7 Ways To Identify Cryptocurrency Scams and Fraudulent ICOs

Last updated on April 14th, 2023 at 12:31 pm


It seems the world is moving towards digital currency, making thousands of people around the world get involved, but as millions of people are embracing digital assets, how do you identify cryptocurrency scams and fraudulent Initial Coin Offerings (ICOs)?

In this post, we would share with you some of the red flags to watch out for when buying any kind of cryptocurrency or ICOs.

It is also important that you pay attention to some cryptocurrency exchange companies before deciding to use such platforms especially when it has to do with bonuses and how to earn free crypto coins.


Most times, ICOs are ridiculously cheaper which could be enough reason for millions of people to get involved considering the promise that it would be worth thousands of US dollars in the near future.

Remember, bitcoin started like an experiment and today, it’s the most valuable crypto on earth, it has practically become the driving force to other cryptos.

Remember, a few weeks ago, OKEx explains how the Ethereum classic hackers managed to steal $5.6 million from the platform. That’s to tell you hackers and scammers are watching, you also must be vigilant.

Why Cryptocurrency Scams are growing steadily

Dozens of new cryptocurrencies launch every month, and alongside these new tokens and coins comes a series of Initial Coin Offerings (ICOs).

Despite the fact cryptocurrencies like bitcoin, Ethereum, litecoin, bitcoin cash and others are highly speculative, the craving to own some coins among investors continues to grow.

Within hours, one could make as much as his monthly salary trading crypto just as one could lose his entire savings.

Interestingly, most short-term traders and investors focus more on profit rather than loss. Again, crypto is designed to be anonymous, all of these factors combine to entice scammers, which has led to several crypto hacking around the world.

Also Read:  Illegal Bitcoin Mining Farm Found In Kyrgyzstan Free Economic Zone

This simply means that, if investors are willing to throw money toward a highly speculative cryptocurrency, they seem to be equally likely to invest in fraudulent ICOs or ICOs.

Though investment experts had rolled out lots of investment advice in the past, interested individuals seem to be less concerned.

In all these, how exactly can I say an ICOs is a scam or not?

How to identify token scams

For newcomers into cryptocurrency investment who are looking to make the most of the host of new investment opportunities while remaining safe from fraudulent ICOs and sketchy coins and tokens, the prospect can be daunting.

That’s one of the reasons countries around the world are planning to regulate crypto activities, one such country is Nigeria.

While there’s no guarantee that any cryptocurrency or blockchain-related startup will be successful, their some due diligence a prospective investor can do to know if ICOs is fraudulent or not.

Watch out for the following before putting your money in new ICOs

  • Know the Team
  • Search and read reviews
  • Analyse the token’s Whitepaper
  • The antecedent of the promoters
  • Look to the Token Sale
  • How Feasible Is the Project?
  • Exercise Caution

Know The Team Behind The Token

Who are the developers and administrative team behind the new ICOs? Some of the cryptocurrency superstar developers you can find in the business include Vitalik Buterin, the founder of Ethereum.

However, some fraudsters are becoming smarter by listing names and biographies of credible developers in their teams as a way of winning people’s trust.

What you should do

To avoid falling victim of these tactics, thoroughly research the individual team members of a project before you invest.

If you’re unable to find any information, for example, about a particular developer or founder on LinkedIn, Medium or other social media outlets, that could be a red flag.

It is also advised that “even if profiles do exist, check to see if their activity seems to match up with the number of followers and likes they accrue.

“Individuals who rarely engage with their followers and yet have thousands of fans may not be real”.

Another red flag to watch out for is: Do the qualifications of the developer measure up to the current project at hand?

Search and Read Reviews

Most times, new ICOs or tokens are greeted with a funfair on a popular forum like Reddit and social platforms YouTube, Twitter and professional platforms such as LinkedIn and Medium.

As such, you’re most likely to come across a review and analysis of such a new token especially on reddit and medium.com. Take your time to read reviews on the forum and pay attention to red flags.

