How to Find Legitimate Cryptocurrency and Avoid Scams
Last updated on March 4th, 2023 at 03:03 am
Cryptocurrency investing is such a minefield these days; how to find legitimate cryptocurrency is a crap shoot. For every promising, legit crypto that comes our way, there are at least dozens, if not hundreds of scammers.
According to Time Magazine, scammers ran off with $14 billion in crypto alone last year. So how do you know if the cryptocurrency you’re looking to invest in is legit?
Do you want to learn how to avoid crypto scams and spot the red flags? Don’t worry, my ultimate guide is here to give you a hand.
Disclaimer
This is not financial advice, this is just a beginner’s guide on how to find cryptocurrency that is worth investing your money in.
How to Check Cryptocurrency Legitimacy
Check the Blockchain Explorer
BSCscan and Etherscan are websites that allow you to scan the blockchain for any scams or illegitimate activities. It’s great for peace of mind when looking to invest in new crypto. Simply type in the address of the token or coin you’re interested in and the site will do all the hard work for you.
How to Use Etherscan and BSCScan
In the image above, you can see the name of the crypto, the contract address. and the addresses of the contract owners.
Below that is a menu with the following choices.
NOTE: This is what you will see on Etherscan. BSCScan has the same items, but the layout is a little different.
Transactions: Shows the transactions of everyone buying or selling the crypto.
Internal TXns: This shows the transactions of the contract holders. You can see how much of the crypto they are allotting to crypto exchanges and other addresses.
NOTE: BSCScan does not have the above.
Token Transactions: (BEP-20 if on BSCScan, ERC-20 if on Etherscan) Shows all the token transactions of that particular crypto.
Contract: Where the contract is, obviously. Here you can read the contract and find out if there are any red flags.
A popular rug pull scheme that is being implemented is that in the contract a certain amount of the crypto is going to charity. If you see something like that, dig deeper; it’s most likely a scam.
Here is another page you should look at.
Transfers
This can help you determine how much crypto is being traded. If there is a high volume, it’s a good start. You can also use it to check to see if some holders are splitting up their haul and moving it to other wallets to give the impression that tons of different people have this coin.
Better yet, if you see a small number of wallets (some of them even contract wallets) moving amounts from their wallets to the DEXs and back to their wallets, something hinky is afoot.
Holders
One of the most important things you will find here. This is where you can find out how much of the crypto is being held by how many accounts.
You will want to look for the following:
-How much of it has been burned and relegated to a dead account (one with all zeros with the word “dead” at the end)
-How many of the tokens are in the wallets? If you see a very large amount of tokens in a handful of wallets, that’s a huge red flag.
-How much has been delegated to the DEXs? If there are more crypto in the DEX accounts than there are in the individual accounts, it’s a promising sign.
Info
The basic info of the coin, which includes the volume traded over a 24 hour period, market cap, and circulating supply.
DEX Trades
The record of trades that are being conducted over the decentralized trading platforms.
Contract
Same as the CONTRACT tab aforementioned above.
While both BSCScan and Etherscan have many more tools at your disposal, the above-mentioned are the most important when it comes to your research and verifying if a potential investment is worth it.
How much of it is in Decentralized Exchanges? (DEX)
Is the liquidity locked and for how long? You can find this on sites like UniCrypt or Team Lock to determine such. If there is a small amount or no locked liquidity, that particular crypto may be one to avoid.
Is the contract audited?
Has the contract been audited by a respected third party? Projects who want to be taken seriously and are in it for the long run will state that their contracts have been audited.
Well-respected companies include CertiK, Chainsulting, and OpenZeppelin. Of course, you will have to do some digging in terms of whether or not the audit company itself is worth a crap, but any developer who asks a respected third party to audit their blockchain should be worth looking into.
What Does Dextools Say, and What is Dextools?
Dextools is a price data analytics tool in which traders can navigate decentralized networks very easily and you can also check the legitimacy of crypto tokens.
When you first go to the dashboard you will see pairs of, say Ethereum with the hottest trading crypto that is being shown on the decentralized exchange. Here, you can tell it’s Uniswap. Up at the top left corner of the page next to the logo is where you can choose which main crypto network you want to trade with.
The TOOLS bar on the far left showcase the following: (from top to bottom)
- Live New Pairs
- Pair Explorer
- Big Swap Explorer
- Multi Swap
- Stats
- New Pairs Bot
- Price Bot
Actually, these items are for deeper analysis into trading and exchanging. Right now I will show you the basics of checking token legitimacy.
Back up to the above image, where I have a red arrow pointing to it, you will click on it to go to the token info, as seen below.
Look at the score toward the bottom right, it doesn’t look very promising.
With the tools just below the name, you can do deeper research, such as BSC/Ether scan, liquidity lock, social media profiles of the developers, etc.
Similar sites and apps to check on legitimacy:
- I’m still getting to know this site but what I have seen, I like. It gives info on not only tokens but crypto exchanges, NFTs and farms.
