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Avoiding Cryptocurrency Scams

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Everyone is always focused on the potential upside of buying cryptocurrency, but they forget there are always going to be hidden downsides as well. The downside risk of investing in cryptocurrencies is huge. Not only do you need to worry about the high volatility of these assets, but you also need to bear in mind that theft is always a possibility, and the assets are poorly regulated.

Lack of Regulation Creates Opportunity for Thieves

In the equity and debt markets, there are stringent controls on the way capital is invested and the rules that govern investors. The goal is to protect investors from any fraud or wrongdoing, and even though there are times where it takes regulators longer than normal to catch on (see: Bernie Madoff), the general effect is a safer investment marketplace.

Fraud can occur in a variety of ways. It can be the result of false claims by the company regarding the state of their finances, the returns they have yielded, or how their funds are being managed. Any one of these routes causes a potential investor to get the wrong idea of the expected outcome of an investment in that company, and the result is a case of fraud.

Many have been espousing how great it is that there are no regulations on investments in ICOs or cryptocurrencies, with most of them being “self-regulated”. This is only a good thing as long as it is executed correctly.

Examples of Fraud in the Industry

One recent example is with the cryptocurrency “One Coin”. By employing marketing tactics similar to a multi-level marketing scheme, and not having a proper product to show for all the money invested in the project, executives were able to take advantage of numerous investors.

Ponzi schemes are business practices where the reported investment results are fuelled by the funds from new entrants to the investment vehicle rather than legitimate profits. The financing practices depends on passing on money from recent investors to older investors. The business practices of One Coin very much fit this model.

The two top things investors should be looking at that will help them avoid being defrauded in this unregulated market are the team running the project, and the product they have created. In the case of One Coin, you have a team that could be considered risky, at the very best. The CEO, Ruja Ignatova, seems to have a past filled with lies (or at least unverified claims). Sebastian Greenwood is another executive involved who has also ran several multi-level marketing schemes in the past.

In terms of product, there are cases where developers have been able to get funding after writing a short white paper explaining their business plan. In Silicon Valley, everyone knows that ideas are cheap, and execution is everything, but the crypto-world is forgetting this and putting money into anything that moves. In the end, One Coin was branded a Ponzi scheme and got shut down, but not before many investors lost their money.

Another example is with BitConnect, where users were promised massive returns if they lend their funds out through the protocol. This also turned out to be a Ponzi scheme, and was eventually shut down by American regulators filing a cease and desist order.

Investors Beware

A common thread here is the centralized management of funds. When this is combined with the sort of “investors beware” market we are in right now, there are all too many opportunities for fraud to occur.

The key is determining the differences between risky investment and fraudulent investment. Regulators are slowly coming to terms with the fact that ICOs are here to stay, and are moving to define whether they are a security or not, as well as how they will be regulated in the future.

There are going to be many more One Coins in the cryptocurrency community, and as always, the best thing you can do to prevent yourself from being victimized is do your own research and only invest as much as you can afford to lose.

Featured image courtesy of Shutterstock. 

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Opinion

Bankers and Bitcoin

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Something special happens when someone becomes threatened by an idea. They often lash out with their reasons for believing that it won’t work, but don’t address the fact they have a vested interest in it not working. This is exactly what is starting to occur with bankers commenting on Bitcoin.

You hear all the standard criticisms from these people: that it enables crime, that the cryptocurrency isn’t backed by anything, and governments will never let Bitcoin survive.

This is true of all politics and most arguments. People argue from a point of self-interest that they never unpack, so it becomes hard to take their viewpoint seriously when it is just a thinly veiled defense of themselves.

Disruption of a Monopoly

The banking industry has been a source of wealth to many people over the last few decades, but in the last few years the trend of working in tech has emerged as the smarter move for young graduates. The skills are said to be in higher demand and the chances of making the big bucks are greatly improved.

So in a way, cryptocurrency just represents one more threat against the financial industry. Now tech has gotten so big it threatens to completely replace parts of the financial industry, and they don’t like that. The big banks have had a monopoly on the consumer financial sector for decades, and this is about to change.

