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Hackernoon logoBuyer Beware: Avoid the Scams, Honeypots, and Ponzis in Crypto Investing by@ks.shilov

Buyer Beware: Avoid the Scams, Honeypots, and Ponzis in Crypto Investing

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Blockchain enthusiast developer and writer. My telegram: ksshilov

META: Up to 80% of crypto startups end up being scams. Seeking easy returns and trusting promises is a recipe for disaster, but here’s how to become a savvy crypto investor. 

Digital coins and tokens promise a lot - high returns, passive income, or even entirely novel economic systems. In a wildly unregulated market, any project can claim its grand goals and claim that the sky’s the limit. Fortunes are made or lost in crypto, and many gullible investors usually end up cursing their choices. 

A rough estimate shows that around 80% of crypto startups were fraudulent and, either intentionally or not, failed to fulfill their promises to investors. In 2017, ICO markets were a fast and easy way to raise funds. Multiple projects promised to usher in a new boom of IT services while solving complex problems through distributed computing. 


Most never managed to launch their code, and some were explicitly created to raise funds and disappear in an exit scam. The Confido ICO was notorious for doing this; the team disappeared just days after raising the funds, walking away with millions. 

Then there are large-scale disasters, widely publicized and attracting multiple investors. Centra was the poster-child of a shocking exit scam, where the founders lived the high life, paying for celebrity endorsements, only to attempt to flee the US when it became clear the project could not bring about the promised economic revolution. 

But while even a large-scale project could bypass the vigilance of large exchanges, there are red flags. Here’s a fun one: one startup used this picture of Ryan Gosling to represent its completely fabricated graphic designer. 

Luckily, in 2019, there are fewer new token sales and even fewer new coins and networks. But there is still the risk that older projects may go down in flames. From the last hour, the Veritaseum project (VERI) is getting dragged through hot coals, as the US Securities and Exchange Commission mounted a hefty lawsuit. In the accusation, the project’s co-founder, Reggie Middleton, was accused of burning through the raised funds for personal enrichment. 

Behind the scenes of a crypto startup

To avoid getting scammed, there are multiple steps to vet a project. The first step is to look through social media and communication channels. Does everything look fine? Is the white paper clear or does it read like a tangle of buzzwords linked solely by bad grammar? Here is a brief checklist to avoid getting scammed: 

  • Is the team transparent about their real identities; is it easily discoverable online?
  • Do you understand the white paper? Does it present a clear idea, or is it just a salad of buzzwords? 
  • Does the project offer outsized rewards, while encouraging you to recruit other buyers? Such a project is probably a pyramid scheme. 
  • Does the team keep a lot of tokens for itself? Are the tokens locked for a predetermined time period, or is there a risk the team will sell immediately?
  • What is a use case for the token? Does this startup really need a token to create its product, or is it just another cash grab?
  • What do the experts say? How is the project rated by various ICO listing services, such as Tokenmarket?

Getting informed for optimal decision-making on digital assets

Crypto assets remain highly risky, and losing coins or tokens is irreversible. But some mistakes are avoidable through awareness. Crypto startups are spread throughout the world, some with distributed worldwide teams and vastly differing cultures. It is advisable to select projects with large and helpful communities and to be aware of any language barriers and misunderstandings. Knowing the origins of the team and their language well enough may help in determining whether or not the project is viable.

One of the best ways to gain a sense of what a scam project looks like is to use a resource like Dead Coins. The handy tool lists previous failures in the land of crypto assets and may help in recognizing red flags early.

The world of crypto investing is also about asymmetric information. Having the right tools can make a difference between recognizing a scam project and selecting a token and a network that performs and offer innovation. Past performance is not an indicator of future results, yet tracking and analytics tools can shed some light on the quality of crypto projects. 

OnChainFX is a tool that unites several strains of data, giving a deeper analysis and perspective regarding the performance of digital coins and tokens. OnChainFX by Messari is one of the most active analytics tools, known for its perspective on price movements. The tool also gives insight into the true trading activity for digital assets, as some of the reported trading activities may be inflated. 

Trading statistics can reveal how volatile a digital asset can be. Using analytics can also show new traders how trading volumes affect an asset’s volatility and overall performance. Tools like OnChainFX focus on trading parameters and have limitations when it comes to vetting projects on the basis of real activity and innovation. 

To gain deeper insight, using the STIPS Oculus platform offers another layer of comparison. The platform offers a preview of the most active projects based on GitHub commits - a good indicator of real-world developer activity. For additional insight, the STIPS Oculus platform tracks social media mentions with an easy gauge of activity and interest surrounding big and small projects alike. 

All of these indicators are just suggestions, to be used in combination with other measurements of good investment qualities. The STIPS Oculus platforms aggregates this information at any given moment, so tracking how a project’s GitHub develops over time is a better approach. There are enough crypto startups with active GitHub profiles which later decrease their activity to zero. Be aware that worsened market conditions may mean that a startup will have a shorter financial runway and may need to pivot from its original plans. 

Tracking GitHub activity is useful in several ways, as the community often previews the code and warns of errors and other pitfalls. A sudden freeze of code activity is also a red flag, easily discovered through STIPS OCulus. 

Gauging a project’s quality is a complex task. A few groups of analysts have tried to rate crypto projects, of which the most notable is the Weiss Ratings chart. The overall grade is based on the specific criteria selected by Weiss, but there are additional details when it comes to vetting new projects. Awareness of the local laws and relevant tax regulations is also crucial, as some crypto projects may be considered illegal depending on the jurisdiction. 

Last but not least, social media can be a good source of knowledge and advice. Forums like Bitcointalk give insight into new projects, with dedicated discussion pages. A lively community and the presence of uncensored critical opinions is usually a good sign. 


Investing in brand-new crypto coins is highly risky. No one could have predicted that even Bitcoin would succeed, and move up from just a few cents to valuations near $20,000. Smaller coins and tokens have also grown by stunning leaps, as much as 1,000 times their initial price during the peak of the bull market.

But some coins and tokens have also wiped out 99% of their value after falling from the peak. The best approach to investing in digital assets is to set aside a sum one can afford to lose. After all, even the best-intentioned project can fall on hard times.


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