Is This a Scam Token? Here's How to Identify a Scam Crypto Token in Minutes

Looking to invest in crypto? Here are the five biggest signs that a cryptocurrency token is actually a scam.

The exponential growth of the crypto industry has given way to a hoard of new millionaires and success stories, but things aren't all dandy in this market. Cybercriminals have noticed the "get rich quick" trend around cryptocurrency, and have capitalized on this desire. This has given way to a lot of crypto-related cybercrime, including scam tokens.

So what is a scam token, and how can you spot one?

What Is a Scam Token?

A scam token is a cryptocurrency that is launched for the express purpose of stealing investor funds. These are often developed on a pre-existing blockchain, such as Ethereum, as it's easier for a cybercriminal to do this instead of developing an entire blockchain.

Scam tokens are usually created as a vehicle through which a rug pull can be carried out. This scam generally involves developers pulling the plug on a project and hitting the road with the money investors put into a token that they assumed had promise.

Because cryptocurrency is highly unregulated, it's easy for scammers to create and promote a token without any kind of license or credentials. In the crypto world, a token can become hugely successful in a matter of days and remain highly profitable in the long run, so investors are often looking for assets that are likely to blow up.

Say a crypto was worth $1, but it is suspected this price will exponentially grow in the near future. An investor will buy a small or large amount of these tokens, and can then make a huge profit by selling the token back to an exchange if its value does indeed increase. Some investors are also looking for long-term investments, and trust that a crypto will accumulate value over time.

It's this hope that cybercriminals prey upon through scam tokens. There have been a number of scam tokens launched in the past that have managed to trick investors, both casual and professional, into giving away big chunks of cash without realizing that they'll never see it again.

Take OneCoin, for example. This was a huge Ponzi scheme disguised as a promising crypto investment. The project's founder, Ruja Ignatova, claimed that OneCoin could be mined, sold, swapped, or stored like a regular crypto, but there was a key difference here that should have stood as a red flag to investors. OneCoin offered rewards to investors who introduced additional investors to the project. This is exactly how a Multi-Level Marketing scheme (MLM) works.

In the end, over $4 billion was stolen from investors, after Ignatova took all the raised capital and disappeared entirely. But her brother and co-founder were both charged and convicted in 2019, so there was some element of justice at the end of this ordeal.

How to Spot a Scam Token

So, if scam tokens can trick thousands of investors and steal millions or billions of dollars, is there any way to identify them? Thankfully, there are things you can do to avoid investing your cash in a scam token.

1. Research the Developers

A lot of scam token developers remain anonymous because they know that they'll be committing a serious crime in the near future. Of course, a cybercriminal isn't going to openly admit to who they are before scamming people out of money, as this makes it that much easier for authorities to arrest them. While some crypto scams have had non-anonymous founders, like Ruja Ignatova who we previously discussed, it's more common for these individuals to hide behind an online identity. Even legitimate crypto developers do this, such as Shiba Inu's Ryoshi.

So, if you've seen a new project hit the market, but the developer or group of developers are all anonymous on social media and other platforms, be wary. While this factor alone can't confirm where a crypto is illicit, it is certainly something to take note of.

2. Check the Crypto's Price History

When conducting a crypto-related scam, cybercriminals don't want to wait around for any longer than they have to. This is why a lot of scam tokens experience huge spikes in value, before plummeting immediately after, when the founders sell their huge chunk of holdings back to an exchange.

You should consider it a possible red flag when a crypto is both new and has experienced a huge price hike in a matter of hours or days. This does not mean that the crypto has any kind of long-term promise, and could indicate that this is nothing more than a pump and dump rug pull scam, wherein the token's price will soon plummet.

3. Consider the Token Distribution

When a cybercriminal develops a scam token, they will often keep a huge portion of those tokens to themselves so that they can sell back a massive fraction of the total supply and make a big profit. While legitimate crypto developers will often keep some tokens or coins to themselves, it doesn't usually amount to half or more of the circulating supply.

Many individuals will miss this warning, as you have to go out of your way to check the supply distribution. But this can be done by taking a look at the distributed ledger or transaction history of the token in question. If you identify any whales (or huge crypto holders), and the token is relatively new, this may indicate that the token has criminal foundations.

4. Check the Whitepaper

Whitepaper documents contain the development steps, goals, and future projections of a cryptocurrency. Some whitepaper is incredibly in-depth and detailed, giving potential investors a thorough idea of the intentions behind an asset. However, cybercriminals can essentially sidestep the whitepaper element of their scam token, as they either don't deem it important or don't want to waste time on it.

This caveat can very clearly expose a scam token. If you check the whitepaper, and it's incredibly short or vague, or is a blatant copy of any other crypto's whitepaper, then you may be looking at an illicit venture. Legitimate crypto developers will put effort into their whitepaper, as it can convince people to invest. But this can also be used to a cybercriminal's advantage. So, if the whitepaper contains extremely high return promises or unrealistic growth predictions, this is also a red flag.

5. Extreme Marketing

In order to raise capital for a scam token, cybercriminals will often market their project very heavily to create a buzz as quickly as possible. This is done primarily on social media, especially Twitter. Before investing in a token, check the social media accounts of its developers to see if their marketing tactics involve unrealistic promises, fantastical claims, or suspicious statistics. These can all be signs of a scam.

Scam Tokens Are Rife but Can Be Spotted

Now that crypto is a big growth sector, cybercriminals are constantly trying to trick unknowing investors into giving away their funds. This is why it's so important to conduct your own research around any given token, and stay on the lookout for suspicious signs that may indicate a scam is taking place.