_{Alt text: A man in a helmet raising a digger over a large Bitcoin symbol.}

_{Image illustration credit: Mohammed Hassan, Pixabay.}

There are a lot of cryptocurrency projects being announced daily, and crypto enthusiasts sign up on the host platforms to engage and partake in the promised incentives awarded to participants with eligible stakings and accounts. However, there are a lot of scams hidden under the guise of these projects, where unsuspecting individuals fall prey and lose their funds stored in the accounts used to sign up for these projects.

This article aims to discuss how you can protect your digital assets from theft and unauthorized access.

Common Red Flags Used to Identify Fake Cryptocurrency Projects

You know that all cryptocurrencies are based on decentralized networks with high volatility, which is why you need to learn how to protect your investments with the following information.

Lack of Transparency

A project’s transparency is valid when its cryptocurrency transactions are stored on a public ledger and recorded in several locations. This makes it easy to audit and less susceptible to change. When a newly announced project does not have the following – a team with verifiable identities, anonymous developers with no track of former projects, a shady project roadmap, and a whitepaper that seems vague or copied from other projects- it could be a clue that it is a fishy venture.

Genuine crypto projects will aim to gain the trust of investors and stakeholders by currying positive public sentiments. They would have to prove all of the transactions carried out on their platforms can be traced back to their origins and unchangeable, creating room for trust among the trading parties. Chen Li, the founder of Youbi Capital, spoke about transparency in blockchain for BuiltIn and stated expressly that “in practice, the way blockchain is being applied is less and less apparent. From NFT rug pulls to meme coins that deliberately hide back doors, many projects are intentionally obscuring their operations to scam buyers”. He also insists that regular transparency reports should be the industry standard.

If a project you are interested in does not conduct regular transparency reports, it will be wise to let go of it for other opportunities.

Unrealistic Promises

A genuine cryptocurrency project is supposed to let investors know how it plans to benefit users. When there are guaranteed high returns with little to no public knowledge of how this is to come about, the project can be labeled a get-rich-quick scheme.

Most new projects parade themselves as “the next Bitcoin”, encouraging coin-shilling tendencies while marketing their project. This makes investors want to buy into their claim because they do not want to miss out on what might be the next big thing and gain, and the precedented massive gains.

It is human nature to want large profits for little work, which is why such events always have a large number of victims. When visiting a new project, it is important to peruse its underlying blockchain, its partnerships with verifiable organizations, and its project roadmap.

Social Media Presence

Have you ever noticed a project that gets launched and overnight becomes the most talked about subject on social media? This is a feature of a crypto shilling, where influencers with large social media followings are paid to promote a particular asset with positive written content and videos. These spark interest in the project and create a trail of investors who want to invest and make it part of their digital assets.

This is quite tricky to decipher if the project is a valid one or not because this activity will create a hike in the monetary value of the asset, which everyone wants a part of.

Market manipulation has been around for a while, and will continue to remain predominant as long as there are willing participants.

Social media can be used to assess fake cryptocurrency projects by looking at the profiles of the creators/team, how long they’ve been around, the kind of content they put out, and the level of engagement they get from the crypto community. It is advisable to check out the project’s creators on LinkedIn and Twitter, to check out their professional histories.

A genuine project’s social media pages should have consistent information being reeled out about updates on the team and the ongoing project to keep investors informed.

Quality of Web Design

A new project is bound to have a unique approach, as its team will want to be outstanding and make a difference in the competitive crypto market. This will be reflected in their website, which should be properly optimized and free of fraudulent links.

If the site looks spammy, with a lot of inappropriate ads and reroutes to other pages, it would be wise to abandon such a project. If the website also has features gotten from other existing sites, obviously copied to replicate their features, its genuineness can be questioned. Other things to consider are if there are requests for prospective investors to link their wallets with little to no information on why they are to do so, and requests for some sort of payments to gain access to a service termed exclusive.

Pump and Dump Schemes

A pump and dump scheme is a situation where a new token is marketed by a lot of people on social media, creating the impression that it will have a high monetary price in the long run when it has shown no long-term value.

Here, there is a sudden spike in the token’s price, which is paid for by employing an existing cryptocurrency, meanwhile, the token has an inflated trading volume which has little to no use in the real world.

When the creators of this token have achieved the level of price spike they want, they conduct the rug pull. What happens when a rug you’re standing on is pulled from under you?

You lose your balance, and in the worst cases, you fall and sustain injuries.

In the crypto market, when a rug pull is done, the creators of a particular token or coin liquidate the invested finances in that project and sell a major part of it, reducing the value of that token to nothing. This affects the investors as their financial investments are taken from them.

Plagiarized or Fake Content

As mentioned earlier, a new project is supposed to provide new information about their ideas and their intent in the market.

Projects that turn out to be scams often have these features;

Websites that have spelling mistakes that can confuse people for major existing projects, e.g. CoinnBase instead of CoinBase, MeterMask instead of other MetaMask, and other similar examples.
Whitepapers that are copied from other projects.
Fake endorsements from major voices in the crypto space.
New Reddit accounts promoting the project.
Little to no information on Search Engine Result Pages (SERPs) about the project.
Fake partnerships with big brands.
No information about the project on scam site detectors.

Looking out for all of these will help substantiate the validity of a new project’s claims to give overnight wealth and prevent you from unforeseen losses.

How to Evaluate a Cryptocurrency Project for Credibility

Now that you have learned how to identify common red flags, this is how to evaluate a new project and ensure it is credible enough for investments.

Researching the Team

Look for the team members on all social media platforms, Twitter, LinkedIn, Reddit, and others you might have accounts on. Identifying the backgrounds they claim, check how long these accounts have existed and the kind of activity it has. Take time to check out their professional histories and see if they match their claims.

Reviewing the Whitepaper

Analyze to understand the project’s goals and objectives, and what you stand to gain from investing in them. Assess the technical details and feasibility for a viable product or solution, and ensure there are no grey spaces that confuse. Also check out for plagiarism, to be sure there are no snippets of other existing projects’ whitepapers there.

Technology Analysis

Examine the blockchain and consensus mechanism and verify the use of a blockchain. If their codebase is available, examine it for transparency and any hidden discrepancies. While doing this, keep in mind that a genuine project should have a clear technical foundation.

Community Engagement

Monitor online forums and social media channels to gauge the level of community trust and activity. Do not ignore negative sentiment, instead try to find out the root cause and see if the new project has links to previous/current dubious dealings. Be on the lookout for spammy content and replies and quick buzz which leads to a lot of interaction.

Regulatory Compliance

Check for the project’s compliance with local and international regulations. Identify any red flags in the legal structure that could lead to potential issues later on. Compare these with reputable sources in the crypto space to validate your findings.

Conclusion

In the world of cryptocurrencies and digital assets, there is a thin line between opportunity and risk. It is essential to be vigilant and well-informed about the possible ways you could fall victim to fake cryptocurrency projects. By knowing these common red flags and evaluating projects, you can protect your investments and contribute to a safer crypto ecosystem.