Unicrypt (seen in the DexTools interface above)
You can use it to check and see how much liquidity is locked per the exchange used. In addition, Unicrypt also offers upcoming presales, lock liquidity, mint your own tokens, token staking — this site has a lot.
- Snicker if you will at the name but the Poocoin app offers quite a lot. Not only can the app give you data on whether a digital asset is legit, but also give info on rug pulls and watches out for snipers. That is, if a token launch is about to be botted.
Ironically, the PooCoin token itself has a poor rating on the upcoming site.
- Self-explanatory.
I have used this site for a long time and it is one of the best in sniffing out what possible rugpulls, honey pots, and just shitcoins in general.
Read the White Paper
One way to check is by reading their whitepaper. Some whitepapers have turned into marketing tools for the new cryptocurrency, so don’t be surprised if the whitepaper is such.
However, this doesn’t necessarily mean the token is garbage. There are no rules on what a whitepaper should include.
What is a Whitepaper?
A whitepaper is a document that outlines a cryptocurrency’s features, technology, and goals. You can usually find it on the coin’s website.
To read a white paper, you’ll want to look for the following:
- What does the project do?
- The problem the crypto is trying to solve.
- How do they plan to solve it?
- How does the token work?
- Why do this on the blockchain?
- Token economics
Beware of misspellings and grammar mistakes. That alone should make you want to step away from the project.
Check Out the Website and the Community
Check the website: Does it look professional? Is it user-friendly?
Is there an active community around the coin? Are they friendly and helpful? Do they actually talk about the project(s) surrounding the coin or do they just constantly shill the crypto with no criticism to be found?
Google the token name and find out what are people saying about the coin on social media and online forums. Bitcointalk.org and Reddit are two excellent places to start finding out information that you need to know.
Actually, when it comes to Reddit, go to the mail cryptocurrency sub for the real word. In my experience, the sub-Reddit of many cryptos are just mostly shills, even the ones for legit projects.
Doxxing the Development Team
Any legitimate crypto development team worth their salt will be proud to be associated with their projects and not be afraid to be out in cyberspace with their real names and possibly photos.
Questions to ask yourself are:
- Who are the founders, employees, and advisors?
- Does the team have any experience in blockchain or related fields?
- Is it relevant to the project they are working on?
- What is their general reputation?
Check their LinkedIn and other social media handles. How big is their following? How active is the community? A big but passive following tends to indicate possible (probable) fraudsters.
Another thing you can do to check the legitimacy of the team is if they have photos of themselves, do a Google photo search of them to see if the photos really are of the team. Some fakers have been busted by putting stock photos of other people as themselves. If they do that, major red flag.
Other Red Flags and Potential Scams To Avoid
- If you participate in airdrops and the airdrops are asking you to confirm your seed phrase, it’s a scam.
- Never participate in anything that asks you for your seed, your wallet will be emptied toot sweet.
- If you are a guy and you get texts from good looking women asking about crypto, scam scam scam. (Sorry, fellas.)
- If you get emails or texts about verifying your wallet or exchange account, DO NOT click on the link sent to you. It is most likely a phishing attempt. Log into the exchange directly. Also, double-check the email address it was sent from. If it looks like it was spoofed or has a bunch of mumbo jumbo characters, scam.
- Double, triple, quadruple check the address before sending or receiving, there are malware out there that use copy-paste tricks to send it to a scammer’s address. Make sure the address you send it to is the correct one.
- If the crypto has the following in its name:
- Doge
- Shiba
- Inu
- Elon
- Musk
- Moon
- Rocket
Also, If the total coin circulation is over 1 trillion, it is most likely a scam. It sure as hell will not make Bitcoin price territory, right, Shiba Inu fans? *ducks*
One last thing: if they promise you a fantastic return on investment, run away.
Summing It Up
The cryptocurrency market is literally the Wild West, and new digital assets are being added every day. Finding the right cryptocurrency investment is like trying to find a needle in a haystack and fraud is everywhere.
With the tools I have provided, hopefully, you as an investor can use them to further educate yourself when/if you decide to start investing and try to identify some gems out of the crap. Remember, this is not financial advice.
To recap:
- Check the liquidity on Etherscan/BSC Scan.
- Read the white paper.
- See if the coin is being traded on decentralized exchanges.
- Read the whitepaper. How does it look? Does it read like they are trying to solve a problem or are they just marketing themselves? Beware spelling and grammar errors.
- Check for red flags, such as a large concentration of tokens in a few wallets or an unaudited contract.
- Look into whether or not the development team has been doxxed and whatever other cryptocurrencies they have been a part of.
Most of all, trust yourself and your instincts. If it looks and smells fishy, it most likely is.
And there you have it! The ultimate guide to checking crypto legitimacy. Stay safe and do your due diligence, folks.
Author Bio
Dani Lehmer is the Founder and Head Honcho of Dani Digs In.
She is a Quality Assurance Analyst and blogger whose natural curiosity allows her
to dig in (pun intended) to help people build their businesses and satiate curiosity
in regard to data science, analysis, and crypto.
