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How To Stay Safe From Crypto SCAMS - Research and Due Diligence

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Avatar for Pantera
Written by   794
1 month ago

Part of our research into cryptocurrencies is studying whitepapers.

For SmartBCH, it will be the same as with Ethereum, Binance Smart Chain, and all other blockchains that supported tokenization.

There will be scams and due diligence is of utmost importance before getting involved with any project.

Except for the fact that the whitepaper may have been plagiarised, there may also be various inconsistencies that will raise doubts.

We can't rush into decisions so the best course of action is to wait and try to extract more information from the projects, especially when there are noticeable red flags.

Let’s figure out the top red flags we may find and should be considered as a deterrent to our involvement with a project.

Red Flags:

i) Whitepaper discrepancies.

It could be plagiarism, typos, mistakes, or it can be a hastily made whitepaper containing various inconsistencies.

A whitepaper should contain no flaws and depict the clear intention of the project, along with details and a clear vision.

We may find an idea presented loosely, however, this doesn't mean it is a red flag already. As with Bitcoin's whitepaper, it is a general idea explained and the technical solution the token/coin will be providing.

Usually, scam projects don't spend time to create a perfect whitepaper, but will just make something up fast and plagiarise from other sources. A solid whitepaper should be unique and flawless, and contain references to any quoted content.

ii) The team

An anonymous team is not necessarily a red flag. Developers can have several reasons not wanting to reveal rather than just scam their investors. Most in crypto are privacy advocates anyway.

What frequently happens is projects presenting fake members as part of their team.

Having a team with a strong background helps the image of a project and increases its chances of succeeding. The background, profession, and knowledge of the members will be presented to the public for further consideration.

Due diligence is necessary to the point of verifying each member is real and not just a randomly generated picture with a fake name.

An example is this fake team:


Looks very real, except when zoomed in, we discover these are generated faces and not real people. Certainly, some of the names are not too convincing either.

When investigating, finding a Twitter profile doesn't mean this is a real project either. The name Aubert Conscience for example has had a Twitter profile since 2016. Although it was obviously changed into this name during April 2021 and after this scam got busted, the account became obsolete and the scammer abandoned it.

There is a large number of Twitter accounts at the hands of scammers joined Twitter years ago. If there is a profile picture but no other picture available of this person anywhere else, then this means trouble.

iii) Fake airdrops/giveaways


This tweet seems like a typical "thank you" message someone participating in a giveaway would tweet. This is from 2018 if I recall. This tweet was deleted minutes later.

What happens though, when the giveaway is by Waltonchain and one of the winners is also Waltonchain?

Apparently, someone from Walton, messed up with the Twitter accounts and didn't switch to another one. Waltonchain was busted for cheating in their own giveaway!

Major red flag since this means it is a fake giveaway. Walton remained a Binance listed project for all this time, but since that moment it was largely ignored and never took off during the recent bull run.

Coingecko - Waltonchain

When a project doesn't pay airdrops or bounties, this is also a drawback and could be a red flag, depending on how the team handles communication.

iv) The token model

There are various smart contracts in Ethereum resembling Ponzi/Pyramid schemes. Some are using referrals, others are claiming guaranteed returns, etc. This tokenomics model that is just about speculation is always a scam, and while sometimes it can work for a while (i.e. HEX), there are 0% odds it can work for the long run without eventually collapsing.

There is a lot more to discover within the smart contract and there are reasons audits are required.

A 2017 ICO scam was Oyster Protocol. This was an ERC20 smart contract that supposedly had a fixed supply, although it didn't. A line in the code was allowing infinite mint of new tokens to the dev, and Oyster's admin Elmaani, (a.k.a. Bruno Block) minted millions of his tokens, dumped on exchange and exit scammed (source).

Later, with DeFi, major issues came to light, even with audited code. Still, it is way better to have an audited smart contract rather than nothing at all. It gives a better impression and lets someone read the code and find out issues it may contain.

v) The community

Bots and shills are filling up space in all crypto communities today (telegram, Reddit, Social media). While constant talk on price action and "pumps" is suspicious, if this is not performed by admins and project members, then it is not a red flag.

Although, it becomes clear if the sole purpose of the token is price appreciation. And this is a factor to decide not to enter for long-term investment but be ready to stop following projects like this.

This is a gray zone though, and I wouldn't want for anyone to consider price discussion to be off-limits. There are plenty of ways to discuss price and the market is full of speculators researching and asking certain questions.

