Analyzing Cryptocurrency Security to Avoid getting Scammed.
Hello Steemians, today I want to share with you an important tip and security factors to consider before investing in any cryptocurrency. Most of us are ignorant of checking the security of the crypto asset we invest in. At least we invest in projects we believe have potential and have plans of growth in the future in other to make profits off our investments. At the same time, we should be able to carry out effective research to spot red flags in cryptocurrency projects.
This study is mostly directed at those who invest in low market cap projects and projects under the ICO phase. Most of us so much believe in this type of crypto project because we believe it will make us rich when the project succeeds in the future. This same reason makes people invest in scam projects without making proper research. I have invested in such projects making some profits and also losing a lot. Out of 45 projects invested, only 3 or 5 might turn out to succeed and get listed on some exchanges. The rest will end up being manipulated by the whales and developers through pump and dump, then finally the project will be rug pulled and disappear making investors lose their investment capital. Proper research on the security of a crypto project will at least show you some of the red flags in a crypto project.
Before we look at the security tips, let's look at the 2022 crypto crime report from Chainnalysis
2022 Crypto Crime Report
Cryptocurrency crime is at its all-time high in 2022 with over $14 billion lost by investors through malware, Terrorism financing, stolen funds, scam, sanctions, Ransomware, cybercriminal administrator, fraud shop, a darknet market, and child abuse materials. Though the rise in cryptocurrency is rapid with over $48 billion 24hrs trading volume across all platforms. The rise in crypto scams hasn't still reduced in recent times. Illicit transactions and crypto activities share a major portion of the transaction volume in the crypto market.
The chart above shows the cryptocurrency crimes by category. From the chart above, we can see that the highest crypto crimes are by stolen funds and Scams as of 2021. Over $7.8 billion worth of cryptocurrency has been stolen from investors. Out of this $7.8 billion, $2.8 billion are scams from rug pulls by developers. Here, developers create fake cryptocurrency projects that look to be real. They create a white paper and promote the product to attract investors to purchase the crypto asset. After they have received enough funds in the wallet that have set up, they end up disappearing with the funds. This act is very easy and can easily be done by any developer because building a token in an already existing blockchain is easy and less expensive. This is the type of scam petty investors like you and me fall for. We throw our hard-earned money into these projects without making proper research about the security of the projects.
From the charts above, we can see that majority of the crypto scams are attributed to DeFi protocol. DeFi which stands for decentralized finance is a crypto ecosystem where crypto users can access financial services and earned annualized interest by depositing their crypto assets. I believe DeFi ecosystem is overhyped due to the returns of some investments on crypto projects like Shiba Inu. For this reason, many investors fall into DeFi projects that haven't undergone a code audit. A code audit is a security process undergone by a third-party legal firm on crypto projects.
This firm analyses the smart contract code of a crypto project and ensures that it contains the right contract governance that will disallow the developers to rug pull the project. This code audit is then made public for investors to be aware of the security of the crypto project. Most scam projects do not undergo the code audit and some investors are ignorant of making research about this due to greed and fantasies of making huge profits from the projects.
The code audit is one of the security factors investors should look at before making any investment decision. Ensure that a crypto project had undergone a code audit by a recognized third party before making an investment decision. You can visit genuine platforms like CoinmarketCap and CoinGecko to get audit reports on crypto projects.
Let's look at other security measures we can take before making an investment decision.
Team Member profile
Before we invest in a crypto project, we should make effort to research the team members' profiles and also the founders of the project. We can search about the team members on social media, and LinkedIn to find out about their experiences, goals of the project, and also their previous work experience. Anonymous team members' profiles should be a red flag to investors.
Project Marketing Activities
This is another important security factor investors should focus on. Some projects are too good to be true in terms of the promises they offer to offer to investors. Some DeFi projects can offer a higher percent yield without having any real product. Greed is one of the problems we have as an investor and for this same reason, some projects promise huge returns to entice people to invest in the project. Although numerous DeFi projects offer huge APY, we should ensure that the project has passed other security measures before making any investment decision. A DeFi project that hasn't undergone an audit code promising huge APY is a big red flag and you should stay away from such projects.
Look at the Price movement
Another security measure to look at is the price movement of the crypto asset. There are some projects that you easily purchase the token but won't be able to sell it back. This is very common, especially in newly launched coins. One way to detect this is to look at the price movement of the crypto asset. Rapid pump and dump of the asset is a red flag and investors should stay away from such projects. Also, this signifies that the asset is in the position of a whale who might also be one of the developers of the project. As an investor, you should always be careful of the rapid dump and pump of crypto assets.
Check for Liquidity Lock-up
Liquidity can be defined as the ability of a crypto asset to be bought and sold in the crypto market. This means that this asset can be easily traded and converted without any difficulty. An investor can look out for liquidity lock-up of a crypto asset before investing. No liquidity lock-up is a red flag because one of the team members can decide to get away with the liquidity. And when this happens, it will be impossible to sell or convert the asset in the market.
Conclusion
The rise of crypto scams is not decreasing. The numbers are still increasing and investors should be careful not to fall for these scams. I believe taking these security measures will help to reduce the rate of crypto scams today. We should always make efforts to making good research about a crypto project before making any investment decision.
Cc: @steemcurator01
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Thank you for this great analysis, this information will surely be helpful for crypto lovers and traders. We really appreciate your effort in the community keep it up!
REMARKS;
This is really helpful as i have taught about the essential things to know in other to figure out if the introduced project is a crypto scam.
How do i check an audit report of a particular project to know its realness. Is their a page or option i will open after launching any of the suggested platform u mentioned
Yes. Coingecko to be precised has a section where a user can research about a crypto project. Team information, news, github and also the audit report of the project. You just have to make your research correctly.