How to Avoid Cryptocurrency Scams with these 24 Red Flags

Beginner’s Guide / 20.07.2019

The cryptocurrency market has become a hotbed for get-rich-quick schemes. Thousands of coins have flooded the market, and at times, it can be overwhelming to determine the validity of these assets. This article will focus on red flags that can help highlight risky assets to ease the evaluation process. These are not necessarily indicators that a coin is a scam, but they provide uncertainty, which could mean a volatile future that may lose funds.

Evaluating red flags can not only save you a lot of money but also better allocate time to evaluate assets without so many red flags. It should be acknowledged that there are exceptions to every rule. These are common red flags that, on average, represent problematic situations for the future of a coin.

The Repository

There are several common occurrences we have noted that are continuing to plague the cryptocurrency community. They are glaringly obvious and straightforward to avoid.

1. No Public Code Repository: If the team is advertising the product as one who will have a public repository, it needs to have a public repository. It’s as simple as that. Without a public repository, there is no proof whatsoever that the product’s code even exists. There is no proof that there is even a team of engineers working on the product. With the prevalent scams in the crypto space, it’s easier to be over-cautious when making these evaluations. Staying on the safe side when making long-term bets will reduce the chance to uncover product killing issues in the future. The public repository is one of these potentially product killing signals.

2. Low/No Activity: Most cryptocurrencies are promising transformations to enormous financial markets. This is exciting, except many coins aren’t demonstrating that they will have the persistence to achieve their visions. If a coin is going to be successful, it needs to develop continuously. Inching forward the vision. When a coin hasn’t pushed a single update to its public repository for years, this doesn’t strike confidence in users’ minds. Some coins broke over a billion-dollar market cap that hasn’t had a single repository commit in over 2 years. This is concerning.

The Team

We’ve said it before, and we’ll repeat it. The team is one of the most important aspects of any cryptocurrency.

3. Small Team: A general rule when trying to overhaul an industry is that it can’t be done alone. It takes a brigade of passionate people even to shift the status quo an inch. When evaluating a team, there should be more than two or three members on the team.

4. No Advisers: Advisers provide team assurance. Simply put, a team without advisers demonstrates a lack of ability to convince market influencers that their vision for the future is valuable. This is extended to teams that only have a single adviser.

5. No Diversity in Positions: A company needs more than a few engineers to succeed. It needs a well-rounded team of individuals who are masters of their industries. A team needs engineers, business people, designers, marketers, community coordinators, and so much more to become successful.

6. Anonymous Team: Years ago, anonymous teams could get away with building a cryptocurrency. Due to the mystery around Bitcoin, this was almost welcomed. This feeling didn’t track well as space continued to grow. With cryptocurrencies being plagued with scams and ill-equipped teams, an anonymous team now signals that a team is embarrassed by their qualifications. By keeping this secret under wraps, they hope the public won’t notice their ignorance. Anonymous teams always seem to find plausible reasons for why they must remain anonymous. Don’t accept these claims without overwhelming proof.

7. Low Team Engagement: Outside of repository activity, it’s possible to be inactive on other fronts. Founders should be active in blogging or tweeting. Developers need to be engaging with the public or attending conferences, and the team needs to have a general involvement with the crypto community. Without this engagement, teams are signaling that they are running out of momentum. They may not have much steam left to keep going.

8. Public Team Infighting: It’s not often that teams air out their dirty laundry for the world to see. Most competent teams will realize that public infighting hurts everyone involved with the company. This is why it’s so interesting when it does happen. Once private infighting begins spilling into the public, this is a clear sign that the situation is exponentially worse than what is being publicized. When there is public infighting in a small startup company, it’s not easy to recover. Teams often end up splitting, and the vision eventually dies.

The Funding

Funding isn’t everything, as we’ve seen with Bitcoin, but other cryptocurrencies shouldn’t expect to have the same luxuries as Bitcoin.

9. No Funding: There are some exemptions to this rule due to long-term team dedication demonstrated through years of support. Some of these include Bitcoin and Litecoin. Outside of these special cases, most coins need funding to continue development. Once the funding begins to dry up, teams will generally begin to disperse since they no longer have monetary incentives to continue development.

10. Mystery Funding: In some instances, coins will claim prominent venture capitalists or influential funds have backed them. These claims are surprisingly easy to verify, so it comes as a surprise when these claims’ validity comes into question. Outside of announcing false investors, ICO’s have been found to advertise large investments from anonymous groups. This attempt to gain the trust of the public can signal that they are falsifying their funding history. A team should always cite their sources of funding. There should be no exception to this rule.

The WhitePaper

The white paper has established itself as an important document in the crypto space. It outlines the mission that is driving the team to success. It tells us where the team wants to go and how they plan on getting there.

11. No White Paper: Without a white paper, investors can’t grasp the vision for a coin. The crypto space was birthed with the idea that it will revolutionize the world. When a team comes together to solve a problem that can overhaul an industry, it’s unearthing to think that they may not even know what their own desires for the future might entail. A missing white paper tells investors that there is a lack of direction. They may be building things to be involved in the crypto space without considering what people actually need and how this new technology would fit into the larger market.

12. Plagiarized White Paper: Who would have thought we would need to have a conversation about plagiarizing a white paper. I certainly never thought this would be a topic of conversation. Plagiarizing is discouraged in nearly every industry. It shows a lack of understanding, yet a will to use. When it comes to technology, this often means the person neither understands how the technology works nor why they are using the solutions they have decided on. While a single individual’s decision may have been made to plagiarize, it badly reflects the entire organization. It means there wasn’t a single competent individual in the whole group capable of generating these ideas themselves.

