How To Spot A Scam Coin: 5 Red Flags Every Investor Should Know

The crypto industry is developing so quickly and attracting more investors every day. But along with it, the number of scammers who lure gullible people is also increasing. CipherTrace estimates show that crypto fraud caused losses of approximately $2.4 billion in 2022.?

How to avoid becoming a victim and losing your money? So, every user needs to know it. We will cover the 5 main red flags that indicate potentially dangerous projects and explain how to safeguard assets.

Lack Of Transparency

The first red flag is gaps in information. If a project hides operational details, it is a strong reason for caution. Scammers often avoid providing data on their activities, partnerships, and financial reports to escape accountability.

In such cases, we recommend a thorough review of the project’s website and social media for details. A transparent company regularly publishes reports on development, goals, and milestones. To avoid falling victim to fraud, carefully research information about a clear management structure. If you find all the necessary data, this indicates a green flag.

Unrealistic Promises

Fraudulent projects often attract investors with promises that seem too good to be true: extremely high returns, quick paybacks, and "guaranteed profit". The cryptocurrency market is highly volatile, and no one can guarantee a stable high income. Pay attention to the promises of profitability. If a project guarantees over 20–30% annually, it’s a reason to be wary.

Bitconnect is a good example of this, as it acted as a bitcoin lending solution and promised a monthly return of 40%. Ethereum co-founder Vitalik Buterin called it a Ponzi scheme, and eventually, U.S. authorities investigated and ordered Bitconnect to cease operations in 2017. To avoid scams, approach these promises with skepticism. If something seems too good to be true, your instincts are likely correct. Don’t give in to FOMO; reliable projects are honest and do not try to mislead investors’ expectations.

Lack Of Community Support

A key indicator of a reliable crypto project is strong community support. Projects with dishonest intentions often skip building a real supporter base and focus instead on aggressive marketing to attract investors rather than engaging an active audience.

To gauge community support, check forums, social media, and messaging platforms where users and developers of the project interact. Reliable projects capture attention, spark interest, and users frequently discuss them, often leaving positive reviews. Cryptomus has an active and growing community on social media. Follow Cryptomus on Twitter or Telegram to become part of this.

No Whitepaper

A whitepaper is a document where the project details the technology and goals. If a whitepaper is missing or does not provide specific information, this is a serious red flag. Scam projects often either don’t publish a whitepaper at all or make it superficial and uninformative.

A true whitepaper includes a roadmap, tokenomics, and a demonstration of a deep understanding of the market and technology. If the whitepaper is too short and does not disclose specific details, the project is probably unreliable. Sometimes scammers even copy official documents from other successful projects to appear more credible to potential investors. Always be cautious and study the information carefully before investing.

No Clear Use Cases?

The last but equally important red flag is the lack of a clear purpose or use case for the token. Developers should explain the necessity of their token and describe its applications. A project without a purpose often exists solely to raise money, which is essentially theft.

To avoid hackers' traps, study the project’s problem statement and the integration of the token into the ecosystem. Reliable cryptocurrencies have a roadmap with clear goals and development stages. They explain why their token is valuable and necessary. Invest in projects with a clear and specific goal.

The crypto market attracts a wide range of people with various intentions. Always engage critical thinking and research the facts, rely on information from trustworthy sources. And remember the old wisdom: trust, but verify! Stay tuned to Cryptomus so you don't miss out on educational content!

After reading this article, go through a checklist for each item. Share your results in the comments. Will you fall into the clutches of scammers?