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Dangers Of Investing In Unverified Coins: Avoiding Losses In The Crypto Market

Dangers Of Investing In Unverified Coins
To safeguard your crypto portfolio and avoid worthless coin investments, take these proactive steps.

Cryptocurrency investments have become quite popular, drawing the interest of many people. People are often tempted to invest in coins that not many know about, hoping for big profits.

Unverified coins are those digital currencies that lack the same level of recognition, trust, and verification as established ones like Bitcoin or, Ethereum or major large-cap coins.

They might have promising ideas, cutting-edge technology, or unique features, but they’re not as battle-tested. Think of them as startups in the crypto world, and like startups, they can be riskier investments and might make you lose money.

This guide will help you understand these risks better and show you how to keep your investments safe from scams and potential losses.

The attraction of unchecked coins

Many are captivated by the charm of unverified coins due to their new and imaginative ideas in the cryptocurrency world. These fresh and inventive projects hold a certain allure as they promise to change the market with unique concepts. The chance for big gains in a short time is a strong pull, attracting investors who want quick profits.

However, it’s important to remember that, despite their appeal, these unverified coins come with risks. It’s necessary to be watchful and carefully investigate, even with promising new projects, to ensure investments are solid.

In the quest for profitable opportunities, the temptation of high returns leads many towards unverified coins. The attraction of seeing investments grow rapidly often overshadows the need for careful consideration. The excitement around these coins, mixed with the fear of missing out, can make clear thinking difficult.

So, even though these projects are appealing, it’s vital to take time to properly check them out. Examining their legitimacy, practicality, and long-term stability can protect investors from possible problems, creating a safer and smarter approach to dealing with cryptocurrency investments.

Understanding the coins

Risks and challenges

  • In the cryptocurrency world, there aren’t strong rules to monitor token fundamentals. This can lead to some problems because, without clear guidelines, matters can get confusing. Also, there are people who create fake projects or plans to steal money from those who don’t know much about cryptocurrencies. They know that newcomers might not understand all the details and could fall into their traps.
  • Another tricky thing is called ‘pump-and-dump’ schemes. These happen when some people quickly make a coin’s price go up a lot, then suddenly let it crash. This can cause a lot of trouble for people who invest without knowing what’s happening. It’s important to be careful and informed to avoid these kinds of tricky situations.

Identifying unverified coins

Presenting a checklist for assessing the legitimacy of a coin or project.

Start with the fundamentals

  1. Start with simple steps like using Google and Twitter to research the token and its team.
  2. Trust official websites, news articles, and verified social media accounts for accurate information. Look for whitepapers or official documents released by the project team. Whitepapers provide in-depth information about the technology and goals of the project, making them valuable resources for assessing legitimacy.
  3. Search online for the token’s purpose and information; avoid projects without clear websites or information. Genuine tokens usually have well-established websites and clear explanations of their purpose.

Confirm code on Etherscan

  1. Go to Etherscan and make sure to check the code of the token. If you can’t find a verified code, it’s likely a scam. Scammers often hide their code because it might have issues, mistakes, or a different purpose than what they say.
  2. Check what people are saying about the token in the comments on Etherscan. If someone is calling it a scam, it’s almost definitely a scam. If you’ve been tricked by this, don’t hesitate to leave a comment too. Just go to Etherscan and click on the comments section to find out what others are saying about the token.

Explore token details on a token tracker

  1. Look up the token’s information on a token explorer like CoinGecko or DappRadar. If you can’t find the token listed there, it’s likely a scam.

Examine token’s exchange listings

  1. Take note of how many different exchanges host the token. If you only see the token being traded on a few decentralised exchanges (dex), it’s highly likely to be a scam.

Assess token liquidity

  1. Take a look at how much cryptocurrency or tokens are in a token’s balance pool. You can easily do this on platforms like Uniswap V2 or other similar places. Liquidity is the measure of how much cryptocurrency or tokens are locked in smart contracts. This helps people trade on decentralised exchanges. If the liquidity is lower than $100,000 or it’s decreasing quickly, it’s likely a scam.
  2. While you’re using a dex, also check some other important things happening on the blockchain, like transaction volumes and transaction counts.

