Scam coins, for better or worse, are part of the nature of cryptocurrency due to the lack of regulations in the industry. It is estimated that over 80% of ICOs and coin launches (mostly on Uniswap) are scams.
It is so common that a new term has emerged for when a scam coin team decides to liquidate their coins and run off with the money – rugging. As in, pulling the rug out from under you.
Anyway, this article will cover how to spot scam coins. It’s important to note that this is not a surefire way to spot a scamcoin. Dedicated scammers will hire actors, create dummy LinkedIn accounts, and more to push their scam. These tips will help you spot the majority of scamcoins, though.
Most scam coins are really not very sophisticated.
Spotting Scam Coins
Here are the most common ways to spot a scam coin. Again, this list is not comprehensive. Instead, view this as a sort of flagging system. If you see too many red flags, then the cryptocurrency is most likely a scam.
The first sign that you might be dealing with a scam coin is if you see the development team is anonymous.
Yes, we know Bitcoin and Monero were both created by anonymous developers. Bitcoin was the first major cryptocurrency, so it gets a pass. Monero is a privacy coin, which almost requires having an anonymous developer.
Most cryptocurrencies have no use for an anonymous developer. This makes it far more likely that a cryptocurrency with anonymous developers is a scam coin. Most people do not want to tarnish their reputation by being involved in a scam coin.
To summarize, avoid cryptocurrencies launched by anonymous developers in 2021.
If a cryptocurrency has fake developers, then it is 100% a scam. Scammers know that many are skeptical of cryptocurrencies launched by anonymous developers. Due to that, they will often create fake developers for their cryptocurrency.
So, how do you spot a cryptocurrency with fake developers?
It’s easy. Here are some easy to spot signs of fake developers:
- First names only on the developer page.
- No social media pages.
- LinkedIn account with not many pages or followers.
- Only one picture across all media.
- No video interviews.
Those are some of the easiest signs that you are dealing with a fake development. Again, scammers have been known to use fake actors. But this is rare enough that it’s not too big of a concern.
Scammers generally want to minimize investment into the scam.
Poorly Written Whitepaper
Another sign of a scam coin is a poorly written whitepaper. A whitepaper, for those that don’t know, should adequately answer what problem the cryptocurrency solves, a roadmap, and offer a basic technical explanation for the code.
If the whitepaper does not do so, then the cryptocurrency is either a scam or going to fail.
Note: If a cryptocurrency does not have a whitepaper, then it is 100% a scam.
This is one of the more vague signs of a scam, but it’s worth mentioning.
A cryptocurrency that makes big promises is usually a scam or destined for failure. The most common promise they make is that they will become the next Bitcoin, become a digital payment processor, or replace fiat currency.
All of those are a massive undertaking for a cryptocurrency. It took Bitcoin 12 years to even get close to that point.
However, a big promise like that does attract cryptocurrency rookies to the project because they see a coin that costs under $0.01 and think it could be worth as much as Bitcoin.
That has never been the case.
Unresponsive Developers on Discord or Telegram
We recommend going on the cryptocurrency’s official Discord or Telegram and talking to the developers. If they are unresponsive or combative to your questions, then that is generally a bad sign.
Generally, the developers for these smaller projects should be engaging to the community and at least know what they are talking about.
This is probably the weakest sign that you are dealing with a scam coin, though. Sometimes the developers are simply busy. Other times the scammers are knowledgeable about cryptocurrency and know the right answers.
Still, clueless developers or combative developers are a bad sign. It means the cryptocurrency is either a scam or destined for failure. It’s an unwise investment either way.
Finally, copy pasted code is a nearly 100% indicator that you are dealing with a scam coin. If the development team cannot create their own code, then it is a scam.
Remember, scammers are lazy. They are not writing their own code for something that will last a few months. They will simply copy an existing ERC-20 token, change the name, and heavily market it.
What To Do If You Fell For a Scam Coin?
Sadly, there is nothing you can really do if you have fallen victim to a scam coin. Basically, chalk it up as an expensive lesson.
It’s unfortunate, but this is one of the drawbacks – the only drawback in our opinion – of decentralization.
Will Scam Coins Ever Stop?
No. Scam coins are something that comes with decentralization. There is no centralized authority to regulate scams. It is basically the Wild West in cryptocurrency, so caution must be used before making an investment.
Legitimate Cryptocurrency Indicators
Some indicators that you are dealing with a legitimate cryptocurrency include the following. Yes, these are basically the inverse of the previous mentioned points.
- Well-known developers OR developers that are not anonymous.
- The project solves an actual problem in cryptocurrency.
- Unique code.
- The project has been around for a long time.
- Scam coins rarely last more than a few months.
- A well-written whitepaper.
That is it for scam coins. We know this sounds scary. But scam coins are not that big of a problem if you know how to spot them. They generally follow the same formula, so it’s easy to spot them once you know what to look for in a project.
With that said, we recommend sticking to more well-known cryptocurrencies (Bitcoin, Ethereum, Chainlink, etc.) for maximum security. They generally perform better than microcap coins as well.