Crypto - May 30, 2022 - 3 mins read

Experience without exposure: how to avoid investing in fake crypto projects

With the cryptocurrency economy bubbling with energy and new tokens debuting almost every month, the volatility of the crypto market is not hot news at all. The recent events have shown that even the stable coins that claim to be relatively safe have gone into free fall. Some call the Terra incident a Ponzi scheme akin to the collapse of Lehman Brothers, which precipitated the 2008 financial crisis.

The events from last month are a graphic illustration that in such a rapidly growing market, there are always risks to financial stability and we need a more profound understanding to avoid all those mishaps that we can identify upfront.

The growing opportunities in the crypto universe and the fear of missing out (FOMO) factor are making it increasingly difficult to keep a check on the authenticity of crypto tokens, and investors often fall for fraudulent schemes. So, how can we have a beneficent experience without exposure to faking?

The most effective checks to identify the fake tokens from the legit ones:

Do your research to better discernment

We understand that there are moments when FOMO may cloud your judgment and cause you to lose your sceptical faculties to save time. It will do you no good. Conduct your research rigorously with multiple credible sources and verify that the project you invest in does exactly what's promised. This approach will help you know what you're up against, understand the controls and policies for safeguarding funds, narrow your scope and build your credibility in the desired project.

Don't tap on projects that have no whitepaper of their concept

This is probably the most efficient way to ensure your investment is worth it and the token you've singled out is a legitimate one. The whitepaper is a single source of truth for the details and the technology involved in the design of the blockchain backing your selected token. It is, in essence, more relieving for the nature of its creators and speaks volumes more than a flashy website. A whitepaper that indicates a rock-solid concept and a carefully conceived implementation plan contains the creator address, the contract source code, the goals and strategies behind the project and, of course, a roadmap with the milestones for the implementation. If any of these elements are missing, then it is something to be careful about.

Tap on the feasibility of the project

While taking a deep dive into the whitepaper of your chosen token, take a closer look at a project's revenue model and real-world applicability. Regardless of how compelling the concept of the project may sound, you need to ensure yourself that it is sustainable and is able to translate the idea into a feasible execution over the short to long terms. In this case, the roadmap we mentioned above and the project's timeline may come in extremely handy. News about updates or even delays is also very welcomed as this speaks about transparency in communication and the ability of the company to keep their potential investors up to date with the progress of their project. In a second stage, you can invest a bit more time to check if your token love interest is also an interest of legit whales and has engaged a robust community around it. Unlike private life, this is more than a positive feature because if it doesn't, it may just be a fad.

High returns in little time are chimera

It is a fundamental truth that any investment needs time to grow in value. This is even more valid when it comes to cryptocurrencies that are set by default to display extreme price swings. Many fake projects rely precisely on that to promise surreal returns within a short span of time. The idea of getting rich quickly on investment is indeed tempting but keep in mind that projects sounding too good to be true likely are. Taking a promise for granted is no harm only in case you check the track record of performance and ensure yourself how viable this promise can be.

Look at the token sale figures

A smart indicator for any legitimate project is the way it allows and facilitates the investors to view the system and the progress of the token sale. The token team should grant an easy view of the crowdfunding process and how the token sales over time. If you find it particularly hard to find those indicators and keep up with the progress of the ICO, how much has been raised and how much time remains in the sale - then it is a huge red flag.