6 Tips to Spot Digital Asset Scams
During the 2017 crypto hype, the industry skyrocketed so fast that investors often did not have time to check the integrity of the digital assets they were buying into. Even if they made time, nobody cared much as long as the prices were going up and profits were being made. After the 2018 bloodbath, the crypto community reverted to some semblance of sanity and began looking for ways to identify the good, the bad and the scam.
But wait, what is a digital asset scam anyway? What might be considered as a scam by long-term investors might be perfectly okay for speculators who just want to make a quick buck. What might also be a scam in a certain country might be perfectly okay in another one. Confusing, yes?
As a participant in the crypto community, you never know where the next hit is coming from. You need to watch for multiple factors such as the digital asset itself, the wallet into which you are storing your digital asset, the exchange you buy and sell through, and keep an eye out for the loopholes that hackers can exploit.
While there’s no guarantee that any cryptocurrency or blockchain-related project will be legitimate or successful, this article will provide you with 6 useful tips to spot scams from a mile away.
Google the project’s name
Obviously, the first thing to do is to Google the project’s name and check if it has received some coverage. You’ll probably find blog posts from authoritative websites or even forum discussions where specialized developers have evaluated the digital asset’s repository code. Beware though that a lot of scammers are ready to pay to flood the web with fake content, so you should check your facts twice. A pro tip here is to add the keyword “scam” next to your Google search. This way, you’ll make sure to come across any web content that is linked to that project as a potential scam.
Check ratings by specialised websites
Most digital asset projects are subject to ratings by experts. Websites like icobench.com, icorating.com and icotracker.com offer global ratings for each new project based on different criteria such as identity verification for each of the founding members, transparency of the company financials, project milestones, as well as other key factors. As mentioned earlier, not all of these websites are objective in their evaluation and some of them might be heavily biased, which is why cross-referencing over several sites is important.
Find out who’s behind the project
Early cryptocurrency projects such as Ethereum and Litecoin were kicked-off by ambitious entrepreneurs who were well-known within the tech community. Soon enough, new projects popped-up everywhere, with unknown founders at the helm. Founders are key elements in the success of these projects. Make sure to gather enough relevant information regarding them. They should ultimately have a career profile that matches their crypto ambitions and a social media presence for a decent period of time.
Carefully analyse the project’s whitepaper and terms of service
Prior to introducing a new digital asset, founders usually communicate all details through a whitepaper. This document is a foundational piece that lays out the value, goals, plan, challenges, and a specific timeline for the project. Startups that don’t have whitepapers should not be on your list. If the startup continuously tries to deflect responsibility for anything in their terms of service, then this should raise red flags.
Don’t invest in projects you don’t understand
Even if it is tempting to jump into a hot new token that is going up in value, you should never put your money into things you do not understand. Otherwise, you’ll end up just like any non-informed speculator playing roulette. Before you jump in, figure out the added value of the project and the problem they are trying to solve. Your investment decision should mainly be based on your belief in a bright future for the token or digital asset project.
Guarantees of liquidity by major crypto exchanges
Now that you have checked all the previous tips, you’ll have to figure out if the project is backed by major digital asset exchanges. If it is not backed by at least one exchange, you could potentially be stuck with the token in hand and may have trouble finding buyers down the track. Exchanges are highly selective when it comes to listing new tokens. If none of them are announcing future support, then this should be a clear indication that founders have overlooked one major aspect of the project. Even worse, it could be an indication that the token has failed entry tests to the exchange, meaning that the viability and legitimacy of the token or project has come into question.
While no guarantees can be made regarding any new project that comes to the crypto market, there are many ways in which you can reduce your exposure to risk and prevent yourself from falling for a scam. By ticking off the above points and undertaking due-diligence, you can avoid being duped by shonky operators, prior to buying into that coin or token.