3 Ways to Spot and Avoid Crypto Scams in 2023

13 min readMar 19, 2023

The Cryptocurrency industry is arguably the fastest-growing industry globally. As mentioned in one of my articles, the cryptocurrency Alpha Coin ‘Bitcoin’ became the first asset to hit the trillion dollar market cap within two decades compared to the likes of Apple, Google, and Microsoft. Bitcoin hit the $1 trillion dollar mark in 12 years, showing the massive opportunity and potential of the digital assets market. This and many more have been the main reason for a consistent and continuous influx of new individuals and organizations into the cryptocurrency space, as it is still in its growing phase, and there are still lots of opportunities to get a hold of.

As with any other industry or asset, cryptocurrency has faced its fair share of challenges. We will discuss one of the most consistent challenges among them: crypto scams. Since the crypto industry is still growing and developing, there seem to be many weak links and loopholes that are yet to be addressed by the major players in the space. This is one of the main reasons crypto scams have increased in the industry for almost a decade.

Crypto scams happen in so many ways that it becomes almost impossible for an individual to get to know them all, from crypto Ponzi schemes to rugpulls, to wallet hacks and false crypto investment platforms with false ROI promises. The list already seems to be endless. There are several ways in which these crypto scams happen, as we have seen from the major crypto scams that have taken place around us.

Like the case of Onecoin, which turned out to be a Ponzi scheme and made users lose over $5 billion dollars, to the case of bitconnect, another crypto platform that had to pull the plugs abruptly, to the case of the scam token called Squid Game, in which the creators just made the token at the spur of the moment riding on the wave of the movie popularity and after getting a huge sum of money from the unsuspecting crypto investors who have purchased the token, rugpulled and went away with millions of dollars.

See Also: When Crypto Goes Wrong How a Cryptocurrency Investigator Can Help

This is not forgetting the other scam cases that some of you, readers, might have suffered from various platforms that might not have made the news. It is, therefore, a matter of fact that one of the major challenges facing the cryptocurrency industry presently is the issue of crypto scams. Therefore, in this article, I will do my best to highlight three major ways you can spot crypto scams and how to avoid them.

It is also very important for every cryptocurrency user and investor to know how to spot or easily identify crypto scam projects. This will help curb the rate at which crypto users are being exploited and help improve productivity and longevity in the crypto industry.

Ways to Spot Crypto Scams and avoid them

1. Look for the Crypto Website Project whitepaper.

Many cryptocurrency users might have come across the term ‘Whitepaper’ but not really understand what it means or how useful it is to them. A Whitepaper is a document outlining all the technical, economic, and fundamental aspects of a cryptocurrency project or token/coin. It explains in detail all the underlying information about the project. Also, it is used to explain in detail the project’s roadmap, the purpose of the crypto project creation, the problem it is coming to solve, what sets it apart from the rest or what makes it unique, and its plans for its users. A perfect example is the now-famous bitcoin whitepaper by Satoshi Nakamoto.

bitcoin whitepaper

You must pay attention to the white paper information as it helps you understand whether that project is sustainable or just a sham. Examining the crypto project white paper can help the crypto user identify a shady or unreliable project as most of the time, people who own this crypto scam project ignore their white paper and just put in shabby and unrealistic information; sometimes, if you are vigilant as a user, you would even discover they just clone other genuine crypto projects white paper with very little changes and place it on their site. Furthermore, some of these projects don’t even have a white paper, which should be an instant red flag for you to avoid the project, as it might be a crypto scam project.

2. Do a Thorough Research

One major challenge I have discovered crypto users have over time is their inability to carry out due diligence or a good level of research before entering into a crypto project or investing their money in one. The reason behind this is not far-fetched because most of these users are easily and quickly influenced by the media hype, noise, and sometimes visible testimonials from other so-called believers or users of these so-called great crypto projects. This hypes quickly becloud the judgment of many of us users, which sets us up automatically for these crypto scams.

Therefore, it is very important that before investing in any crypto project, you must conduct some level of research to understand the crypto project you are investing your money in and the level of risk involved. In carrying out your research, here are some things you must watch out for in the crypto project to avoid crypto scams.

The number of holders for the token and the percentage they are holding

For crypto users, when you want to purchase a new token or coin, as the case may be, it is important for you to carry out your research and get to know the distribution of the token. If the majority of the tokens are in the hands of very few wallets addresses, maybe two or three, this is already a red flag as these major token holders are very likely to be the creators of the token and can easily manipulate the price of the token at the expense of the innocent and unsuspecting investors.

