What we will talk about today is the 8 common red flags in a crypto project. These are the things we should consider before we buy a project in cryptocurrency so that we can minimize the risk in crypto. Because we are dealing with unregulated
environment. Anyone can issue a token, and exploitative people take advantage of it to fool gullible investors or newbies because they don't have enough experience and don't know the business here. They are the customers of scammers and hackers.
Now, if we know these common red flags in a crypto project we can avoid falling into their traps. I don't want you to believe what I'm going to say here, but mine is just a guide for communities who want to increase their knowledge. Because we have our own reasons why we buy tokens, and the primary reason here is belief. Maybe all of us who buy crypto believe that it will increase in the future.
1.
Anonymous Leadership - Bitcoin was exempted from this first, it's different because when Bitcoin came out there was no other crypto but him when it started. And it has built a significant reputation in the cryptocurrency world. Now the image of projects with anonymous teams has been damaged. Not all of them, but the majority of crypto projects have anonymous founders and teams, who often just disappear, especially newly launched projects, after running a pre-sale, they just disappear.
It becomes more risky because there is no accountability when there is an error in the project, and it is also difficult to verify their track records, so that we can understand what experience they have skills in handling the project. And if you also notice that apart from btc, most of the successful projects have well-known leaders, like Vitalik Vuterin of Ethereum, and even the leaders of Cardano, XRP and many others.
2.
No Whitepaper - Almost all crypto projects have it, but if you see a crypto project that doesn't have it, it's a red flag. Because of the whitepapare here we can see the plan, purpose of the project, there is the technology, methodology, and long-term vision. This is the blueprint of a crypto project. What is the problem they want to solve? Do they have new innovative technology to offer that will attract investors?
If they don't have documents, it will be difficult for us to analyze the purpose of the project, its potential in the future. And if there is, is it properly written? Is the technical information detailed? Like the blockchain it uses, consensus mechanism, tokenomics, security features and roadmap.
We will know if the whitepaper was just written, if it was really thought about or worked hard. Sometimes it happens that the whitepaper is just copy pasted in another project. So, we should also be aware of that, because other community members will definitely see that too. So if we are conducting research, we should also include their social media communities that they have so that we can gather more information that is not in the whitepaper.
3.
Bad Tokenomics - Many investors ignore tokenomics or do not know how to read tokenomics of a project. We can say that the tokenomics of a project is not good if it has unfair distribution and allocations of tokens. Similar to the centralization of ownership when a large percentage of tokens are only held by a few groups, perhaps founders or early investors, that is not good for the project. Because he can end up with token value manipulation. In which they can dump the token to retail holders.
Another bad of Tokenomics is that there is no clear vision for token distirbution, because normally there are plans that have percentages allotted to minting, staking rewards, Allocation for development, marketing and etc. If a project doesn't have a clear token distribution, it just means they don't have a long-term strategy. And it's possible that the project doesn't plan to last too long and it just disappears like a bubble.
4.
When Red Flag in Token Sniffer - Here in crypto we can see and know if a project is hiding something in the contract addresses. This platform has conducted a contract analysis and it will be shown on the platform if there is a problem with the contract address that will be placed here. They provide a score, and we can say that a project is a red flag when the score is zero or just close to zero and when the score is above 60, it's still good.
And the popular platform in this verification of projects is this token sniffer. And so we can perform an audit here, you just put the contract address here.
5.
Static coin - This means that the price movement does not move much for a long time. Especially if the crypto is experiencing an uptrend rally in the bull market and then the coin has no reaction, that means it is a red flag immediately because there is no demand for the project. There is no trade here because the typical crypto must be volatile so the price can move. We can notice this if the volume of a project is low.
Normally, when the coin moves like this, it is deleted from an exchange, either CEX or DEX, because the traders have no interest and it is already considered a dead coin. So it's not because we see a dormant coin that we're going to buy it. We have a lot to consider, like the life of the community and the current updates and developments. Then, if there is none, we should avoid this kind of project.
6.
Ponzi scheme crypto project - So, how do we know that a project is a Ponzi scheme? Typically, they make promises to their investors of high returns with little or no risk; they make it appear that they have a unique investment strategy that generates money for investors. And these first investors are the ones who will be the testimonials because they made money. And that will attract new investors.
And since it doesn't really have a legitimate business, the money that old investors actually earn only comes from new recruits, so it's not sustainable. And if there are no new investors, there will be no income. Then this is where the scheme starts to fall apart. And many Ponzi schemes have become popular here in crypto, and others have been jailed or are already in jail.
7.
Buggy source code - This simply means that the project is poorly coded and has a history of always being hacked, or there is an exploit in the protocol. Many hack incidents happen in the crypto market, but it is a different matter if the hacking issue is repeated in a project. Which means that the security of a project is not improving. And this can be a reason to leave, and no one believes investors.
And another thing is that it may not have been audited properly, because in crypto, there are legit people who audit the projects to make sure that the code is properly coded. Because possible vulnerabilities are being looked at, and the developers have to fix them first. Especially if the projects handle financial transactions and personal data, auditing is crucial in smart contract crypto-based projects.
8.
Promising coin - these are the projects that are just promises, and they can't deliver what they say to the community. Just focused on marketing that is full of hype. If you remember Safemoon, he pumped before because many celebrities promoted it, but he didn't have a solid use case; he was just carried away by hype and speculations. Or the other is that no development is happening; the project is not growing after all the hype.
So these are the only red flags in cryptocurrencies that, when you see them, you already have an idea of how to avoid them so that you don't fall victim again and regret it in the end.
