How to spot a scam

Hello world

Scams differ from classic scams in that they are large-scale, premeditated scams. Most investors in crypto-projects are not experts, but beginners. Scammers take advantage of this, luring inexperienced users with advertisements and beautiful websites. When studying a project for a scam, it is necessary to pay attention to several nuances, which are described below.
The project team. Professional project developers always have a proven track record. You can easily find their biographies on the Internet at specialized sites and see how successful their past ideas have been.

But there are many serious projects in DeFi that are started by anonymous teams. You can find little information about them because they hide behind nicknames or fictitious characters. That said, they are actively marketed with a well-written smart contract. The anonymity of the team is not an indication of the project’s success or its benchmark.

Reviews on professional resources. You cannot rely on advertising slogans when researching a project or a coin. It is better to read reviews about them on independent professional resources. You can simply enter the project of interest into search engines and see what ordinary users and experts write about it. The cryptocommunity reacts quickly to the emergence of new projects. Within hours, any idea will be analyzed from all sides.

But scammers have adapted and figured out how to scam users. Teams are assembled to shill – writing positive reviews of the company on third-party resources. They register several hundred accounts on major forums in advance, disguised as real users. When a team is given a command, they send a text prepared according to the methodology. Therefore, they cannot be guided by reviews alone.

Social networks of the project. It is absolutely necessary to look through the project’s social networks and pay attention to the number of people involved. You may learn a lot of information about the project by their activity in chats and comments, as well as by the type of messages. There are no secret projects without users.

“As soon as a person talks about having some kind of secret mechanics or secret knowledge, it’s a scam.”

Smart contract. You can go to resources such as Etherscan or Binance Smart Chain to look at the project’s smart contract. Information is available there about when it was created, how many users it has, and how many tokens have been issued. If you don’t have the skills to read the smart contracts yourself, you can check out its reviews or ask an expert.

Future income of the project. Any project is created to make money and it is important to understand where the added value will come from. You should not invest in DeFi before you understand the source of its profits. Scam projects make money on inexperienced, gullible users who do not understand smart contracts.

Network marketing

There are many DeFi projects in blockchain that are built on the MLM (multilevel marketing) system. This is similar to classic network marketing, which in itself is not a scam. A lot of good projects have used MLM to attract new users – for example, the Binance exchange.

But if the project has no source of income other than network marketing, then it is a scam. Beyond MLM, there must be mechanisms for generating added value. You can’t unreasonably promise your users huge percentages of profit.

“If the project founders can’t explain it to you, show you, hide behind some secret knowledge, some secret trader sitting in the next room – it’s probably a scam.”

ICO boom

In 2017, a large number of projects started conducting ICOs. This mechanism was created as a counterbalance to an IPO, in which many stages of paperwork had to be completed before a company could be brought to market. The whole process takes several years, unlike an ICO. In this case, the company spends the work of lawyers and financiers before being able to trade on an exchange.

With an ICO, these stages are skipped and the team immediately presents their project idea, announces the coin and offers it to the community. It is similar to crowdfunding, only in the crypto-sphere.

The ICO system itself is not bad and is not a scam. Right now, it’s a good start for young projects. Ethereum started exactly with a bitcoin ICO. Vitalik Buterin described his idea, presented it to the community and collected bitcoins, in exchange for which he gave ETH tokens. Then people trusted him and exchanged real coin for tokens of the project, which was just starting to be realized.

But the ICO system was actively used by fraudsters. All failed projects can be divided into 4 groups:

Projects for the sake of scam. The team did not initially intend to implement any ideas. They invested money to create a beautiful website, described a promising idea, and the faces of the project creators were not disclosed. As soon as they gained popularity, they disappeared along with the funds raised.
Projects without a good team. People really wanted to implement a good idea, but due to lack of experience the project fails and everyone loses money.
Projects that “ditched” investors. There are teams that managed to implement their ideas, but ended up “ditching” their investors. Some promised that their projects would be paid only with a token issued, which was purchased at launch. After implementation, the company failed to deliver on its promise and accepted dollars or other currencies for payment, and the token was devalued. In doing so, the project made money first on the ICO and then realised and continued to make money.

Unnecessary projects. Some projects succeeded, but no one wanted them. Technology advanced or more promising ideas appeared and the coin was no longer worthwhile. Sometimes good projects did not come to fruition due to lack of funds raised. These are unintentional scams, which also result in investors’ money disappearing.


Scammers try to think out a scheme in advance to attract investors, which is difficult to detect by inexperienced users. When analyzing projects for a scam, it is necessary to pay attention to a number of features:

  • The experience and background of the team,
  • Reviews on professional resources,
  • Community in social networks,
  • An understandable smart contract,
  • Analysis of the project’s future revenues.