How to Spot Cryptocurrency Scams
Cryptocurrency scams are easy to spot when you know what to look for. Legitimate cryptocurrencies have readily available disclosure, with detailed information about the blockchain and associated tokens.
Read the White Paper
Cryptocurrencies go through a development process. Before this process, there is generally a document published, called a white paper, for the public to read. If it's a legitimate white paper, it clearly describes the protocols and blockchain, outlines the formulas, and explains how the entire network functions. Fake cryptocurrencies don't produce thoroughly written and researched white papers. The fakes are poorly written, with figures that don't add up.
If the whitepaper reads like a pitchbook and outlines how the funds will be used in a project, it is likely a scam or an ICO that should be registered with the Securities and Exchange Commission. If it isn't registered, it's best to ignore it and move on.
For comparison, read the white papers of well-known cryptocurrencies, such as Ethereum and Bitcoin.
Identify Team Members
White papers should always spotlight the members and developers behind the cryptocurrency. There are cases in which an open-source crypto project might not have named developers, which is typical for open-source projects. Still, you can view most coding, comments, and discussions on GitHub or GitLab. Some projects use forums and applications, like Discord or Slack, for discussion. If you can't find any of these elements, and the white paper is rife with errors, stand down—it's likely a scam.
Beware of "Free" Items
Many cryptocurrency scams offer free coins or promise to “drop” coins into your wallet. Remind yourself that nothing is ever free, especially money and cryptocurrencies.
Scrutinize the Marketing
Legitimate blockchains and cryptocurrency projects tend to have humble beginnings and don't have the money to advertise and market themselves. Additionally, they won't post on social media pumping themselves up as the next best crypto—they'll talk about the legitimate issues they are trying to solve.
Most valid cryptocurrency developers do not market the project's coin. Instead, they post documentation that outlines the cryptocurrency's purpose. If it appears to lack a purpose, it's likely (but not always) a scam. It might be a cryptocurrency just to be a cryptocurrency, similar to Dogecoin, which has no official purpose and was advertised as such.
You might see cryptocurrency updates about blockchain developments or new security measures taken, but you should be wary of updates like "millions raised" or communications that appear to be more about money than about advances in the technology behind the crypto.
Legitimate businesses exist that use blockchain technology to provide services. They might have tokens used within their blockchains to pay transaction fees, but the advertising and marketing should appear professional-looking. Scammers also spend on celebrity endorsements and appearances and have all the information readily available on their websites. Legitimate businesses won't ask everyone to buy their crypto; they will advertise their blockchain-based services.
Where there is a lot of hype, there is usually something to be cautious of.
