All posts

How to verify crypto projects to keep away from scams?

How to verify crypto projects to keep away from scams?

Written by


Published on

Recently, there have been an increasing number of scams consisting in extorting money through fake cryptocurrency projects. This is all down to the fact that the ranks of scammers on the market keep growing. More and more people are interested in cryptocurrencies, they invest without understanding how cryptocurrencies or stock exchanges work. They don’t know how to read project documentation or they fall for false information. So to what should we pay particular attention when verifying a crypto project in order to avoid losing funds?

A cryptocurrency project that turned out to be a scam

It’s worth pointing out that a scam in the context of fraud through cryptocurrency projects is a profit-making venture only for creators, not investors. Usually, the creators of such projects know well from the very beginning that the investors will be left with nothing.

Let’s have a look at Kamil’s story to see how an unfortunate investment in a dishonest project could look like. On his YouTube channel – “Encyclopedia Kryptowalut” – he published a video in which he talks about how he was tricked and lost 20 thousand zloty as a result. The project in which Kamil invested was called “Spacey2025”. It is an NFT based game in which players can exchange NFTs for various game upgrades. Once the game was created, a token related to the project was meant to follow. Nevertheless, it hasn’t been listed on any large stock exchange – and its listing was the condition for paying out investors the tokens they had purchased. They still haven’t received most of them. The game has many imperfections, it often lags and practically nothing can be done in it, not to mention the lack of perspective for using the NFTs.

Spacey2025 seemed to be a really promising project, it had decent-looking contracts with sponsoring stock exchanges and over 100,000 Twitter followers. Even after the truth about the creators’ dishonest behavior came to light, the suspiciously high number of followers did not change drastically. This may be a warning not to rely too much on the social media following since it can be bought by the creators.

The Youtuber tells us that, some time after making the investment, the team responsible for the project removed the whitepaper from the website and did not pay for the services provided by the promoters. Many investors have sued the creators for fraud and they, in turn, tried to stage a hacking attack that was supposed to be an excuse for the insolvency.

Many similar projects spring up on the market like mushrooms. They most likely stand no chance of being successfulfrom the very beginning and do not provide any real income for investors who are not involved in creating them.

Kamil’s story and his mistakes can be a lesson on investment security for all the new investors.

How to check crypto projects? Key aspects

If you want to invest your savings in a new cryptocurrency project, you should pay attention to several of its most important aspects:

  • The first one may be the fact that cryptocurrencies are noting but statistics – investing in new startups without a positive or negative opinion is very risky. You can never know if this is a scam, as you can’t usually see it at first glance. These websites are professionally designed and the promotions of new games or projects can be shared on other trusted platforms.
  • The second aspect is the observation of social media, as mentioned in the example of the Spacey2025 project. The number of followers as well as the opinions and positive comments can be purchased – they are usually not in English, but in Turkish for instance. This poses a great difficulty while self-verifying the security, because it is often thanks to the opinions of others that we make our own choices. Therefore, compare the number of Twitter followers with the number of likes or other possible reactions. If the given account has hundreds of thousands of followers and only 10 likes under the posts, it should raise the red flag.
  • Another factor that is worth paying attention to when verifying projects is your own analysis of the documents provided by their authors. Technological documentation such as whitepapers may be incomprehensible to the new investors. Nevertheless, it is worth spending some time on research and getting to know the tokenomics of projects before making any investment. It can be a red flag if, for some reason, a project does not have complete pricing information (project finances – pre-mining, pre-sale and total supply), its main objectives, or the long-term vision described in the documents.
  • If the platform responsible for the project has already been involved in some kind of activities in this field, it is worth finding out what were the experiences that the trusted investors, our friends or YouTubers had while cooperating with the project team. It is definitely a good idea to do a background check on specific people in charge of it on Linkedin. In the case of Spacey2025, the CEO is a poker gambler, which should raise another flag. Publicly available websites such as honeypot.is may also help while assessing the overall risk.
  • Where has a given token been listed or will be listed? Is it a low volume exchange? If the answer is yes, there is a risk that it will be difficult to cash it out reasonably. Spacey2025 has not appeared on any major stock exchange, which may already make us wonder about the reason behind it.

Only the cryptocurrency projects? Diversifying the portfolio

Many crypto businessmen have earned their fortunes by investing their assets in the new projects. However, we should keep in mind that cryptocurrency investments can bring not just the great profits, but also sudden losses – even if we follow all the previously mentioned aspects of project verification. Therefore, we should definitely remember about capital diversification and prior risk analysis. The risks associated with investments can never be completely eliminated or predicted, but we can at least minimise the possible losses.

Diversification, i.e. allocating your capital into different assets, is designed to protect investors from losing their entire savings. When investing in digital assets that carry risk, the exchange rate can’t be predicted, only speculated on. By dividing the capital between different assets, you can be sure that you won’t lose all your money in the event of a bad investment call. Apart from the cryptocurrencies, you can invest some of the savings in, for instance, real estate, stocks, raw materials or works of art.

Author: Zuzanna Kwiecień