The blockchain industry is rife with promises of quick, easy money. It is critical to identify which projects are safe and which are doomed after 3 months. This article describes eight checking methods to help traders avoid effective scams.
1. Start from the most basic
To verify the legitimacy of a coin, start with the most accessible method. For example, Google Search and
Check for social media red flags
A verified X account can often help prove the legitimacy of the project. In addition, you can participate in discussions about tokens to understand the views and opinions of the community.
Be wary of projects that have large social media followings but low engagement. Automated comments from fake accounts should also be a red flag. If all the comments are "This is a great project" and "Moon is coming", be careful.
Check the coin address on Google search
If you search the Internet and can't find a clear homepage, "white paper" or obvious purpose of the token, it's probably a scam. When searching for a token address, block explorer links, official websites, and white papers must be easily found. If not, take it as a red flag.
Also, be aware that Google ads are often a free zone for scam sites. Never click on ads at the top of Google search results. Make sure you are visiting the official website and avoid clicking on Wallet Drainers (note: malicious scripts targeting crypto wallets that transfer assets to attackers) or other hacking software.
Image source: DappRadar
2. Verify the code on Etherscan
Visit the block explorer for the chain of your choice and see if the source code is verified. For example, on Ethereum's block explorer Etherscan, it looks like the picture below. The code in the image below is not verified and should be a clear warning sign. If the code is not verified, you may have encountered a scam.
Image source: DappRadar
Why don't scammers verify their code directly?
Because once the source code of the contract is made public, everyone can know the intention behind the contract. Or a ridiculous token system, or a way for developers to steal all your tokens. But does this mean every unverified contract is a scam? Not necessarily, but it is a very serious danger signal.
3. View the Etherscan comments section
This part is very simple, there is usually a comments section on each block browser. Most of the time there are no comments, but if a project is a scam you may find a bunch of angry people in the comments section. So be sure to click to check it out. If someone says it's a scam, there's a 99% chance it's a scam. If you were a victim of this project, please leave a comment as well.
Image source: DappRadar
4. Check the DappRadar blacklist
You can check the token blacklist compiled by DappRadar on Github. If a token address appears on the list, it is a scam.
Image source: DappRadar
5. Check the token details in the token index
If you can’t find the coin on CoinGecko or DappRadar’s coin index (or similar coin price trackers), then the coin is most likely a scam. If you see a warning like the one below, proceed with caution:
Image source: DappRadar
All legitimate tokens share their information with the token index website for verification. However, platforms like CoinMarketCap and Coingecko need to meet certain specific conditions. Therefore, not all coins (whether legal or not) will automatically be listed on this coin index platform.
6. Check how many exchanges list the token
If the token is only traded on a few decentralized exchanges (DEX), it may be a scam. Listing on a centralized exchange requires KYC and additional trust, and the larger the exchange, the better the reputation of the token being listed.
But tokens that are only listed on DEX are not all scams. Some projects don’t require high trading volumes, and some are only available to Web3 users rather than token traders.
However, tokens that are only listed on DEX are a riskier investment, and you are more likely to encounter a scam. The left side of the image below is a token that can only be used on DEX, while the right side is a token that can be used on multiple CEXs.
Image source: DappRadar
7. Check the liquidity in the token balance pool
Before investing in a token, you may want to check the overall demand and availability of liquidity. It’s very easy to check the liquidity of a token on platforms like Uniswap V2 or other DEXs.
Liquidity refers to the amount of cryptocurrency or tokens locked in a smart contract, allowing users to buy and sell assets through (decentralized) exchanges. If liquidity is below $100,000 or declining rapidly, you may have encountered a scam.
When you use a DEX, be sure to check for basic other on-chain activity, including:
Trading volume.
Number of transactions.
Independent active wallets interacting with smart contracts - Number of users using Web3 wallets to connect to the DEX.
If any of these seem unusual, do a little more research.
8. Use third-party analysis tools
Here are some token analysis tools:
Token Sniffer’s Smell Test: Automatic auditing of tokens. The score is out of 100, the lower the score the more likely it is a scam.
Honeypot: Honeypot is a smart contract that deliberately inserts obvious programming flaws. When an attacker exploits this flaw, another piece of hidden code is activated to counterattack the attacker. Honeypot should be avoided whether you plan to become a crypto hacker or not.
DEXtools: records the real-time price of the token and will help you instantly evaluate the true value of the token.
Whether on the blockchain or in the real world, scammers will always exist. By following these tips, you should be able to avoid fake coins designed to scam people out of your money.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: "PANews"
Original author: DappRadar
Compiled by: Felix, PANews