In a clearer picture, they can decide to sell off a large chunk of their holdings after several users have invested in the tokens, which would, in turn, drop the price and make the investors/holders lose money to them after the price dips due to their sale, they would buy it at a lower price again, urging other unsuspecting users to buy during the dip and try to push it back up to a good price again. The circle keeps repeating while the project owners keep milking their users dry.

It is, therefore, very important to check the holders of the token you are about to invest your money in and ensure that the token is reasonably distributed among numerous addresses. You can check all these on coinmarketcap. You only need to get the token project contract address on coinmarketcap. Once you have seen the token contract address on coinmarketcap, you click on the contract address.

click on the contract address

It would take you to the token project transaction blocks, history, and other information,

select the holders menu

navigate to the holders’ addresses, and here you would be able to get hold of some information concerning the crypto project.

List of token holders and the percentage they hold

Note that the project must be on coinmarketcap, coingecko, or any other trusted and reliable cryptocurrency exchange before you can most likely access this level of information. Checking up on this information can also be very technical, so you can also enlist the help of a more experienced cryptocurrency developer or a tech expert.

Check for the liquidity time lock.

Another very important thing to look out for to avoid crypto scams is the liquidity time lock of the project. Any or most legitimate cryptocurrency token/coin projects always ensure that there is a timelock of a large portion of their minted tokens. A liquidity timelock is simply making a certain percentage of a token inaccessible to both the project owners and the general users for a certain period of time till the token is well established and has gained a reasonable level of trust from its users, and has also grown or developed to a certain extent.

The reason behind this is to ensure that the project developers and owners would not run away with investors’ funds, as the majority of the token would be locked away and automatically become inaccessible to the project owners. In more notable cases, the lock period spans years, giving investors a certain level of trust. Some more developed projects even set aside a portion of the token to be burned or destroyed to strengthen the token’s value further.

Also, the liquidity time lock would make it totally impossible for the project owners to carry out a rugpull. In case you don’t know about rugpull, it is a crypto exit scam whereby the crypto project team pulls out the liquidity of the minted/created tokens and leaves with the crypto investors’ funds. In a rug pull scheme, the fraudulent project owners first create a token and then go ahead to generate interest around it through promotional strategies, predominantly on social media platforms like Twitter and Telegram.

They subsequently list it on a decentralized exchange (DEX) such as UniSwap or PancakeSwap and pair it with popular tokens like ETH or BNB. At this point, they will very likely inject a significant amount of liquidity into their pool and amplify their marketing efforts to entice substantial exit liquidity from buyers. A perfect example has been mentioned earlier, which is the case of the Squid Game token.

The only downside to the research method is that it mainly requires a certain level of technical skill to ascertain if a token has a liquidity time lock on it or if it doesn’t. You can still look for a reliable developer from a discord group to help provide info on the token.

Research the founders of the projects.

Another key factor to not ignore is getting to know the identity of the founders. I know what will come to our minds is Bitcoin, whose founder or founders are still unknown to this day. Still, the bitcoin system completely embodies what a decentralized system should be like, as even the founders cannot even control or determine the distribution of the coin, as the blocks are mined by crypto miners and cannot be taken easily by an individual or entity as is the case with most of the recently created tokens.

Therefore, for new tokens, you must research the projects’ founders or developers and ensure they are using their real-life identities on the platform. As I have discovered several times, many just use fake and fabricated names and identities. You will notice that their social media profiles have very few activities or followers. As they just created them to carry out their malicious act. If you notice this, avoiding the crypto project and moving on to the next one is advisable.

Check the Project Audit Status

Another important factor to consider in avoiding crypto scams is checking the crypto token project audit status. A genuine crypto token project should have had its token smart contract audited and validated by an independent security auditing firm. This would help the user know that the project is certified as safe and secure.

In case you don’t know the meaning of smart contract auditing, it is the process of reviewing and testing these lines of code to ensure that they are secure, free from bugs, and function as intended. This is a critical step in mitigating the risk of hacks and thefts, which are unfortunately all too common in the cryptocurrency world. One of the common Audit platforms where some crypto project gets their audits is Certik.

