Cryptocurrency scams: 10 ways to identify scam coins

The fast-moving world of cryptocurrencies allows quite a few opportunities for traders. New cryptocurrencies and tokens often rise at a rapid clip, drawing a lot of attention whether they originate in a fork like Litecoin Cash or from an ICO. Yet in many cases, these shiny new coins are no more than a scam: a pump and dump scheme that should be avoided at all cost, as they can cost us the full cost.

Recently we have seen a few cases where suspicions were raised about new cryptocurrencies. They are accused of being coin scams and public arguments have broken out online.

Litecoin Cash and Bitcoin Private controversies

The price of Litecoin Cash (LCC), a hard-form from Litecoin (LTC) has seen its prices jump and has was also grilled by the founder of Litecoin, Charlie Lee. He clarified that any forms may be scams and are not related to Litecoin. He also warned against providing private keys. Is Lee trying to fight back against the competition or are there reasons for concern about LCC?

Bitcoin Private (BTCP), a coin that promotes more private trading, has been accused of being a scam coin by trying to ride on Satoshi's original vision. Is Bitcoin Private just a Bitcoin Scam? BTCP has its proponents that point out to the legitimacy of the coins by noting their wide usage, the people behind them, and more. 

There are more cryptocurrencies that are suspected of being crypto-scams. Looking at the broader picture, here are tips that help identify scam coins:

1) Too good to be true

If it looks too good to be true, it probably is. If the Initial Coin Offering (ICO) goes into hyperbole and offers unicorns, it may be the first warning sign. Sure, you can expect a company or a coin to promote itself and focus on its advantages rather than disadvantages. If the promised returns sound outlandish, they probably are. A company making more cautious predictions for the future of its coin and its usage may be more real and down to earth. 

Cryptocurrencies do provide opportunities and growth is rapid, but not astronomical. A get rich quick scheme may enrich the sellers, not necessarily the buyers, at least not those at the bottom of the pyramid scheme. You don't want to be the one holding the token when nobody wants to buy it. 

Are the innovations and the promises for the commercial use made by Litecoin Cash and Bitcoin Private realistic and down to earth or are they over the top? The answer is in the eye of the beholder as always but the questions should be asked regarding these two coins and any other ones. 

2) Is there anybody out there?

It should be easy and intuitive to find who is behind the project. An About page should be easy to find, and a list of founders and team members should appear there, with their pictures. You should easily find the LinkedIn profiles and in case of developers, the GitHub or similar public profiles of the people behind the project.

Is it taking you too much time to find who is behind the project? Are they using only nicknames? Is it hard to find any other information about them? A successful project requires a skilled team that has the necessary expertise and experience. Even if the people behind the project are highly talented but are unwilling to show themselves, this is a warning sign. Successful entrepreneurs and developers take pride in what they do.

The official LCC website includes the photos and the names of most of the development team behind Litecoin Cash, but their public profiles are missing. Is it good enough? Supporters of Bitcoin Private argue that the team offers a high level of transparency. Does it match other projects' level of transparency? 

3) No source code

Most serious cryptocurrency projects are open source ones that are made accessible on GitHub. Opening up the source allows transparency and improvement to the code by external contributors, enjoying the collective wisdom. The absence of a link to the source code may indicate that there is something to hide: they do not want others to see what is in the box. Worse off, it may mean there just isn't any source code at all - an even cheaper scam.

The team behind Litecoin Cash promised to publish the source code on Github for all to see.

4) Light or no White Paper

A White Paper is the founding document of a cryptocurrency project and roadmap for the future. A good paper details the internal dynamics and mechanics of a coin. Things may get quite technical in such a paper. If the White Paper is light on technical information, it is already suspicious. If such a document is nowhere to be found, the suspicion grows. It means that the people behind the project did not even make an effort to produce it. 

The Bitcoin Private White Paper was easy to look up on Google. Is the document sufficient? 

