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Want to be an expert in identifying scam crypto tokens?
If yes, check out these simple methods mentioned in this article to safeguard yourself from scammers.
Wherever theres enormous demand and money inflow, there exists the possibility for scams.
According to Chainalysis, 2022 witnessed the biggest-ever crypto hacking since the inception of cryptocurrencies.
Furthermore, the hackers stole a whopping $3.8 billion from various platforms.
As an informed investor, it is essential to understand and spot scams around the crypto space.
What is a Crypto Scam?
So, what are crypto scams?
Basically, a crypto scam involves fraudulent activities or schemes to generate financial benefits.
Also, in most cases, the victims of such scams lose their valuable crypto assets to scammers.
The increase in popularity of crypto projects and their tokens attracts millions of new users to this space.
For this reason, fraudsters find it easy to trap beginners with less knowledge about the crypto space.
Thus, it pays to know the bestcrypto platformsand use safe crypto wallets.
The key is to be vigilant!
Here, the fraudsters convince users to invest by guaranteeing enormous returns.
But how do they pull out such scams?
Lets dive into it now.
How do Scam Tokens Work?
The main motive of the scammers is to convince users to buy a large number of scam tokens.
To do so, the major tactics used include the rug pull method.
So, whats a rug pull?
Lets understand that right away!
Finally, after this process, investors are left with invaluable crypto tokens.
The scammers initially pump the token price to create fear of missing out (FOMO) among investors.
Therefore, the token price surges massively in a few hours.
Finally, once that token reaches a particular price, the developers sell out all their tokens.
One of the most prominent examples of rug pull was the Squid Game (SQUID) token in 2021.
This crypto token inspired by a popular Netflix series crashed after the developers ran off with the users investments.
Overall, this rug pull wiped out$3.3 millionof the users fund!
All things considered, it is important to recognize such scam crypto tokens and stay away from them.
How to Identify a Scam Token?
Therefore, research the mission and goal put forward by the developers.
Moreover, check the use case of the token that the project issues.
Genuine projects come with practical and clear use cases.
If you find cryptos that offer logicless missions, avoiding such tokens is the better option.
Furthermore, check the details about the major investors of a project.
If an established investor or investment firm is a major investor, its less likely to be a scam.
Most of the crypto crimes are conducted by anonymous founders and team members.
Ensure that the team members have work experience in the crypto sector.
Moreover, check their active profiles on LinkedIn, X, or Discord platforms.
Suppose youre a beginner in the crypto space.
However, note that this factor alone doesnt guarantee the credibility of a project.
#3.Read the Whitepaper
The whitepaper provides in-depth details about a particular crypto project.
you’re free to read the whitepaper from the projects website or platforms likeCoinMarketCaporCoinGecko.
A typical whitepaper covers a projects goal, timelines, and other important aspects.
you’re free to have a basic check on the whitepaper without having any technical expertise.
Projects without a whitepaper can be considered as a red flag.
Therefore, you’ve got the option to easily find flaws in a fake projects whitepaper.
#4.Check Exchange Listings
Most prominent exchanges undergo strict inspection before listing a new token.
Once this form is submitted, a team of experts thoroughly reviews the project.
Finally, after all conditions are met, Binance lists the token.
This verification process itself eliminated a large number of scam crypto tokens.
Suppose you sell a substantial number of a token; the overall price shouldnt drop significantly.
you might check for a tokens liquidity on Uniswap or other decentralized exchanges (DEXs).
This data will give you an exact idea of the liquidity of a crypto token.
Lets consider the Ape In token as an example.
If you have a go at buy this token, itll show Insufficient liquidity.
Its always better to stay away from such illiquid tokens.
Illiquid cryptos are difficult to sell when a need arises.
As a result, even if you place a sell order, the order stays unexecuted.
Examine the marketing strategies that they offer.
Most scam projects focus on monetary aspects rather than technology and vision.
For example, their pages highlight huge fundraisings and potential growth.
you’re free to also verify if they have verified accounts on major social media platforms.
Most rug pull scammers dont spend much time, money, and effort verifying their online accounts.
In addition, accounts with a large number of fake followers are also a sign of scam tokens.
The best way to identify the genuineness of followers is to check the engagement for their latest posts.
For example, an account with a million followers and few engagements can be considered a red flag.
Freebies are other major marketing tricks scammers implement to attract new users.
Therefore, its better to avoid a project offering lots of free rewards, gift cards, or tokens.
Moreover, you could also find irregular trading volumes at certain times.
you could easily spot these massive spikes in price and volume using simple charting platforms.
For instance, you could search the token chart atTradingViewto get historical price and volume movements.
Finally, this scam tokens price crashed to almost zero in a few seconds.
In short, avoid tokens that show sudden and extreme price and volume movements.
#8.Check Tokenomics
Tokenomics is basically the economics of a crypto token.
Suppose they sell all their holdings; the tokens price will crash to zero.
you might quickly check the simple tokenomics of a crypto token using platforms like CoinGecko or CoinMarketCap.
#1.Token Sniffer
Token Snifferallows you to monitor the real-time activities of crypto tokens.
This active monitoring helps to detect potential security threats around the selected token.
At the time of writing, Token Sniffer supports 13 prominent blockchain networks.
After a few seconds, youll get all the important information about that token.
#2.Honeypot.is
Honeypot.ishelps you to identify potential tokens that function as a honeypot scam.
Thus, just having asecure crypto walletisnt enough!
Here, you simply need to paste the contract address.
It is a must-have platform that helps you to research projects and cryptocurrencies.
This platform provides real-time data about a tokens price, market cap, and trading volume.
Moreover, you’re able to also check the total, maximum, and circulating supply of tokens.
Also, you could find the tokens contract address, website, whitepaper, audit report, and more.
CoinMarketCap also provides the names of exchanges that list a particular token.
This list includes the trading volume and liquidity score of the token.
#4.Etherscan
Powered by Ethereum,Etherscanis a reliable blockchain explorer.
you’re free to use this tool to check in-depth information about a token.
you could use this tool to detect large sell-offs in a cryptocurrency.
Moreover, you could also spot the founders activities related to that tokens project.
This data helps you to spot potential scams like rug pulls.
In addition, you’re free to go through the comment section to check the possibilities for scams.
Also, Etherscan helps you to identify the wallet where the hackers send the stolen assets.
Most importantly, this tool has a reputation option to inform the users of the credibility of a token.
In contrast, OK reputation satisfies most of the factors of a genuine token.
However, it doesnt provide a 100% guarantee to trust that token unquestioningly.
It would be best to avoid tokens that fall under this reputation.
Final Words
There is no single factor that helps you to find a scam crypto token.
In conclusion, avoid projects that sound too good to be true.
Ultimately, dont let the fear of missing out (FOMO) ruin your mental and financial peace.
Next up, the best Crypto lending platforms with tips on how to choose the right cryptocurrency lending platform.
