8 ways to check if a coin is a scam
The blockchain industry is rife with promises of quick, easy money. It is critical to identify which projects are safe and which are doomed to fail after three months. This article describes eight checking methods that traders can use to avoid effective scams.
1. Start with the basics
To verify the legitimacy of a coin, start with the most accessible method. For example, Google searches and Twitter include researching the coin and its team, checking for any red flags or warning signs, and looking for reliable sources of information such as official websites, news articles, and verified social media accounts.
Check for Social Media Red Flags A verified X (Twitter) account can often help prove the legitimacy of the project. You can also participate in discussions about the token to understand the views and opinions of the community.
Be wary of projects with large social media followings but low engagement. Automated comments from fake accounts should also be a red flag. If all the comments are "This is a great project" and "Moon is coming", be careful.
Check the token address on Google Search <br>If you search online and can't find a clear home page, "white paper" or obvious purpose of the token, it's probably a scam. When searching for a token address, block explorer links, official websites, and white papers must be easily found. If not, take it as a red flag.
Also, be aware that Google ads are often a free zone for scam sites. Never click on ads at the top of Google search results. Make sure you are visiting the official website and avoid clicking on Wallet Drainers (note: malicious scripts for encrypted wallets that will transfer assets to attackers) or other hacking software.
2. Verify code on Etherscan
Visit the block explorer for the chain of your choice and see if the source code is verified. For example, on Ethereum's block explorer Etherscan, it looks like the picture below. The code in the image below is not verified and should be a clear warning sign. If the code is not verified, you may have encountered a scam.
Why don't scammers just verify their code?
Because once the source code of the contract is made public, everyone can know the intention behind the contract. Or a ridiculous token system, or a way for developers to steal all your tokens. But does this mean every unverified contract is a scam? Not necessarily, but it is a very serious danger signal.
3. Check out the Etherscan review section
This part is very simple, there is usually a comments section on each block browser. Most of the time there are no comments, but if a project is a scam you may find a bunch of angry people in the comments section. So be sure to click to check it out. If someone says it's a scam, there's a 99% chance it's a scam. If you are a victim of this project, please leave a comment.
4. Check DappRadar blacklist
You can compare the token blacklist compiled by DappRadar on Github. If the token address appears on the list, it is a scam.
5. Check the token details in the token index
If you can’t find the coin on CoinGecko or DappRadar’s coin index (or similar coin price trackers), then the coin is most likely a scam. If you see a warning like the one below, proceed with caution:
All legitimate tokens share their information with the token index website for verification. However, platforms like CoinMarketCap and Coingecko require certain conditions to be met.
Therefore, not all coins (whether legal or not) will automatically be listed on this coin index platform.
6. Check how many exchanges list the token
If the token is only traded on a few decentralized exchanges (DEX), it may be a scam. Listing on a centralized exchange requires KYC and additional trust, and the larger the exchange, the better the reputation of the token listed.
But tokens that are only listed on DEX are not all scams. Some projects do not require high transaction volumes, and some projects are only available to Web3 users rather than token traders.
However, tokens that are only listed on DEX are a riskier investment, and you are more likely to encounter a scam. The left side of the picture below is a token that can only be used on DEX, while the right side is a token that can be used on multiple CEXs.
7. Check the liquidity in the token balance pool
Before investing in a token, you may want to check the overall demand and availability of liquidity. It’s very easy to check the liquidity of a token on platforms like Uniswap V2 or other DEXs.
Liquidity refers to the amount of cryptocurrency or tokens locked in smart contracts, allowing users to buy and sell assets through (decentralized) exchanges. If liquidity falls below $100,000 or is declining rapidly, you may have encountered a scam.
When you use a DEX, be sure to check for basic other on-chain activity, including:
- Trading volume
- Number of transactions
- Independent active wallets interacting with smart contracts - Number of users using Web3 wallets to connect to the DEX.
If any of these seem unusual, do a little more research.
8. Use third-party analytics tools
Here are some token analysis tools:
Smell Test : Automatic auditing of tokens. The score is out of 100. The lower the score, the more likely it is a scam.
Honeypot : Honeypot is a smart contract that deliberately inserts obvious programming flaws. When an attacker exploits this flaw, another piece of hidden code is activated to counterattack the attacker. Honeypot should be avoided whether you plan to become a crypto hacker or not.
DEXtools : Record the real-time price of the token and will explain your instant assessment of the true value of the token.
Whether on the blockchain or in the real world, scammers will always exist. By following these tips, you should be able to avoid fake coins designed to scam people out of your money.
This article is reproduced in cooperation with: PANews
