If anything is poorly written or has a sloppy design, it could be a clue of a fraud. Some projects don’t bother with white paper, which is a significant red sign.

4. Uneven token distribution

The developers of a cryptocurrency may hold specific tokens, and if they control a significant amount of the supply, a rug pull is possible. If a cryptocurrency displays these red flags, it is not guaranteed that the project is a scam, but you should conduct an extensive study before investing. If a cryptocurrency ticks numerous boxes on the list, it’s a scam.

5. Inappropriately written white paper

Avoid white documents that appear to be under-researched, poorly written, have poor language, or directly plagiarize another white paper. Reading the white piece of a crypto project is easy to determine how excellent or awful it is.

6. No specific teams

The director and chief officers should be visible even if the entire team is not made public. Any crypto project that chooses to remain entirely anonymous usually does so for no one to know who is responsible for their conduct. It is also critical to investigate the project’s directors and senior executives to determine whether they are natural persons with established credibility.

To appear credible, several of the exit frauds listed above used phony images and names or stole the identities of others.

How can you save yourself from Exit Scams?

Most investors who enter the industry at this relatively mature stage will be curious as to how they can tell which businesses are legitimate and which are not. 

The following are a few pointers to remember when it comes to exit scams, many of which are related to investment methods.

Analyze the project

Before acting rashly and purchasing tokens, verify the project’s fundamentals. The project is frequently a less expensive “clone” of an existing solution with no solid underpinnings for future growth.

Study well

When it comes to ventures with above-average profits, conduct a study. While some may be legal, others may be pretty dangerous. Learn everything about staking, yield farming, and high-return crypto savings accounts.

Also, use price tracking services like CoinGecko regularly to get the most up-to-date information and research materials on the coins of interest.

Keep a close eye on the price

Wait if you are interested in a project and want to purchase it. Give it at least a week and watch the price movement. Frequently, the source of influence promotes the coin at a local top, allowing interested people to wait for it to cool before entering a better position.

Keep long-term goal

The value of cryptocurrencies rises with patience. Taking a long-term approach increases the chances of making a profit in the business by a factor of ten.

Conclusion

Despite the frequent midterm variations in bitcoin prices, betting on the winner ensures near-certain success. You can invest in Bitcoin, Ethereum, and popular exchange native tokens such as UNI, BNB, and FTT. This will help you in earning money and help you in paying off high-interest debt.

While the price may fluctuate in the short to medium term, there is currently sufficient evidence to predict a long-term upswing. Even if this is not the case, the increased liquidity of such initiatives allows investors to enter and exit holdings quickly. This is not conceivable in the NFT world, where users are frequently stuck with an expensive piece of art during a decreasing market, only to regret an exorbitant error.

When investing in digital assets, conviction, liquidity, and real-world situations remain the most significant considerations. Remember, if it seems too good, it is probably a scam.

About the Author: 

Lyle Solomon has extensive legal experience, in-depth knowledge, and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998 and currently works for the Oak View Law Group in California as a principal attorney.

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