How can investors tell a promising blockchain project from a scam and not give their funds to scammers? How not to lose money when investing in cryptocurrencies?

Because of fraudsters, the crypto industry participants lose about $9 million daily. One of the riskiest areas for the investor is the purchase of tokens - digital assets of companies developing blockchain-based projects.

Criminals hack exchanges and wallets, copy websites of promising token publishers, conduct fake ICO and use dozens of other ways to grab money of crypto enthusiasts. Some famous thefts reach millions of dollars in volume. According to the latest data, 81% of ICOs turn out to be a scam.

But it's difficult to frighten and stop token buyers. Despite the high risks, everyone wants to invest in the cryptocurrency, which is going to skyrocket. On average, investors who buy project tokens even at the stage of ICO can receive 82% of the yield provided that within two months of the cryptocurrency will be on an exchange. How to tell scammers from creators of prospective tokens?

Check the authenticity of the projects

Study whether the project is real, regardless of the stage at which you are investing - in the pre-ICO, during the ICO itself or after its completion. There are many cases when scammers create a beautiful page, describe an attractive idea, and then disappear with the collected money.

For example, this happened with the Benebit scam project. Its creators promised to build a platform for increasing customer loyalty. Pre-ICO was under way when one of the potential investors found that there were photos from the website of one of the British schools in the section with the project team. By that time the team managed to collect at least $2.7 million. Sometimes scammers do not even hesitate to even use celebrity photos. Therefore, the first step of a responsible investor is to verify the project founders.

If the project has already successfully collected money - this is not an occasion to relax. Scammers on the crypto market are able to play for a long time and not always disappear immediately after the completion of the ICO. While the project is allegedly being developed, they may continue to sell tokens and even bring them to the exchange. Fake news can be a signal of fraud. For example, if a partnership with a certain company is announced, there is no guarantee that the company knows about it.

Pay attention to the tools for token purchase

You have already checked everything and are sure that the project is worth investing in its tokens. However, scammers of a different kind come into play. They intercept the money on the way to the project creators.

Their signature move is to enter into a dialogue with users on behalf of the company and provide false payment information. During the ICO of the Aragon network scammers created a fake account on Twitter. Since there was a lot of excitement around the project (it raised $25 million in 15 minutes), people wanted to buy tokens as quickly as possible and transferred about $10,000 to scammers from Twitter.

A more complicated scheme is to create a fake ICO website. Users are not always ready to investigate and go beyond the first tab in the search engine or link on the forum. You should always check addresses published by the project's founders on their official channels and websites, if the team has other projects or their own company.

Specify technical features of fundraising and storing 

Another common method of fraud is the hacking of a smart contract (a computer algorithm designed  for digital transactions), through which money is collected. Nowadays many projects launch ICO on the basis of a ready-made platform or a constructor. In this case, it is worth studying the experience of other ICOs conducted with the help of these tools. How safe are they? Were there any cases of hacking and leaks? Usually, websites with critical vulnerabilities are not popular, but it would be helpful to verify this.

More risks arise when the team itself develops a smart contract for fundraising. Scammers can easily access the money in case there are any errors in the code. This happened with the DAO project, whose investors lost almost $44 million because of vulnerabilities in the algorithm. It is important for the project team to audit the smart contract on several stages: internal, when the review is done by the project staff, and external, when the security of the code is evaluated by professionals. Usually, this service is offered by ICO ratings and it is good if the project is ready to provide a report of an authoritative auditor or at least verified news that the audit is done.

Be careful with exchanges

The most difficult is to protect money from theft when trading on the exchange. Real professionals are involved in their hacking, and none of the exchanges is immune to cyber attacks, even large ones. Moreover, the more authoritative an exchange is, the more actively scammers will try to find vulnerabilities. Hacking such exchanges can affect the entire market and you will suffer even if your investments are safe. For example, the recent attack on Coinrail - a South Korean exchange, during which up to $40 million was stolen. It led to a 10% drop of the bitcoin rate.

In this case, FXOpen financial security specialists recommend diversifying the risks: trade on different exchanges, store funds not only on the exchanges, but also in individual wallets, and monitor the security of your account by creating unique passwords, not entering it from third-party devices, informing the administration about suspicious activity and using two-factor authentication.

Do not wait for a miracle

Only 8% of projects list their tokens on the exchange and only 1 out of 10 created tokens is used according to their intended purpose. Even if the project is not run by scammers and it is not subjected to hacker attacks, no one is insured from a bad investment. Do not forget that no project, no matter how promising it is, can achieve the growth of its token price when the cryptocurrency market declines. That is why you should watch the market in general, communicate with the community and learn about token holders of the projects that look attractive to you. The more institutional investors and backers who are going to play for a long time, the more chances to get profit from the purchased tokens.