With the meteoric increase in cryptocurrencies among investors, scammers looking to trick people out of their money using various platforms have seen a rise as well.
Cryptos are no exception to the widespread fraud that plagues the financial sector, from banking to insurance and investing.
Attackers, con artists, and fraudsters commonly prey on weak people who succumb to FOMO (fear of missing out) by enticing people with seemingly attractive schemes.
In order to save themselves from getting trapped in fraudulent projects or pump-and-dump schemes, investors should look out for the following red flags before investing in cryptos or project tokens.
1. Absence of a whitepaper
Although it is hard to imagine, some cryptocurrency projects do debut without a whitepaper. When there is no whitepaper, there are only three possibilities:
a) Your investment is at very high risk since the project was quickly put together and is therefore immature.
b) The project's creators are novices.
c) It is a fraud.
There is hardly anything much to say for such projects besides - Staying away.
2. A poorly designed website and an untidy whitepaper
For those unfamiliar with a crypto project, its website and whitepaper are the most crucial sources of contact and information.
As a result, great care should be exercised when creating them.
No copying and pasting of information from other projects
Excellent grammar and error-free spelling.
A neat layout.
3. Lack of a roadmap
A project that does not have a clearly defined roadmap does not have a plan of action in place and has no goals to achieve.
The project's future plans are not the only thing that a roadmap lists out.
A strong roadmap also acts as a gauge for whether the creators have met their previous objectives.
4. The team's background is unknown
Anonymity is valued highly by many crypto projects, and this is true even for creators.
Investors, however, should be wary if they do not know much about the team behind a crypto project or a token.
5. There are no identified target groups
Who are the intended recipients of a coin or token?
For some projects, this is unclear.
Additionally, the target groups cannot be effectively addressed if they are not specified.
Projects that precisely target their audience are what an investor should desire.
6. No clearly defined use case
Why is a certain coin or token recommended? What are its benefits? What particular issues does it address?
There is no definitive solution to this problem in many projects.
7. Too much hype and insufficient content
Effective marketing is a crucial component of every crypto initiative that succeeds. In fact, it’s one of the fundamental conditions for success.
Investors should however, be cautious about projects that unnecessarily boast about themselves or talk about how they will alter the world or how much money investors will gain from it.
Avoid ventures that constantly term themselves to be the next big thing without really delivering anything.
8. Developers that are outsourced
To succeed, a project needs internal resources to staff it.
Anyone who outsources crucial tasks like development to other companies is either trying to save money in the wrong place or is having trouble persuading competent individuals to join their team.
9. Unsound tokenomics
A great company can be ruined by poor tokenomics.
Some warning signs include:
The team's vesting durations (between 18 and 24 months) are too short.
Large unlocks within the first several months (about six to 12 months).
Start a token before the alpha version of the product is complete.
Poorly executed distribution of tokens.
Excessive maximum supply.
10. Poor behaviour on social media
Social media platforms are crucial for connecting with probable customers and therefore, what transpires there is crucial to note before taking an investment decision.
When viewing a project's channels, ensure the following is avoided:
Promotion is nice, but if it is about the price all the time, something is not right. A healthy balance of news, insights, and other stuff is what you desire.
Little activity is an indication that the community is dying or the project is facing difficulties.
When there are a lot of trolls or when those who ask questions are assaulted, it is a sign of a toxic community.
Negative emotions are typically an indication that plans or promises are not being kept.Investigate the reasons for people's dissatisfaction with the way things are going and what the project team is doing to resolve these issues.