The crypto space is often referred to as ‘The Wild West’ due to the potential of being scammed and little to no customer service or guarantees. The complexity and unfamiliarity with technology means there are a lot of people out there who are ready to take advantage of people’s ignorance. Don’t be a victim, inform yourself. Use this guide to understand what to look out for and what the red flags are.
- Due Diligence Even after reading this guide I highly recommend doing your own due diligence, hopefully, this will equip you with the knowledge and set you off in the right direction. Unless you understand the code underneath the hood you can never be 100% sure something is safe. However, there are other indicators that will allow you to be 99% sure. They are as follows:
- Github Repository Any crypto worth anything should have a link to their github repository (Where they upload updates to their code). You don’t need to understand what the updates mean, only that there are updates being pushed on a regular basis. If there hasn’t been an update in 3 years that’s a red flag, if there is only one person pushing updates infrequently that’s a red flag.
Chaincoin is an example of a clear scam, the only code updates in the past 3 years were to change the name and logo of an obvious Bitcoin clone.
- Guaranteed Returns If any crypto GUARANTEES a minimum return on your investment or offers incentives for signing other users up it is most likely a pyramid scheme. Whilst it may grow very fast it will inevitably crash at some point, no exceptions.
- Team Check out their team, what previous experience do they have? If they’re developers check out their Github profile. A quick Google search of the main members might reveal information that might question their legitimacy or convince you this is a project with a bright future.
- ICOs if you’re a bit more advanced and looking into ICOs then how are they structuring it? Is it open ended? Are the tokens you receive in return actually of value? Read the terms and conditions and you might find yourself alarmed. EOS is a good example of an extremely suspicious ICO structure and throws up several red flags. There has been a case of the website of an ICO being hacked and the address changed to the scammers address. while blockchains generally have very good security, websites are still vulnerable to this kind of attack. How can you be sure you’re sending to the right address?
- Exchange Fees Not strictly a scam but check out the Exchanges terms and fees. One example is NEO being indivisible so anything withdrawn after the decimal point will be claimed by the exchange. (Bittrex has now changed this) Determine if fees are included in the amount you want to withdraw or not.
- 6 confirmations It is recommended that you can’t be certain a transaction has gone through until you have received 6 confirmations, something to keep in mind if buying cryptos peer to peer.
- All Style, No Substance A nice looking website and social media prescence does not mean a good project. Many projects spend a lot of money on appearances and without the proper due diligene people fall for it. Always examine the underlying tech and the points outlined below. You may argue that you don’t understand the underlying tech but that’s why you I wrote this for understanding how cryptos work and this for comparisons with the other major cryptos. This guide gives you no excuse.