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What is Due Diligence?

Due diligence is the decision Support System (DSS) an entity adopts before signing an agreement with any other entity to uncover any risk involved.

Importance of Due Diligence in the Cryptocurrency Industry

Traditional assets are based on centralized networks whereas cryptocurrencies are deployed on decentralized networks. The core features of a decentralized network encompass irreversibility, immutability, security, permissionlessness, censorship resistance, and trustlessness which are inherited by crypto assets. Due to these unique features, not only good players but also bad players get chances to transact over the network.

Type of Crypto Scams

Some of the common forms of cryptocurrency scams are:

Ponzi scam

Man-in-the-middle attack

Giveaway scams

Airdrop scams

Network hacks

Fake exchange

Phishing scam and

Fake investment scam

Therefore, due diligence is a must-have tool in the crypto industry to protect your funds from the prey of scammers.

How to Perform Due Diligence in the Crypto Industry?

Your research project may not take the desired shape without a proper literature survey. Similarly, your investment in a crypto project may not accrue target results without due diligence. You have to visit the official website of the project and carefully analyze each component of the white paper before committing your financial investment. If a project has no website and white paper or similar documents, investment in the project may disappoint you. Components of crypto projects that become part of your due diligence process are roadmap, governance mechanism, tokenomics, scalability, team composition, ownership, and investors.

Conclusions

Suspicious crypto accounts are very difficult to detect due to the nature of being unreadable by humans. Due diligence is a must-have tool before transacting with any anonymous entity. If due diligence is not adopted before investing in a project due to urgency or some other reasons, some pitfalls may come out at the latter stage which good due diligence would have revealed.