Best Practices to Avoid Being Scammed
Cryptocurrency is an industry still in its infancy and, unfortunately, has a reputation as being extremely volatile and rife with scams. There has been more oversight and regulation brought in recently to address this, but this regulation has focused mainly on exchanges and ICOs. Despite this increased regulation, users continue to fall victim to scams, rug pulls, and Ponzi schemes.
One of the best practices to shield yourself from falling for these scams is to do your own research. Properly researching cryptocurrencies, exchanges, and projects before you make a financial commitment has never been easier. Doing so can save you a bunch of heartache if the project turns out to be fraudulent.
Use Crypto Screeners
One of the best tools someone can utilize for screening coins and tokens for potential scams is through third-party APIs that track the cryptocurrency space. Sites like CoinMarketCap and Coingecko allow users to see the full breakdown of a single coin or token. This includes the history, price, market cap, and circulating supply.
More importantly, these sites track the distribution and vesting periods for coins and tokens. This is an important step for analyzing how likely a coin is to be a scam. Knowing what percentage of a coin is held by whales is a good indication of how susceptible the coin could be to a rug pull. Whales that hold a large percentage of coins can disproportionately impact the value of a coin through a mass sell-off.
Double Check Policy IDs, Papers, and Links
Another key resource for evaluating the viability of a project and whether or not it has the chance of being a scam is a coin’s whitepaper. Whitepapers are documents that a project will release to explain what the coin is and aims to accomplish. They do not need to be overly complex or convoluted. The Bitcoin whitepaper that introduced peer-to-peer cash and kick-started the cryptocurrency industry is only nine pages long.
A project that is missing or has a poorly conceived whitepaper is usually a red flag for investors. It’s an important vetting step and can identify token distribution amongst other issues. Investors can also make use of LA Token’s VCTV shows and interact directly with the developers of new coins and ask direct questions about their product.
Too Good to Be True
A good rule of thumb to remember is that if an offer looks too good to be true, it usually is. Staking and DeFi lending protocols can often offer double-digit returns, and this has come to be considered reasonable. But it is when you’re offered an opportunity to double or triple your money in a short timeframe that users need to be vigilant.
These kinds of scams usually require the user to send their cryptocurrency to an unknown address, often with the impression of legitimacy. Utilizing QR code addresses with old videos of legitimate industry specialists is a known technique called crypto giveaway scams. These scams often carry the promise of doubling the investment while making them appear legitimate by attaching a trusted source like Elon Musk’s name to it.
It is critical to understand that crypto transactions are final. Never send your crypto to an account that you have not verified first. One way to protect yourself against this type of scam is to use a blockchain wallet address search engine (block explorer) to verify the account. Sites like blockchain.com and cointracker.io offer a way to see how long an account has been active and the transactions that have occurred on them.