Unfortunately, not all projects prioritize this step. Some may even deviously postpone the auditing process, putting it somewhere in the roadmap to give investors unwarranted confidence. This is a red flag for investors. An unaudited smart contract could hide bugs that allow the founders, or someone else, to steal user funds through a backdoor. This is a very real risk and has happened in the past. For example, the infamous DAO hack in 2016 exploited a vulnerability in the smart contract code, resulting in the theft of millions of dollars worth of Ethereum.

Investors should not just take a project’s word for it when they claim that their smart contracts have been audited. Instead, they should check the audit report themselves. Some projects may indicate that they have been audited, which can delude investors. However, an audit report might reveal the con artist’s planned exit route if you look closely.

Therefore, it is crucial to conduct due diligence and ensure the audit report is from a reputable and independent security firm. Look for information on the auditing firm’s reputation and experience, and check that they are not affiliated with the project in any way. This will help you make an informed decision when investing in a cryptocurrency project.

One thing of note, though, is that Smart contract auditing can be expensive, and many projects, including legitimate ones, may be unable to afford it. In such cases, investors can alternatively check independent auditing websites like Token Sniffer or RugDoc that may have made their own free audit of the project available. While these audits may not be as thorough as a full security audit from a reputable firm, they can still provide valuable insights into the project’s code and identify any obvious red flags that might scream crypto scams.

Checking for the proof of reserve

This particular information is to help crypto users who use centralized crypto exchanges better select the reliable exchanges they can leave their funds with over a period of time. However, I always advise crypto users to store their crypto assets on decentralized wallets where they have personal custody of their tokens/coins and don’t need to leave it with any third party like the centralized crypto exchanges.

But for those who still feel it’s easier to keep your assets in centralized exchanges allowing a third party organization custody of your assets, it is very important you use very reliable exchanges and ensure to check their Proof of reserve. Proof of reserve is a recent innovation that has since been adopted by most of the legitimate centralized cryptocurrency exchanges, such as Binance, Coinbase among others, ever since the crash of one of the largest cryptocurrency exchanges, FTX, in which crypto users around the world lost their crypto assets due to the exchanges shady dealing with users funds.

The proof of reserve simply shows that the exchange is not tampering with their users’ funds or assets as it shows a 1 to 1 coin ratio in the exchange’s reserve. This means that the total amount of assets invested or stored by the users of that platform is equivalent to the total amount the cryptocurrency exchange has in their cold wallets. You can look up how to check the POR of popular centralized cryptocurrency exchanges on google.

3. Lookout for Projects with Promises of high returns in little time

Another way to avoid crypto scams is by not being greedy. One of the most popular ways many crypto users have fallen victim to crypto scams is through Ponzi scheme projects. The idea of earning 1000 times what you have or what you invest in a short period can be very attractive to many people, and this is why so many crypto users fall victim to crypto scams such as Ponzi.

There is a saying that goes thus if it is too good to be true, then it is not true, and this is what happens when you see a crypto investment project that promises very high returns with you putting in little to no effort, then that is already a big red flag as it means the project owners are baiting the supposing users so that they can get the users to invest their funds in the platform and they can use it for their own selfish purposes.

Also, these Ponzi scheme platforms tend to overcomplicate the process they tell their users they are using to generate their profit, from which they give the users their ROI. They also put rules that make it almost impossible for the users to withdraw all their funds from the platform simultaneously. A perfect example is the Onecoin Scandal which crashed in 2016, and another one is the COTPS which eventually crashed in 2022; we also have the case of Bitconnect.

You can also read up on these crypto scam incidents to better understand how these Ponzi platforms operate. It is, therefore, very important that you don’t get greedy and go into the cryptocurrency space with a ‘Get Rich Quick Mentality,’ as you would become very vulnerable to these types of crypto scams.


In conclusion, as the cryptocurrency industry continues to experience rapid growth, crypto scams will continue to pose a significant challenge for investors and users. However, there are ways to spot and avoid these scams. One of the most effective ways is to examine the project’s whitepaper you are interested in carefully. A lack of detailed and credible information in the whitepaper can indicate a potential scam.

Additionally, carrying out thorough research on the project and token distribution can help identify red flags and avoid falling victim to these crypto scams. Another important way to avoid these scams is to ensure that you cultivate the proper mindset of an investor and not be greedy so as not to be easily deceived by unbelievable juicy offers that are not possible.

Finally, It is very important for cryptocurrency users and investors to remain vigilant and informed, as this will help to prevent the occurrence of crypto scams and contribute to the growth and development of the industry.




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