Utilise Third-Party Analysis Tools

  1. Smell Test: This tool automatically checks the token. If it gets a low score out of 100, it’s more likely to be a scam. Example: Tokensniffer
  2. Honeypot Check: Look out for honeypots. These are smart contracts designed to catch hackers. They have hidden code that activates when someone tries to exploit them. It’s best to steer clear of them.

Case studies

Squid Token

Squid, a digital token, had been trading for just 1 cent, but its price soared to over $2,856 in less than a week. However, a significant setback occurred as its value plummeted by a staggering 99.99%.

The intended purpose of Squid was for use in a new online game inspired by a Netflix show in which individuals were compelled to participate in perilous games for financial gain. The game’s launch was scheduled for this month. Nonetheless, cryptocurrency experts have cautioned that Squid might lack authenticity.

One major indicator was that individuals who had purchased Squid tokens found themselves unable to sell them. Critics also highlighted numerous spelling and grammar errors on the website.

Presently, the website has vanished, and the social media accounts that had been promoting the tokens have also disappeared. Squid had been available for purchase on decentralized crypto exchanges such as PancakeSwap and DODO. These platforms enable direct connections between buyers and sellers without any central authority overseeing transactions. 

New digital coins can be listed for sale on these exchanges immediately upon creation without undergoing proper verification checks or adhering to established regulations.

How to protect yourself

Choose wisely: Before investing, take the time to research thoroughly. Focus on projects that have a proven track record and a clear purpose. Look for projects with a strong team and transparent information. Avoid rushing into investments that promise quick and huge returns without substantial evidence to support those claims. It’s always important to go through the tokenomics of any project. This will give you an idea if the technicals are aligning with the fundamentals of the project.

Stay informed: The cryptocurrency market is constantly evolving. Stay updated with the latest news, trends, and developments. Learning about the market dynamics and the technologies behind different cryptocurrencies can help you make informed decisions. Being well-informed allows you to identify potential risks and opportunities, helping you avoid making impulsive decisions that could lead to losses.

Verified exchanges and platforms: When you’re getting into the world of cryptocurrency, it’s wise to buy your coins from exchanges that are well-known and trusted, like Binance and CoinDCXJust like you prefer shopping at established stores, verified exchanges have a reputation for being safe and reliable. 

They have systems in place to protect your money and personal information. So, before you dive in, do some research to find exchanges that are recognized and respected by the crypto community. This way, you can start your crypto journey on a secure and solid foundation.

Creating a strong and balanced crypto portfolio

  1. When you’re putting together a strong crypto portfolio, it’s like making a good recipe. You want a balanced mix of different things. Just like how you don’t eat only one type of food, you don’t invest all your money in just one crypto. Include well-known ones like Bitcoin and Ethereum, just like you have staples in your kitchen. For example, if you have some Bitcoin as a sturdy base, you can also explore other new coins. It’s like having a mix of old favourite dishes and trying out new recipes. It’s always preferred that 50% of your portfolio should contain Bitcoin and Ethereum. Followed up by 30% in large-cap coins and the remaining 20% in small caps.
  1. But be careful. It’s like crossing the street – you look both ways before you go. Similarly, before investing in any new coin, take your time to learn about it like you read reviews before trying a new restaurant. This cautious approach can help you avoid problems. Remember, a mix of solid, familiar coins and some new ones can make your portfolio strong. It’s like having a mix of trusted friends and making new connections. In the long run, this careful mix can give you better chances of success and safety.


In the unpredictable world of cryptocurrency, steering clear of unverified coins is crucial to safeguarding your investments. Falling for the allure of quick gains through unfamiliar projects can expose you to unnecessary risks.

By heeding caution and employing the strategies outlined, you can significantly reduce the likelihood of falling victim to scams or fraudulent schemes.

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