Still, with the volatility and extreme gains on some projects, the price could be the main topic of discussion for some time. What we need is to find fundamentals when investing.

Equally important is when there is censorship by admins in the network channels of communication. Censorship usually means arguments may not be valid and silencing a potential investor is always bad for the long-term ambitions of any project.

In Conclusion

We witnessed a few exit scams by the term of rug-pulls in SmartBCH already. It was always going to happen and there are many ways investors can counter scams.

The best approach in my opinion is to perform research and check all the details. The whitepaper can be flawless and still the project can easily scam everyone.

An audited token means that it at least took the approach of having proof of a reliable code. Although even audits have been wrong and DeFi tokens have been exploited.

A great approach is to diversify. I take time before I invest and sometimes I may try to test some fields I am inexperienced in, but I do that without risking too much. For me, it could be $300 for someone else this amount is important.

Sometimes it is easy to spot a scam, other times you just wonder what is going on. When there is even one red flag, it is better to begin analyzing more, or completely quit this option and not waste further time.


Lead Image from: Unsplash, by Emily Morter

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Avatar for Pantera
Written by   794
1 month ago
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Hola primer articulo que leo tuyo y me parece interesante. Soy nueva aqui en readcash y bueno en eso de explorar me tope con este articulo. Agradezco las señales de alerta ante posibles estafas que siempre en estos medios nos solemos tropezar. En mi caso particular ya 2 veces he caido y de ahi aprendi que antes de es mejor como dices hacer una investigacion previa y no aventurarse pues luego terminas mal pagando esa aventura. Es algo un poco frustrante pues todos los que estamos en este medio buscamos de una manera u otra generar e invertir y que en ese proceso caigas en manos de estos estafadores.... eso frustra. Pero bueno lo mejor es que esas experiencias no te cortan las alas y te peermiten volar nuevamente ckn mas fuerza. Me gustobtu articulo cuenta con una suscriptora mas y seguire explorando y leyendo mas articulos interesantes como este. Saludos

$ 0.00
1 month ago

Some fantastic advice in this article. Unfortunately with the current explosion of projects on SmartBCH there will be the odd scam in there. It is up to us to all do our research and not dive all in into one project. Spread the risk and do research and more research!

$ 0.00
1 month ago

For me, being that I am a stock market guy, this has always been a major tenet of investing. Due diligence. In other words, having full knowledge of WHAT one is investing in before they lay down their money TO invest in something.

There is another important red flag, I think. And it comes in the form of a question. "Am I emotionally attached to the the project or investment?" It is okay to really like something, like the idea of what BTC plans to do to change the world of money, or a Tesla and how it aims to change how we drive cars—but at the end of the day investors are emotionally attached to one thing and one thing only.

Their money.

If one has too much emotional attachment to something they are investing in, they will begin to miss any and all signs when something is going wrong, and often shrug any negatives off as simply "hate messengers," only to wind up losing their investments in the end.

Great article as always.

$ 0.10
1 month ago

Thanks a lot Porwest. Lately though I have some problems with the title selection.. I keep changing trying to find an optimal but always manage to end with the worst!

I agree with your comment. When we are married to an investment we keep ignoring all the signs. This is a perfect comment to end this article. I hope it will stay on top.

$ 0.05
1 month ago

Thanks. :)

As for titles, they can be tough. A lot of the time I just write "Working Title A" or some other thing and then write the article, and often times a title develops from somewhere in the text.

I am not saying, though, that the BEST title develops from the text. lol

$ 0.00
1 month ago

Before investing into anything we should definitely make thorough research on it. No one tells you they're a scam. Even the slightest hint shouldn't go unnoticed.. We should really be careful

$ 0.05
1 month ago

Thanks for hint Pantera, it is really annoying seeing scam other crypto users by faking projects.

Things like these are inevitable and we must do proper research before going into any crypto investment, I will definitely add the list of things you have mentioned to the things to be considered when checking out a project.

$ 0.05
1 month ago

I'm glad if I will be able to help everyone in here be more aware of how these people work to steal from investors. I have experience since the ICO days and have learned to avoid them.

$ 0.00
1 month ago

Thanks for the information on white paper, being an amateur on this isn't easy

$ 0.00
1 month ago

Researching about a project before investing is utterly necessarily but others are lazy enough to dive straight. I'm quite guilty about this🤦... especially before

$ 0.05
1 month ago

It happens. When we invest in many new projects there will be some losses. It is always best to avoid putting all our money in only one asset.

$ 0.00
1 month ago

I am quite guilty of this

$ 0.00
1 month ago