Also Read:  Bitcoin Price in July 2023

Analyse The token’s Whitepaper

ICO whitepaper is the foundational document for that project that should lay the background, strategy, concerns, goals, and timeline for implementation for any blockchain-related project.

Importance of whitepapers to new ICos

A whitepaper should answer all of the questions a potential investor might have about what sets this particular project apart from its competitors and how it aims to be successful, and the measures it will take to achieve its goals.

Experts in the industry say whitepapers is one of the ways to identify cryptocurrency scams.

However, they also pointed out that, “Companies that have a flashy website may reveal they lack a fundamentally sound concept. On the other hand, a company with a website containing spelling errors may have a whitepaper that indicates a rock-solid concept and a carefully conceived implementation plan.

What this means is that the whitepaper could be tricky and requires high level of attention and analytical prowess.

What you should do:

  • Analyze the token whitepaper very thoroughly.
  • Check if the whitepaper has complimentary resources
  • Lookout for financial models
  • Leegal concerns,
  • SWOT analysis,
  • Roadmap for implementation

What do I do if a new token doesn’t have a whitepaper?

Companies that don’t offer whitepapers should be avoided at all costs. Even if the whitepapers look credible, that isn’t enough reason that the company is credible enough to win your trust.

This is because it’s still possible for a fraudulent company to put forward a convincing whitepaper.

For instance, PlexCoin managed to raise over $15 million before the U.S Securities and Exchange Commission (SEC) stepped in to shut it down.

Antecedent Of The Crypto Influencers

Closely related to “know the team” is the antecedents of the promoters of a new token in the cryptocurrency space.

The number of followers of a promoter on social media might not worth it if the crypto influencer is known to have promoted a good number of fraudulent ICOs in the past.

In trying to identify cryptocurrency scams you can also look out for reviews on the token influencers on social media and on a popular forum like Reddit, through this, you could come across a number of fraudulent tokens he had promoted in the past.

The thing is: most of the ICOs influencers come with millions of dollars to get the message out on social media.

Look at the Token Sale

It is known that any ICO will depend upon a token or currency system in order to facilitate the crowdfunding process.

Also Read:  Top 15 Cryptocurrencies That Bounce Back After China’s Crypto Ban

As such, legitimate companies and endeavours make the system itself and the progress of the token sale easy for potential investors to view.

What you should do

  1. Before investing in a new token, it is highly recommended that you look for the token sale figures as the ICO is ongoing.
  2. Watch the token sale over time to see how it is progressing.
  3. If a company makes it difficult for anyone to chart the progress of its ICO, think twice before putting your money on it.

Why you should carry out DD on the token sale

It’s been discovered that some scam ICOs hide their token sale progress under the pretence of individual contribution addresses in order to prevent potential investors from seeing exactly how much has been raised and how much time remains in the sale.

Sometimes, it might be an effort to generate a sense of urgency among potential investors, even if there isn’t evidence of a successful sale going on at the same time.

As such, it’s very important to carry out due diligence (DD) so as not to fall victim of ICOs scams.

How Feasible Is the Project?

Tokens and cryptocurrencies with the greatest chances for success are those that have the fundamental structure to outlast their competitors.

A funfair launch isn’t a sign that ICOs would be successful because many successful launches in the past faded without a trace.

There should be transparency in the token. So, it’s important that the issuers keep potential investors up to date with regular, detailed progress reports on a company website or on social media.

You should also look if the company has a timeline for what has taken place in the development process.

Final thought:

Identifying token scams isn’t limited to the aforementioned red flags, it is also very important that potential investors exercise caution.

Cryptocurrencies is highly speculative, if you come across any ICOs that promise you questionable return, steer clear and talk to your financial experts.

Spend time scrutinizing every detail and assume that the absence of a piece of crucial information may be an attempt to hide an unsound model or concept.

Carry out the same research on related trading platforms that offer crypto wallets for its users and above all, protect your cryptocurrency wallet from authorized access. Do your due diligence.

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