To be fair, this is completely reasonable, but blockchain technology is coming, and even if Bitcoin isn’t the coin to topple the financial system, there will be numerous innovations based on the same technology. The result will be an industry upended by automation and more trustworthy systems.

Criticizing Bitcoin

There are many valid criticisms of Bitcoin, but when someone argues so vociferously that they don’t address the issues with these criticisms, it hampers their argument. The truth is not a lot of people know what is going to happen and the market for cryptocurrencies is almost irrationally exuberant.

The problems with the criticisms of bankers is they don’t take into account the most important part of cryptocurrencies: decentralization. And that’s because their jobs and careers are based on centralization, or the idea that one person can be smarter and more trustworthy than the entire system. As long as they continue to see Bitcoin as a replacement for the dollar rather than an evolution of money, they will miss the point.

When people argue against the utility of Bitcoin, they falsely go after the micro-level mechanism. There are definitely problems here, as have been demonstrated by scaling issues, forks, and hacks of exchanges. But we can’t throw the baby out with the bath water. The ideas behind Bitcoin that allow for a decentralized management of a money system are clearly a step forward. To be against decentralization is to be against progress.

Karma Finally Strikes

Perhaps the funniest part of bankers protesting the spread of Bitcoin is they created the conditions that bred its necessity. The financial collapse of 2008 and every other collapse before that have been proof of too much trust being put in a centralized system. It has become clear that no single group can be trusted to run the entire economy, especially with so much at stake. It is no coincidence that Bitcoin was first released at this time.

Knowing this, we can start to think about whether these financial crises would have occurred if we were using decentralized applications. Obviously, we can’t know for sure, and it is likely something bad still would have happened, but it could have been greatly reduced by democratizing the management of the economic system.

This “democratization” is the act of letting everyone vote on whether a transaction is viable or not. The system solves the ‘double-spend’ problem by looking for a relative consensus in the network. If one person is claiming something that is out of sync with what everyone else is claiming, it can be “voted” out of existence.

To the common person, this looks and feels a lot better than having an arbitrator control the fate of his or her financial future. That is where the appeal comes to many of those who are disenchanted by the current economic system and are looking for a change.

So there is a very valid case for the decentralized aspect within Bitcoin. Whether Bitcoin will be the one to bring it to fruition or if it will be a different currency is yet to be seen.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Altcoins

Why Investors Should Pay Attention to OmiseGO

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Decentralization is a word that receives a ton of lip service in the blockchain community, but some companies are actually doing an amazing job getting their actions to back their words. OmiseGO is one such company.

Omise was founded in 2013 as a payment services company, and OmiseGO is an extension platform that operates separately. It is important you not confuse the two.

As an ERC-20 token that operates a smart contract platform, OMG is a high-performing proof-of-stake protocol with a massive mission to bring decentralization to trading.

What Need is OmiseGO Fulfilling

Ripple was originally seen to be the top solution in the payment providers sector, but its lack of decentralization has shown that there are significant downsides to their operating model. OmiseGO aims to become a decentralized Ripple, but operating a high-powered decentralized exchange (DEX), and has already become the top name in on-chain and cross-chain transactions.

With decentralization and the ability to connect fragmented payment processors, OmiseGO would also be able to help the unbanked gain access to the banking system.

There is currently a massive gap in the legacy financial network, since payment networks (such as SWIFT) have unilateral control over the flow of financial services on their network. Paypal and Venmo have proven to have similar centralization risks, even if they bring some competition to the table.

Not only would OmiseGO decentralize payment processing and create a DEX, but they have released a software development kit (SDK) to enable the creation of new applications and wallets on their system.

Meet the OmiseGO Team

OmiseGO is run by a well-reputed team (headed by Jun Hasegawa) who in the past have been referred to as “Fintech Rockstars” by Forbes. Their advisory board is packed with big names like Vitalin Buterin, Gavin Wood, and Joseph Poon, to name a few.