13. No Technical Details: While a white paper should illustrate the leadership team’s vision, it should also detail a certain level of technical assertions that demonstrate a capacity to execute on the vision. While the technical details will shift over time, it’s not reasonable to exclude all technical details because of this possibility. Without a technical outline, it suggests that there were no technical members on the team at ICO. The plan was that they would write some garbage in a white paper, and then once they had some money, hire a team of engineers to develop it. Never considering if this was even possible to develop with the current state of the market.

14. No Timeline: A team without a timeline lacks direction. Thinking about the product iterations and providing them for investors gives expectations. This may also be the reason why some teams exclude a timeline. Expectation means the team will be held accountable to a set of deliverables that will influence their success.

The Market & Hype

Marketing is an essential part of business, but indicators that illustrate certain teams may be much better at marketing than actually building a product. When you visit social media sites and become bombarded by a brigade of people shilling the same coin, this is a red flag. Something is going on behind the scenes that need to be investigated.

15. Over-Hype: Over-hyped projects are commonplace in the crypto space. Many of these are just that, though, projects. They aren’t businesses. By targeting those that don’t understand the technology or are susceptible to blindly promoting coins, these coins skyrocket without much to show for it. When a coin starts to a hockey stick in value, carefully evaluate why that is happening. If it’s because of a sudden flood of hype, expect instability in that coin’s future.

16. Misleading Features: One of the worst hyping techniques frequent in this market is when teams market features that don’t actually exist. It should be noted that this is not the same as providing a roadmap with a vision. This promotes a coin with branding material, claims, and advertisements through features that may never exist.

17. Grand Vision: When a team provides a grand vision, one that will change every market, they better have substantial proof. They should have technical details outlining how exactly they will accomplish something so broad. Without these specific technical details, the team is likely marketing a dream that they have no idea if it’s even possible.

18. Publicity Stunts: Some teams seem to be focusing more on announcing partnerships, new features, marketing campaigns, events, and more when there is no substance behind these stunts. An announcement without a purpose is like a foghorn to a biker. It sounds impressive, but most people should be ignoring these broadcasts.

19. Market Size: One of the overlooked red flags when evaluating a cryptocurrency is the market size. There are a host of coins that are specific in their target market. While capturing a niche market is not an issue, it has become clear that many coins overlap, so that a more general coin would be preferred in the future. Imagine if there was a coin for buying bread. This might seem like a good investment due to the large market size until you think about having to use separate currency just for bread. Why not have a more general grocery coin or, better yet, a general currency? The more general-purpose a coin often, the easier it will be to become adopted. People don’t want to switch between hundreds of coins throughout the day every time they want to buy bread, get coffee, download a video, play music, go to the car wash, or shop for clothes. Having a different coin for everything is unsustainable.

The Purpose

The purpose of the coin can provide a lot of insights into if the coin was created to fill a need or simply because the creators wanted to be a part of the craze. There is a lot of money in the crypto space, so this will inevitably attract creators who don’t know what to build but want to build something anyway just to be involved.

20. Need: The first of these insights come across coins that don’t need to exist. If a blockchain doesn’t solve a problem, then it doesn’t need to be a coin. Don’t be fooled by convoluted concocted problems, so the coin can pretend to solve a problem. Simply put, many things still need to be centralized. Most things don’t need to be private.

21. Complexity: The world is a complex place. If a coin makes the world more complex instead of less complex, this is a sign that the coin doesn’t have a strong purpose. The future of cryptocurrency should be one that unifies markets instead of dividing them.

22. Ponzi Schemes: If it sounds like a Ponzi scheme, it’s a Ponzi scheme. There are no such thing as guaranteed gains; there is no such thing as free money; everything comes at a cost. When a team markets their coin as something that only increases in value, runs as fast as you can. The closest thing to free money in crypto is airdrops and forks. Although they appear free, remember that there is a completely separate set of risks and potential scams that are involved with forks.

The Premine: Understanding how the ICO / IEO will be offered is an important aspect of selecting the coins to purchase.

23. No Hard Cap: There are obvious exceptions to this rule, such as Tether’s, but as a general rule, be cautious of coins that don’t have a hard cap. When a team can freely mint new coins or increase the total supply, your coins lose value. The reason is quite simple. Without knowing how many coins can be minted, there is no basis for evaluating future growth. At any moment, the circulation supply could be increased, diluting your share and stealing value from your holdings. Essentially, the team transferred some of the value you were holding back to themselves.

24. Distribution of Funds: It’s generally okay for a team to allocate some of the tokens or coins from the ICO to themselves. At the end of the day, the coin will take years of development to accomplish its mission. Essentially, development never ends. There is always something new to build. What’s not acceptable is when a coin has large portions of the total supply allocated to the team. Allocating 10% to the team is reasonable. Allocating 40%-50% of the total supply to the team is incredibly unreasonable. Imagine if Satoshi Nakamoto allocated 50% of the total bitcoin supply to himself. Not only would he have the highest net worth right now on the planet, but it would also be likely Bitcoin would crash because nobody wants to own an asset that is almost entirely owned by one person or one group of people.


Congrats on making it to the end! Hopefully, you’ve learned something new that you can now use to evaluate tokens for red flags quickly. As usual, have a safe Crypto Adventure!

Born in Bucharest, Marius is the founder of Crypto Adventure. Since his first contact with Bitcoin and cryptocurrencies, he never stopped believing that they are one of the most important innovations of our time, which will forever change the way business is done.