5) Check out the Telegram and Slack channels

Telegram is a popular messaging application that is considered secure and has become popular among the crypto-community. It can be used to communicate around the project and also to sell it to outsiders. You can probe the telegram channel for several things. Are the communications between the people there serious? Are they diving into details? You can get a good impression about the project by examining the flow in the Telegram channel and the Slack channel if it is accessible.

Moreover, Telegram channels are often used to promote the cryptocurrency, promote the ICO or the pre-ICO. As mentioned earlier, if it sounds too good to be true, it probably is. Language full of hyperbole and superlatives, lacking any cautious should raise alerts. A more cautious approach is better.

6)  Not listed on many exchanges

The boom in digital coins has led to a boom in crypto exchanges. The coins vary from exchange to exchange and so do the prices. Some digital exchanges have only a very limited set of tradable coins. If the coin you are interested in does not appear on Coinbase, this is not a reason to worry about. Yet if it does not appear anywhere after the ICO has been completed or you see no plans to include it, maybe it is time to worry. 

A higher adoption rate by exchanges not only lowers the chances of a scam but also makes liquidity ampler. A crypto project that managed to convince only one exchange to offer it for trading means that buying and selling the coin may be hard.The more exchanges, the better.

Litecoin Cash is currently listed on Yobit, CryptoBridge, TradeSatoshi, MeanXTrade, and MercatoX. How does that compare to the rest? The same check should be done for Bitcoin Private and any new coin you think of getting into. 

7) Google the name + the word scam

Searching only for the name of the coin is not enough. Adding the word "scam" is already taking one step further. Finding information that includes the name of the currency and the word scam does not immediately mean something is wrong. Perhaps the words appear together as a question in a forum, and the answer may be that it is not a scam. Another false positive may be a competitor trying to bash the coin. 

So, do dive into the sites that include these words and check out: are there complaints about the currency there? Are these complaints genuine? Are they common? Do they appear on different sites? If you see too many serious and negative mentions, it may be time to worry. If it is only a random, confused, or angry person, perhaps it si not so bad.

For instance, one of the first results when searching for Bitcoin Private Scam results in a statement that the coin is not a scam after all. Results differ. 

8) Use Google Trends for the timespan and related searches

Google Trends is an excellent tool for getting to know what is trending in the world. The service has been upgraded to provide up to date data and also past data and also provides a list of related searches. You can extend the timeframe to the past and see how much time it has been active. A project that is running for a longer period of time means it is more serious, lowering the risk of a "pump and dump" scheme. Being new does not mean a project is wrong, but a project with a longer track record is probably less risky.

Another use of Google Trends can be examing the related searches. If these searches are mostly about scams, issues, and suspicions, you are not the only one worrying about the crypto project. You can also use the tool to search for the coin name + scam and see the volume of searches for your preferred cryptocurrency. 

A search for Litecoin Cash yields a surge in interest around December but there certainly was some interest in August. 

9) Check them out on Google News

The last of the Google-related research tools you can use is Google News. By searching only for news stories about the coin, you will get results from better sources. This is not the full picture you would get in forums, but it is still a more reliable one. Negative mentions by serious outlets may be a warning sign as well. 

10) Check the link

If you see promotional material about an ICO that includes a link to participate in that sale, examine the link. It can be done by hovering above the link or right-clicking on the browser and selecting View Source to see how the link is structured. 

If the link includes a querystring at the end of it that looks like "?referrer=123456" or "&landing=654321" this implies that the site promoting the ICO is getting paid for the referral. This is a legitimate practice and does not automatically imply any wrongdoing, but it does mean that you should take the positive language with a grain of salt. It may not be the most objective review and perhaps you would want to examine other opinions. 

Conclusion - Research is Essential

With the explosion of cryptocurrencies, there has also been an unwelcome rise in crypto scams or scam coins. An in-depth research is needed to assess new coins, like with any other investment. The tools provided in this article should help to make the right decision about any coin, not only the two examples mentioned here.