By contributing $100,000 to the Ethereum foundations DEVGRANTS program, they have indicated a strong commitment to the future of Ethereum and their investment within the community.

Every token needs to have its utility, and OMG is paid to holders in exchange for validating transactions. These holders have the right to confirm blocks, and effectively work as income producing assets in the course of the operation of the network.

The incentives here lie in the value of the network. The more transactions that need to be validated, the more token holders will need to confirm transactions, and therefore the more money is likely to be distributed to OMG holders in exchange for their confirmations.

OmiseGO’s Recent Performance

OmiseGO is now trading at around $3.30 USD, which is down an incredible amount from its high above $24 USD in January. This has been typical of many assets in the industry, but could be a sign that OMG is oversold.

There has also been a lot of news about OMG recently. In July a partnership with Status was announced that would result with the integration of the services of the two companies. Status is an open source dapp (decentralized app) for phones and browsers, and was one of the first clients to be developed on the Ethereum blockchain. Their core project is to link mobile chat and social media by using Ethereum tokenization.

With the goal of ultimate decentralization, OmiseGO has its work cut out for it. Although founded in 2013, they are still in the early stages of their expansions. More good news came in early June, when OMG was listed on Unocoin, one of the top asian exchanges located in India.

OmiseGO’s dream of connecting all the disparate financial systems and rails gives it the potential to become the DEX of the future. The question is whether they can displace the already dominant Ripple by going in a different strategic direction and sticking to their core tenets of decentralization and trustless networks.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Altcoins

The Long-Awaited Altcoin Extinction Event May Be Near

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The cryptocurrency market is undergoing a major paradigm shift as low-quality altcoins embark on a mass extinction event, according to Xapo President Ted Rogers. This view, which is shared by industry titans like Vitalik Buterin, suggests things will get a lot worse before they get better.

Mass Extinction

In a Monday tweet, Rogers warned that more than 90% of altcoins and tokens could disappear in the not-too-distant future.

“We could be in the midst of the extinction-level event for “cryptoassets” that many maximalists have predicted. 90%+ of CoinMarketCap list will disappear eventually – might as well happen now.  Meantime, lower BTC price means incredible opportunity to buy more bitcoin,” he said.

Rogers’ tweet echoes previous comments by Ethereum founder Vitalik Buterin, who believes that 90% of tokens listed on CoinMarketCap will go to zero. Buterin made the comments back in October during the historic run-up in cryptocurrency prices.

Whereas Buterin emphasized the emergence of higher quality coin offerings following a mass-scale correction, Rogers believes now is the ideal time to buy more bitcoin. The leading digital currency continues to cannibalize altcoins with its share of the total market crossing 54% on Tuesday.

At the time of writing, there were 1,833 cryptocurrencies listed on CoinMarketCap. A couple hundred were added to the website’s tracker in the last few weeks.

ICO Cash-Out?

Crypto assets have shed roughly $220 billion over the past three months and are trading at less than a quarter of their all-time highs. Although the recent meltdown originated last Tuesday when the SEC communicated its non-decision on the VanEck SolidX Bitcoin ETF, the extent of the selloff suggests there are other factors in play.

With the bulk of the declines concentrated in altcoins and tokens, many are blaming the latest rout on a large-scale cash-out of initial coin offerings (ICOs). This has direct implications on Ethereum, which is one of the most important bellwethers of the ICO market.

The ether price has experienced an unprecedented drop over the past seven days, losing more than a third of its value to trade at its lowest level in 14 months. Previously, the developer’s cryptocurrency had shown resilience in the face of broader market moves.

While ICOs have raised more than $6.6 billion this year, investors appear to be selling too early. Short holding periods are placing significant pressure on the market.

Although the path forward is paved with uncertainty, a structural shift in the ICO market will ultimately benefit cryptocurrencies. As Buterin said last October, “there are some good ideas, there are a lot of very bad ideas, and there’s a lot of very, very bad ideas, and quite a few scams as well.” Cleaning up this image is a good thing even with the accompanying pain it has produced.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 547 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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