8 Ways to Verify if a Token is a Scam
The blockchain industry is filled with promises of quick and easy money. It is crucial to identify which projects are safe and which are destined to fail after three months. This article presents eight methods to check tokens and helps traders avoid effective scams.
1. Start with the Basics
To verify the legitimacy of a token, start with the easiest accessible methods. For example, conduct a Google search and check Twitter for any dangerous or warning signals about the token and its team. Look for reliable sources of information such as official websites, news articles, and verified social media accounts.
Check for Social Media Warning Signals
Verified accounts (e.g., on Twitter) can help validate the legitimacy of a project. Additionally, participating in token discussions can provide insight into the community’s perspective and opinions.
Be cautious of projects with a large number of followers on social media but low engagement. Automated comments from fake accounts should also be considered a warning signal. If all the comments are along the lines of “this is a great project” and “moon is coming,” be wary.
Check Token Address in Google Search
If a clear homepage, whitepaper, or obvious token purpose cannot be found online, it is likely a scam. When searching for a token address, it should be easy to find links to block explorers, official websites, and whitepapers. If they are missing, it is a dangerous signal.
Additionally, be aware that Google advertisements are often the territory of scam websites. Avoid clicking on ads at the top of Google search results. Make sure you are visiting the official website to avoid clicking on wallet drainers or other hacker software.
2. Verify the Code on Etherscan
Visit the blockchain explorer of the chosen chain and check if the code has been verified. For example, on the Ethereum blockchain explorer Etherscan, it should look like the image below. If the code is not verified, it is a clear warning signal. If the code is not verified, you may have encountered a scam.
Why don’t scammers verify their code directly?
Because once the contract’s source code is public, anyone can understand the intentions behind the contract. It could be a ridiculous token system or a way for the developer to steal all your tokens. However, does this mean that every unverified contract is a scam? Not necessarily, but it is a very serious warning signal.
3. Check the Comments Section on Etherscan
This part is straightforward, as most blockchain explorers have a comments section. Most of the time, there are no comments, but if a project is a scam, you may find a group of angry individuals in the comments section. So be sure to click and check. If someone says it’s a scam, there’s a 99% chance it is. If you are a victim of the project, please leave a comment as well.
4. Check DappRadar’s Blacklist
You can cross-reference the token address with DappRadar’s token blacklist on GitHub. If the token address appears on the list, it is a scam.
5. Check Token Details in Token Indexes
If you cannot find the token on CoinGecko or DappRadar’s token indexes (or similar token price trackers), it is likely a scam. If you see a warning like the image below, proceed with caution:
All legitimate tokens will share their information with token index websites for verification. However, platforms like CoinMarketCap and CoinGecko have specific requirements.
Therefore, not all tokens (whether legitimate or not) will automatically be listed on these token index platforms.
6. Check the Number of Exchanges Listing the Token
If a token is only traded on a few decentralized exchanges (DEX), it may be a scam. Listing on centralized exchanges requires KYC and additional trust, and the larger the exchange, the better the reputation of the listed tokens.
However, tokens listed only on DEX are not all scams. Some projects do not require high trading volumes, and some projects only cater to Web3 users rather than token traders.
However, tokens listed only on DEX are a riskier investment, and you are more likely to encounter scams. The image below shows a token used only on DEX on the left, while the one on the right can be used on multiple CEX.
7. Check the Liquidity in the Token Balance Pool
Before investing in a token, it may be necessary to check the overall demand and availability of liquidity. Checking the liquidity of a token on platforms like Uniswap V2 or other DEX is straightforward.
Liquidity refers to the amount of cryptocurrency or tokens locked in a smart contract, allowing users to buy and sell assets through (decentralized) exchanges. If the liquidity is below $100,000 or rapidly decreasing, you may have encountered a scam.
When using a DEX, be sure to check the basic activities on other chains, including:
– Trading volume
– Number of transactions
– Number of active wallets interacting with the smart contract – the number of users connecting to the DEX using Web3 wallets.
If any of these seem unusual, conduct further investigation.
8. Use Third-Party Analysis Tools
Here are some token analysis tools:
– Smell Test: Automatically audits tokens. The lower the score (out of 100), the more likely it is a scam.
– Honeypot: A smart contract deliberately inserted with obvious programming flaws. When attackers exploit the flaw, another hidden code is activated to counter-attack the attacker. Honeypots should be avoided regardless of whether you intend to be a cryptocurrency hacker.
– DEXtools: Records real-time token prices and provides insights into the token’s true value.
Scammers exist both in the blockchain world and the real world. By following these suggestions, you should be able to avoid fake tokens designed to scam funds.
This article was originally published on PANews.
