The blockchain is flooded with promises of quick money and easy rides, and with fraudsters and con artists at the same time. It’s important to know if the token you’re holding is a part of an elaborate scam to weed you out from your hard-earned cash. Learn how to spot a good blockchain project from the bad with this checklist.
#1 Check if the token’s code is verified on Etherscan
If the code is not verified, you’re most probably dealing with a scam. The reason that scammers do not reveal their code is it either has problems, or bugs, or has a purpose other than the stated one.
#2 Check the comments section on Etherscan
If there are comments saying it is a scam, then it most likely is! In case you have been a victim of such activity, make sure you drop a comment so others are aware of it too!
#3 Check for the token’s address in a Google search
If you search on Google or anywhere on the internet and can’t find a clear homepage, “white paper” or obvious token purpose, it is probably a scam.
#4 Check the DappRadar token blacklists on GitHub
You can find the list here. If the token address is found there, it’s a scam!
#5 Check the token details in a token explorer
And if you do find it there, but with a warning notification that says:
“The smart-contract owner can mint new tokens, please proceed with caution” then listen to the warning and proceed with caution. All legit tokens share their information with token explorers for the purposes of verification.
#6 Check how many exchanges host the token
If the token is only traded on a couple of decentralized exchanges, it most certainly is a scam!
#7 Check the amount of liquidity in a token’s balance pool
You can check a token’s liquidity on Uniswap V2 or other decentralized exchanges.
Liquidity is the amount of cryptocurrency or number of tokens locked in smart contracts to enable people to buy and sell assets in decentralized exchanges.
How do you know it’s a scam? If liquidity is less than $100,000 or is dropping at a significant rate, you’re most probably looking at a scam.
Be sure to also check other basic on-chain activity like volumes, transaction counts, unique active wallets interacting with the smart contracts. If any of these seem a bit off, do more research!
#8 Check third party analysis tools
To name a few:
- Smell Test – this does an automated audit of the token. The lower its score out of 100, the more likely the token is a scam.
- Is it a Honeypot scam? Honeypots are smart contracts with an obvious programming flaw purposefully inserted into them. When attackers attempt to exploit the flaw, another piece of hidden code is activated and essentially attacks the attackers. Whether or not you plan on becoming a crypto hacker, honeypots should always be avoided.
- DEXtools – It records live token prices and will help you evaluate a token’s true worth in real time.
Scammers will always exist, whether it’s on the blockchain or out in the real world. All you have to do is follow these tips to learn how to avoid them and be on the safe side!
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