9 red flags of “digital gold” scams
I’ve investigated 15 different digital gold projects — ostensible gold-backed digital currencies — here on MarketplaceGOLD…
…and disappointingly, I have to report that many of them are scams, frauds, and shams.
In theory, gold-backed cryptocurrencies are a brilliant innovation — the blockchain-based money of the future and the sound currency of the past. Investing in legitimate gold-backed currency could be what keeps a roof over your family and food on the table as the (now merely menacing) hyperinflation of the US Dollar impoverishes multitudes. If you have a portfolio of cryptocurrency investments, occasionally on will go parabolic — sometimes cryptos 10X overnight — and you will want to lock in those gains, take out at least your original investment, and put it into a stablecoin.
I’m going to continue to investigate digital gold projects, invest selectively in some of them myself, and call out scams on MarketplaceGOLD but I might not be able to look into every one so…
I’ll let you know what red flags to be wary of…
1. The most concerning red flag is a lack of 3rd party audits of the gold reserves backing the digital currency or cryptocurrency. Them auditing themselves is not enough — there should be some credentialed, regulated auditor stamping and signing off on verification of their gold reserves. Digital gold just isn’t trustworthy if they aren't proving regularly that the gold is securely vaulted somewhere in the world.
2. Bad reviews from angry customers — Do check for reviews of anything you're going to invest in on TrustPilot.com, Reddit, and Youtube. Any popular financial service is going to have a few bad reviews, but if the balance of reviews and online sentiment is negative that’s a real red flag.
I suspect that Goldmoney here is still in business for the same reason that Tether, the monstrously fraudulent “stablecoin,” has not been shut down by regulators. Financial regulators want the specter of digital money projects melting down in huge scandals so they can justify heavy-handed regulation of cryptocurrency. I have particular ire for Goldmoney not because of the bad experience I had with them but because they make the whole category of digital gold look really bad. Tokenization of precious metals is a great use-case of blockchain and a few companies are doing it transparently with proper third-party audits of gold reserves. And when one of the original digital gold companies treats its customers with such disregard, it hamstrings the widespread adoption of digital gold as a much-needed medium of commerce and hedge against inflation.
3. No identification of the whitepaper’s author or mention of the team behind the project. Invest in things with public people behind them facing reputational repercussions. Whitepapers should have a modicum of information about who is working on the project — even the original Bitcoin whitepaper contains Satoshi Nakamoto’s email address!
4. The whitepaper admits that the gold might not be real. For example, not shockingly, Tether decided to get into the fake gold business with its XAUt token. A reading of the Tether Gold whitepaper makes it pretty clear that XAUt is dubious digital gold — from the Risk Factors section of their whitepaper:
XAUt tokens are speculative and involve a high degree of risk and uncertainty.
Purchasing the XAUt tokens entails risks and purchasers could lose their entire purchase amount or all of their XAUt tokens…
5. Negative social media sentiment — if a significant proportion of the social media mentions (on Twitter and Reddit) of a token are people calling it a scam and complaining that they weren’t able to liquidate their investments that’s a real red flag.
6. Multi-level marketing schemes requiring recruitment are a well-known and consistent red flag of crypto scams.
7. Some of these digital gold projects have really over-the-top, hypey, cinematic promotional videos. And, not surprisingly, this is a red flag and commonality among scammy operations. Check out this one by GoldMint…
8. Another red flag is flamboyant and charismatic CEOs heading projects, like Karatbars’ Harald Seiz. When he’s not flexing on Instagram he makes hilariously cringeworthy vlogs like this…
9. After the CEO made fantastic 40X ROI claims (another red flag), the Karatbars scam melted down, and litigation ensued.
You might be thinking…
If there are so many scams in the digital gold space why even bother with it? Why not just buy gold and silver?
Well, like a lot of people, I don’t live in a country where there are credible dealers selling precious metals at competitive prices. If I bought precious metals online and had them shipped to me there’s a 40% chance that the post office will steal them. Legitimate digital gold makes precious metals investing an option for billions of people around the globe living in countries with poor rule of law.
Secondly, incremental accumulation of gold is a life-changing financial habit. There’s a simple lifehack for achieving financial freedom (or getting out of the “rat race” — to use another catchphrase); when you get paid, before you spend money on anything else put 10% into some kind of sound investment — then do nothing and let compound interest work for you. If you wait until the end of the month or when it feels financially comfortable to invest your income, like most people, you’ll end up spending your money and remain trapped in the rat race. This simple strategy is how I’ve built up a crypto-portfolio and rainy day savings that kept food on my table when the rainy day came. Digital gold enables everybody with a credit card or bank account to incrementally accumulate gold. If you get paid $100, for example, buy $10 in digital gold, repeat, and your heart will begin to swell with pride every time you look at your gold balance.
Are there any legit digital gold projects?
Well, I’m not credentialed to advise you on what to invest in, but having investigated a number of these, I invested in and still hold Aurus (AWG). PAX Gold (PAXG), which is the most popular gold-backed cryptocurrency by market cap, also exhibits all the right credibility signs. Gold Secured Currency (GSX), I’m interested in, even though it is transparently not technically digital gold — it’s a growth coin backed by a gold mining operation. These are the only three that I’d consider handing money over to…
If you find value in my credibility analyses of different digital gold projects let me know and I’ll continue to publish them here.
But, doing so I’m taking a real risk, scammers often threaten and sue the watchdogs that expose them, and they can afford better attorneys than me. I do get paid small, reasonable affiliate commissions for anyone who buys from Aurus via my website but that barely pays for my hosting, let alone potential legal costs! I’m considering getting litigation insurance, it would cost me a few hundred dollars a month, and then I can really take the fight to the scammers in the digital gold and crypto space online. I’ll avail myself of my audience’s generosity and sense of justice, would you like to help me pay for litigation insurance?
