It’s not an isolated case where people lose their money online by investing in something they thought would give them future benefits. Unfortunately, the reality is that cryptocurrency scams are everywhere. There’s even a word for it: shitcoins.
Despite being supported by one of the safest options online which is blockchain technology, crypto scams are real. Therefore, it is important to understand a coin first before investing in it.
What are shitcoins?
In simple terms, “shitcoins” means those cryptocurrencies which have little to no value. To add to this, these coins have very little discernible purpose. These are usually copycats which not only provide no benefit to those who invest but to the entire crypto space. Shitcoin: the word itself is a pejorative term; however, it is only there to describe junk altcoins.
One thing in common with all shitcoins is that they were developed after Bitcoin became famous. There are some common ones too, such as Shiba Inu (which cashes in on the Dogecoin craze) and Tiger King (yes, from Netflix fame). There’s even a shitcoin called – wait for it – ShitCoin.
Some would also lump Dogecoin into this category, which has caught the attention of famous crypto voices, such as Elon Musk. The more generous term for Dogecoin though is memecoin – a cryptocurrency created as a joke that thrives on internet culture. Others would argue that Dogecoin is now just as legitimate as the biggest players. It is, after all, the seventh-largest cryptocurrency. Still, even Dogecoin’s co-creator calls it a scam.
The reason behind the diminishing value of shitcoins
As mentioned earlier, shitcoins are those who have no properly defined goal nor purpose. This is also because they do not have a limitation on the number of coins that can go out in circulation. Bitcoin is capped at 21 million. There will not be more than 21 million Bitcoins.
The limited supply of Bitcoin is one reason why the price of it is high. The same goes for any other commodity, such as diamonds or gold. Both are in high demand and limited in numbers, thus they become more valuable.
However, with most shitcoins, there is no maximum number or it’s so high (in the quadrillions) that it might as well go to infinity. Therefore, the supply will keep on coming whereas its value will not increase. (In fact, the value will decrease as fresh supply outpaces demand.) This is also a reason why many experts say shitcoins are not created in good faith or good consideration.
Is scarcity really important?
As discussed earlier, scarcity for any product is important. In short, it allows its value to increase. Shitcoins are designed not to be scarce, adding that to the limited amount of practical usage of cryptocurrencies in the real world, the value of shitcoins further declines because they’re unable to fill any form of practical usage.
The crypto space works highly on speculation. When investors know that a certain coin is limited in its number, they flock to it as they believe the limited amount will help to boost its overall value. Since shitcoins are not typically limited in numbers, therefore, investors do not put more money in them and this its value does not increase.
How do you spot shitcoins?
Now that there is an ample understanding of what shitcoins are, the following checklist will help you understand how to ensure the coin you’re about to invest in is not a shitcoin but has actual worth in and outside of the crypto space.
- Ensure the investors are not shady: The first thing is to research the developer team. They should not be mysterious but are people who understand cryptocurrencies quite well. They should have experience and can identify themselves on their LinkedIn, Instagram, Twitter, or YouTube channels.
- Defined end goal: The second step in the checklist is to ensure the coin has an end goal. What do they want to achieve? What problem do they wish to answer or solve? Who will gain from their project? If the stated goal of the project is just to make you rich quickly, it’s probably a scheme.
- The project doesn’t promise the moon: Show skepticism to projects that make big promises with nothing to show for it. The project should tell us what the coin solves, and what gains there will be for the crypto space and investors who invest in it.
- Uniqueness: Oftentimes shitcoins are projects that are copied. So the things to look at is the whitepaper (which shouldn’t look generic), along with the website (which should appear authentic and must have its own domain).
- Holders: People holding a legitimate coin should be about 200 minimum. Anything more than 200 is good but below means that it’s most likely a scam or too young for an investor to catch their eye.
- Liquidity pool should be above $30k: Liquidity is another important thing to look at. Anything above $30k is good because most of the time scammers fail to provide a liquidity pool at $30k.
Now that the checklist is prepared, the last tip is to invest small amounts for the first couple of months. You wouldn’t have very high gains but you’ll be on the safe side.
It’s true that you can get 10x, 100x, or even higher returns on shitcoins if you are lucky, but you could theoretically get that kind of return at a casino too. It doesn’t make it a sound investment strategy. The truth is that shitcoins are mostly designed as pump and dump schemes that burn almost everyone except for the coin’s creator and close associates.
The bottom line: do your research and be wary of potential crypto scams. Shitcoins are everywhere!