Top 6 signs a crypto project may be a scam

Top 6 signs a crypto project may be a scam

Top 6 signs a crypto project may be a scam

Con artists often use legitimate cryptocurrencies as part of their scams, tricking you into sending your Bitcoin or Ethereum to fake “mining” schemes or fictitious online girlfriends.

But sometimes the crypto itself can be a scam, a joke, or at least worthless. Here we present our top 6 signs that a crypto project might be a scam.


1. The documentation looks fishy.

Every crypto project should have at least one technical white paper that explains how its ecosystem works, how coins or tokens are created and burned, and how many are in circulation and already allocated. This information might be divided into two or more white papers.

If the white paper reads more like a marketing campaign with no detailed tokenomics, be wary. If it’s full of complex jargon that sounds like nonsense, and crypto industry writers can’t explain it in simple language either, it could be a scam. And if there’s no white paper links at all on the project’s website or its CoinGecko page, run away!


2. The developers are unknown.

If the development team is anonymous or uses pseudonyms, it’s impossible to verify their background, or even to be sure they actually exist. If something goes wrong, they could vanish without a trace.

For example, the FOMO Chronicles Manga website shows the development team members as avatars named @Mooncrusher, @Coinnoisseur and @Nikmanga. Launched in October 2021, the token lost 99.6% of its value within 9 months.

Of course, Bitcoin was created by the unknown Satoshi Nakamoto, but “he” wasn’t trying to sell it.


3. It has no real use case.

What’s the asset used for? Why would anyone want to own it? This information should be obvious from the project website or a white paper. A lack of this info may be a sign that a crypto project is a scam.

For example, Solana is a blockchain that validates transactions using a consensus mechanism called “proof of history.” Validators must hold a minimum amount of SOL coins to be able to earn rewards. The network’s high speed and smart contract support also makes it ideal for NFT marketplaces like Magic Eden. All this activity creates strong demand for SOL, so its price tends to increase over time.

By contrast, Dogecoin was created as a joke, one among thousands of coins created with no real purpose. Because its status as a meme coin helped it to take off (with strong support from Elon Musk), many gullible investors are tuning in to YouTube pundits, looking for the next crypto-miracle.

And that’s when you get Baby Doge Coin, Bogecoin, Hoge Finance, Rogue Doge or LunaDoge. It’s hard to say if they are actually outright scams, but despite their lack of a unique use case, they get promoted relentlessly by paid shills on Reddit and YouTube.


4. It’s not available on any major exchange.

Most major exchanges won’t touch new cryptocurrencies, because they don’t want to be associated with projects that could turn out to be scams. Getting listed on an reputable exchange like FTX (which you can access from the safety of Exodus, by the way) or Coinbase is seen as a stamp of approval, making the price rise.

However, it’s fairly easy to get listed on a decentralized exchange (DEX) like Pancake Swap or SushiSwap. No auditing or verification is performed; a project only has to fund a liquidity pool with the likes of BSC or Ethereum to let investors start buying it.

Cryptocurrencies that are available on only one DEX might be a scam, or at best, a pie-in-the-sky project with no realistic chance of success.


5. You can buy but you can’t sell.

A common cryptocurrency scam is the “rug pull.” Investors buy the coins through a DEX, then at some point the founders withdraw all funds from the liquidity pool and disappear. The smart contract may also be written so that investors can’t resell the coins to the pool.

A famous rug pull was Anubis DAO in November 2021, which claimed to be a “decentralized reserve currency.”

There was no website (another warning sign), but the project had very active Discord and Twitter accounts. Initial sales of its ANKH token sales raised $60 million in ETH. Then, 20 hours into the sale, the liquidity pool was drained.


6. Social media criticism is not allowed.

This might be the biggest red flag alerting you that a cryptocurrency could be a scam.

Virtually all crypto projects have both a website and a presence on multiple social media platforms, particularly Discord, Telegram and Facebook. There, current and potential investors can exchange ideas and ask questions. A legitimate project encourages active debate, and both the moderators and other members are eager to help.

If you post critical questions about the project’s tokenomics, roadmap or development team, and a moderator argues and eventually bans you, this is probably an extremely risky investment. When the project eventually collapses, their social media presence disappears.

A good example was Helios Charts, which sounded promising until it shut down in early 2022, leaving behind only the “Helios Charts [Officially A Scam]” Facebook group.

Hopefully, this list of the top 6 signs that a crypto project may be a scam will help you avoid expensive investment mistakes. If you find this topic interesting, check out our article “Squid game crypto - anatomy of a rug pull”, or get more info in “How to detect crypto scams.

This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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