Before reading any further, this article is not in any way a financial advice, rather it tells you how to do Your Own Research to find out scam coins before investing in any cryptocurrency. We read the term DYOR everywhere, but how actually to do that? Doing your own research on a coin is a tricky thing to do successfully. We have explained below how you can find out whether a token or a coin is a scam or not.
Before investing make sure to read the solidity code of the contract. It will clearly show you the coin is a scam or real deal. As investing in cryptocurrencies is already a big risk due to high volatility. With reading solidity of contract code you can at least find out the scam pattern.
Make sure to see if the new coin or token is audited or not. It would have an audit report if it has been audited. You can read about almost everything related to it. Besides, if the coin does not have an audit report that rings the bell already. However, if it does, you need to also research the auditor’s reputation. Even the audited coins could be scamy if the auditor is new or has not audited any of the coins that are doing good in the business.
It’s highly recommended to look into the contract code as much as possible. If the coin is a scam, they would submit a different contract address at platforms that promote coins. Like this one. To meet such platform requirements the developers will submit different contract addresses to such platforms and a totally different one at communities like Telegram etc. They know if the contract code has issues, such platforms would not accept them in the first place.
You need to make sure that their communities such as Telegram do not have many bots. This is very easy to find out–just compare the number of online members at peak hours to the total number.
Let’s say they have 10,000 total members but less than a 100 are online most of the time. It rings the bell.
Coin Hodlers Percentage
On BscScan or EtherScan you should check the Hodlers and try to figure out the number of top hodlers. If a major chunk is held by 10% or more than that, that’s going to be a risky investment. As panic selling of someone may trigger the others and eventually all the major hodlers end up selling their share of coins which will move its price to downward–that happens mostly apart from the understandable exceptions:
- The locked Pancakeswap Liquidity (Check this Reddit thread for more information on that)
- Addresses like 0x000…00dEaD that ensure none can sell them which are used for burning coins only (Check this Reddit thread Be aware of burned supply coins for details)
- Many coins have PreSale or PreLaunch wallets that hodl more than 10% of the total supply. (There are different theories regarding PreSale coin purchases. Read more at this Reddit thread)
Checking The PooCoin
PooCoin is the best source to find out red flags, if there are any, about a coin, specially new scam tokens that get released every now and then. There are two ways to spot scam tokens at PooCoin.
- Red Warning Message – If you check a coin, it will warn you with a red warning message under the LP Box (about a scam coin/token). The message that pops up would be like “liquidity is not locked, the dev can take everything if they wish”. In these cases, there is no point in investing in that.
- HoneyPots – You can see honeypots on PooCoin just under the graph where you can see through its buy/sell progress. You should look for the different sellers’ addresses. You would notice that those few wallet addresses would be dumping the coins.
What is Honeypots in cryptocurrency that indicate towards a scam coin?
When the developers of a coin allow only a few sellers to sell while not everyone who wants to, in such cases if you want to you can check on websites like PooCoin, you will see under the graph only few wallets selling while even if you want to, you would not be allowed. Those few sellers would be dumping that coin. So, in a way, spotting those wallets is termed as honeypots.
Other than these more technical points, a management and developer team that communicates properly and that is transparent, an always working website, clean social media accounts that are professionally managed are all good points to check before considering if you should run away or not.
How to find if a coin is legitimate or scam?
There are few basic things that would easily let you understand if the crypto coin is legit or a scam. Few of such things that anyone can check, which require no techie skills include:
- The legit coin’s website would always be up
- No bots on channels like Telegram etc. and most of their members would always be online. Since it’s an app you can operate on the phone there’s no point someone would shut it.
- Twitter and Reddit handles are the best tools to find out whether a new token is legit or not. You would see honest replies on Reddit, especially.
- The legit cryptocurrencies always hire a reputed auditor to get it audited.
- Twitter and Reddit followers would tell the story themselves.
How To Avoid Crypto Scams?
In this video, you will learn about the 7 signs of a rug pull. A Rug Pull is a type of crypto scam where the developer of a project or coin runs away with investor’s money.
1) Has a common theme or layout
2) Low Liquidity in the project’s coin
3) Strange or No Social Authority
4) Broad, Salesy, non-techy Whitepaper
5) Code Issues: Use RugDoc and TokenSniffer
7) Low Total Value Locked