Buy new crypto? Watch out for these 7 red flags

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There are over 11,000 cryptocurrencies on the market, according to CoinMarketCap, and new coins are created every day. Unfortunately, this coin frenzy – combined with a lack of regulation and investors looking for the next big thing – has created fertile ground for con artists.

One way to reduce the risk of losing your money is to research parts carefully before purchasing them. Here are some red flags to watch out for along the way.

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1. Anonymous management

Leadership tells you a lot about a coin. You can search for other projects they’ve been involved in, check they weren’t associated with any scams, and see what expertise they bring.

It is true that Bitcoin (BTC) was created by one or more anonymous people called Satoshi Nakamoto. There may be logic in allowing a room to develop without a figurehead if it is to remain decentralized. But Bitcoin now has a network and community of developers behind it, which cannot be said for most new cryptocurrencies.

2. Lack of team

Another factor to watch out for is the number of people working on the project and the size of the community it attracts. A new room won’t have a huge team, but it’s reasonable to expect it to have full-time staff.

You can also use tools like CryptoMiso and CoinCheckup to track developer activity on GitHub (a crypto development and coding platform). They’re not perfect, but they can help identify parts that haven’t updated their code recently.

3. Website and other poorly drafted documents

Whether it’s a cryptocurrency or some other investment opportunity, typos and bad grammar are a sure sign of trouble. According to security experts, these mistakes are often deliberate.

There are several reasons for this:

Spelling mistakes are more likely to get through spam filters Mistakes can make text more believable and reportable Those who ignore mistakes are more likely to fall into the trap

If there are any mistakes in a cryptocurrency’s promotional material, that doesn’t say much about their attention to detail. Especially since we live in an age where you can find great spell checkers and affordable writing services online.

4. No white paper

A cryptocurrency white paper outlines what the project plans to do, how it will do it, and who is involved. Now, white papers aren’t necessarily accurate. But if a room doesn’t have a whitepaper, that suggests it doesn’t have a plan.

Reading white papers can seem intimidating at first, but they can help you begin to get a feel for the language and what sets a project apart. Unlike information provided by listed companies, which is heavily regulated, you may need to take information in a white paper with a grain of salt. A 2018 Wall Street Journal survey found that 271 out of 1,450 white papers contained misleading or inaccurate information.

Celebrity mentions are increasingly common in the crypto world. Elon Musk’s tweets have repeatedly pushed Dogecoin (DOGE) to new heights, and as a result, every new crypto wants its own pet celebrity.

While marketing is important, beware if a part seems to spend more on promotion than on product development. Let’s say he can afford to spend thousands of dollars on celebrity sponsorship but doesn’t have full-time developers. It is not a good sign.

It is not worth buying celebrity mentions on the back alone. Do your own research and take a look at the fundamentals of the coin – what it does, who its competition is, and how it secures its network. Also try to verify the information you find on other sources. It takes time, but it could be the difference between making money and losing it.

6. It’s not on major cryptocurrency exchanges

Major cryptocurrency exchanges like Coinbase had strict criteria regarding the coins they listed. These days, exchanges seek to list as many coins as possible, so a listing in and of itself is not an endorsement.

Still, if a coin is difficult to buy – or if you can’t find it on the crypto exchange you normally use – that’s another reason to proceed with caution.

7. It is listed on Token Sniffer

Finally, there are a few sites that help identify scams. For example, Token Sniffer maintains a great list of bad smelling coins. He has identified over 2,500 possible scams and is adding more every day.

Coinopsy is another good site to check out. It maintains a list of failed parts (those that are scams or that have been abandoned). With both sites, keep in mind that fraudulent coins use names and codes similar to legitimate ones, so check the details carefully.

If it’s not okay, think twice

Any investment in cryptocurrency comes with risk – and volatility means there is a risk of big losses as well as high rewards. This, however, does not mean that it is a good idea to take unnecessary risks.

When you hear stories of people making thousands if not millions of dollars buying Bitcoin or Dogecoin before prices exploded, it is tempting to buy small amounts of new coins in the hope that ‘they may see similar returns.

The problem is, for all the people who have made millions, there are just as many (if not more) who have lost all of their money. Rather than betting on a new coin that raises a lot of red flags, why not look for the serious blockchain projects that are more likely to be successful instead? Both come with risk, but the latter is much more likely to bring you long-term benefits.

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