What in Crypto is Not a Scam?

"Scam" may well have been crypto's word of the year in 2022. After the collapse of FTX that even took crypto experts by surprise, many are left to wonder: what in crypto is not a scam?

Luckily, the answer is a lot of crypto is not a scam. We are still sitting on revolutionary technology that has been built - mostly - by morally sound people. However, we need to improve at identifying scammers before they get big and cause lasting damage to the industry.

To unpack what in crypto is not a scam, first, let's define what *is* a scam. Merriam-Webster defines "scam" as "a fraudulent or deceptive act or operation." So, while many crypto projects may lose their value or even go to 0, that does not make them a scam; it could just mean they failed.

To be considered a scam, a crypto project must be led by dishonest people who intentionally deceive others and steal their money.

For example, FTX, led by Sam Bankman-Fried, appears to have been a scam. When users deposited their funds onto FTX, the exchange turned around and used those funds without their customers' consent. It doesn't get much more scammy than that.

However, Terra's Luna and UST may not have been a scam since it's unclear if the founding team was intentionally marketing a fraudulent product to steal money from investors.

So, what in crypto is not a scam?

There are still plenty of great crypto projects to invest in, and many are trading at a steep discount in this bear market.

The most well-known and widely trusted cryptocurrencies are Bitcoin and Ethereum. At this point, it is safe to say neither is a scam. These cryptocurrencies have been around for a long time and have established track records as reliable and secure investments.

Another example of legitimate projects in crypto is well-known and reputable cryptocurrency exchanges that are audited and comply with US government regulations. The two most prominent US exchanges that fit this bill are Coinbase and Kraken. While they both charge significant fees for buying and selling crypto, those fees are well worth it since you can trust your funds to be safe.

What stablecoins in crypto are not a scam?

Stablecoins are an essential part of the crypto ecosystem. However, not all stablecoins are created equally, so knowing which ones you can trust is critical.

Two of the most trustworthy stablecoins that we can confidently say are not scams are Circle's USDC and MakerDAO's DAI.

Circle maintains full reserves for USDC, and they regularly publish audits of those reserves. Over the years, they have proven that they have more than enough cash and cash equivalents to back up all USDC they have issued. This level of auditing is what users should expect from any stablecoin issued by a company, and that's why it is the stablecoin we use at Outlet.

DAI, on the other hand, does not need audits because it is fully backed on the blockchain by ETH. To create DAI, users deposit ETH into MakerDAO, which is used as collateral. Users receive DAI in return for ETH, and the DAI is burned when loans are repaid.

If the value of ETH drops below a predetermined threshold, it gets liquidated to protect DAI's reserves.

This method guarantees that MakerDAO has enough ETH to back up all DAI on the blockchain.

What smaller projects in crypto are not scams?

Projects don't have to be top-10 in market cap for us to be confident they are not scams. Smaller projects can still generally be trusted if they have a long track record of success, open-source code, and have been approved by auditors. Many projects in crypto fit those criteria. 

Many well-regarded DeFi projects have been active for years without any blemishes on their records, including Uniswap, AAVE, Compound, Curve Finance, and many more.

These projects have solid teams, clear roadmaps, and established track records. On top of that, they all have open-source code, have been audited by multiple firms, and operate on public blockchains, making scams nearly impossible to pull off.

How can I know what is not a scam in crypto?

In conclusion, while it is difficult to say what in crypto is not a scam, some investment opportunities are generally considered legitimate. These include buying and holding well-known cryptocurrencies, investing in reputable exchanges, and investing in established crypto projects with long track records and published audits. As always, doing your research and due diligence before making investment decisions is essential.

How to Avoid Scams in Crypto

Spotting a crypto scam can be difficult, as scammers constantly develop new and creative ways to defraud people. Even experts have fallen victim to scams before. However, watching for a few common signs can help you avoid falling victim to a scam.

Four Basic Steps to Avoiding Scams in Crypto

1. Be wary of any investment opportunity that promises guaranteed or unusually high returns. If an investment opportunity sounds too good to be true, it probably is. Remember that there are no guarantees in crypto, and any investment comes with a certain amount of risk.
2. Be cautious of any investment requiring you to send money to an individual or organization you do not know or trust. Scammers often use fake or impersonated profiles to trick people into sending them money. Before sending any funds, do your due diligence and research the person or organization you are dealing with.
3. Watch out for any investment opportunities that ask you to provide personal or financial information, such as your bank account or credit card number. Scammers can use this information to steal your money or identity. Always be careful about sharing sensitive information online, and only provide it to trusted and reputable sources.
4. Be on the lookout for fake websites or emails that claim to be from legitimate organizations or individuals in the crypto world. Scammers often use fake websites or emails to impersonate well-known organizations or individuals to trick people into sending them money. Before sending any funds, check the website or email address carefully to ensure it is legitimate.

In conclusion, the best way to avoid falling victim to a crypto scam is to be cautious and skeptical of any investment opportunity that seems too good to be true. Please do your due diligence, research the person or organization you are dealing with, and never provide sensitive information or funds to anyone unless you are sure they are trustworthy.

What To Do if You Get Scammed in Crypto

You can only do so much if you lose money to a scam in crypto. Transactions on the blockchain are irreversible, so there is typically no way to claw back your funds.

Victims of scams involving centralized exchanges like FTX will likely receive some remuneration, but there's not much you can do about it other than sit and wait, often for years.

But that doesn't mean you should do nothing.

If you do fall victim to a crypto scam, the first thing to keep in mind is to not be too hard on yourself. Even experts and industry veterans have fallen victim to scams. Beating yourself up over it won't help.

Try to view this as a learning opportunity. What could you have done better? For example, did you risk too much money on an investment you didn't fully understand? Did you put your trust in someone who you shouldn't have, or follow an arrogant/cult-like leader?

These things can happen; if they do, the pain from losing money is more than enough. There's no need to double down on yourself. Instead, use it as an opportunity to grow and become more vigilant with future investments.

One thing you CAN do: speak up!

Unfortunately, many people who get scammed are embarrassed and never speak up. If victims don't speak up, scammers can continue scamming other people. Don't be afraid to share your story. You may be helping to save someone else from the same fate, and you may even help bring the scammer to justice.

Finally, don't get left thinking, "What in crypto is not a scam?"

If you do get scammed, that does not mean the entire crypto industry is a scam. Remember that. If you swear off investing in crypto entirely, you may end up scamming yourself out of the best investment opportunity of your lifetime.

It's important not to risk more than you can afford to lose in crypto, but not investing at all is also a risk. There are plenty of good projects with outstanding teams in this space, and this tech has already proven that it can shake up and change the mainstream financial system.

It's crucial to master your emotions regarding your investments. Getting caught with FOMO and buying the top is painful, but getting caught with fear and selling the bottom is even worse. Stick to making investments you understand in reputable projects, and you give yourself the best chance to succeed over the long haul.