The cryptocurrency market opens up many opportunities for investors, but alongside this, the number of fraudulent schemes is also increasing. Scam projects are traps that can lead to significant financial losses.
1️⃣ What are scam projects?
Scam projects in cryptocurrency are fraudulent initiatives created with the aim of deceitfully seizing investors' funds. Such projects often disguise themselves as promising startups but lack real value or functionality. Their main goal is to attract as much investment as possible and then disappear with the funds.
Main types of scam projects:
• Fake ICOs/IDOs: Projects that conduct initial coin offerings (ICOs) or token offerings (IDOs) but do not provide real assets or products.
• Pump-and-dump coins: Cryptocurrencies without real applications or value, created for speculation.
• Pseudo-investment projects: Promise unrealistically high profits in a short time.
• Ponzi schemes (pyramids): Use funds from new investors to pay previous ones, creating an illusion of profitability.
• Pirate coins: Copy well-known projects to deceive investors into transferring funds.
An example of a scam project is PlexCoin, which promised a 13-fold increase in investments but turned out to be a Ponzi scheme, leading to losses of over $15 million.
2️⃣ How do scam projects work?
Scam projects use various tactics to attract investors:
1. Artificially inflated value: Scammers create hype around the project through aggressive marketing, promises of quick wealth, and token price manipulation.
2. FOMO (fear of missing out): Investors are pushed to make quick investments, creating an illusion of limited time.
3. Sudden disappearance: After raising sufficient funds, developers vanish, leaving investors with nothing.
4. Liquidity manipulation: In some cases, tokens cannot be sold after purchase due to low liquidity or technical restrictions, as in the case of the Squid token, which rose by 310,000%, but investors could not withdraw their funds.
5. Pump and Dump: Scammers buy a cheap token, hype it up, and then sell it at a high price, crashing the market.
When the scam is revealed, investors sell assets en masse (panic sale), leading to a token price crash to zero.
3️⃣ What risks does investing in scam projects carry?
Investing in scam projects involves serious risks:
• Financial losses: The most common consequence is the complete loss of invested funds. Even if the investor manages to sell the assets, they usually incur losses due to price declines.
• Psychological consequences: Losing money can cause frustration, anger, and even depression.
• Lack of legal protection: Most scam projects are unregulated, making it nearly impossible to recover funds through legal action, unlike legitimate exchanges like Binance, which have user protection mechanisms.
• Reputational risks: Investors promoting scam projects (even unknowingly) may lose the trust of the community.
• Cyber threats: Phishing websites or malware related to scam projects can steal personal data or access to wallets.
4️⃣ Main signs of scam projects
To avoid fraud, pay attention to the following "red flags":
• Unrealistic promises: High returns in a short time (e.g., "10x in a month") without a clear explanation of how this will be achieved.
• Lack of transparency: An anonymous team, lack of information about developers or their experience.
• Lack of a White Paper: Legitimate projects provide detailed technical documentation. If the White Paper is absent or contains only promises without specifics, this is a warning sign.
• Aggressive marketing: Excessive promotion through social media, bloggers, or advertisements focused on quick wealth.
• Low liquidity: The token is traded only on obscure exchanges or has limited liquidity.
• Technical issues: Spelling mistakes on the website, malfunctioning features, or unprofessional design.
• Selling restrictions: Inability to sell a token after purchase, as in the case of Squid.
Example: The IguVerse project was actively promoted through bloggers and social media, but withdrawal restrictions and low product quality revealed its fraudulent nature.
5️⃣ Tools for verifying tokens and the security of smart contracts
Use the following tools to assess the security of tokens and smart contracts:
• CoinMarketCap and CoinGecko: Check market capitalization, trading volume, exchanges where the token is traded, and the availability of a White Paper. Lack of the project on these platforms is a warning sign.
• Bscheck.eu: Analyzes smart contracts in Ethereum, BSC, Polygon, etc. Provides data on token owners, developer wallets, and liquidity.
• Honeypot.is: Simulates buy/sell transactions to detect fraudulent tokens on the BSC network. A green result indicates safety, red or orange indicates risk.
• DEXtools: Allows tracking markets in real-time and analyzing token transactions.
• GitHub by Dapp Radar: A blacklist of smart contract addresses marked as fraudulent.
• Etherscan/BscScan: Check the smart contract code, transaction history, and token ownership.
• DefiLlama: Analyzes DeFi projects, their liquidity, and TVL (Total Value Locked).
Security check of smart contracts:
• Ensure that the smart contract has been audited by reliable companies such as CertiK, Hacken, or ConsenSys.
• Pay attention to token distribution: if most tokens are concentrated in a few wallets, this may indicate manipulation.
• Check for liquidity locking, which guarantees that developers cannot suddenly withdraw funds.
6️⃣ How not to fall for scam tokens.
To protect your funds, follow these recommendations:
1. Conduct thorough research:
• Check the project team: look for information about developers on LinkedIn, Twitter, or other social media. Anonymity is a red flag.
• Study the White Paper: pay attention to the clarity of goals, technical base, and tokenomics.
• Analyze community feedback on forums like Reddit or Bitcointalk.
2. Avoid FOMO: Don't rush to invest due to aggressive advertising or time-limited offers.
3. Check the liquidity: Tokens with low liquidity or limited trading volume are often fraudulent.
4. Use reliable platforms: Trading on regulated exchanges like Binance reduces the risk of fraud. Binance verifies projects before listing, which adds a level of protection.
5. Activate security:
• Use two-factor authentication (2FA) for wallets and exchanges.
• Check website URLs to avoid phishing.
• Store cryptocurrency in hardware wallets (e.g., Ledger or Trezor) for maximum security.
6. Trust, but verify: Even if a project seems promising, always conduct your own research. Don't trust advertisements from bloggers or social media without verification.
7. Don't invest more than you are willing to lose: Cryptocurrency is a high-risk market, so allocate your capital wisely.
Conclusion
Scam projects are a serious threat in the cryptocurrency world, but vigilance and thorough research can protect your funds. Use reliable tools to verify tokens and smart contracts, avoid hasty decisions, and trust only verified platforms like Binance. Remember: in the world of cryptocurrency, knowledge is your best defense.