Have you ever lost money to a scam coin and wished you knew how to spot legit coins earlier?

One such situation can be buying a coin and making a 300x profit instantly only to realise that you can’t sell it afterwards.

Painful! You just lost money to a honeypot, one of the tricks used for scam coins (it means that the token is not sellable).

What about I told you how to buy the right coin always? If yes is your answer, great!

In this post, I will describe how to know if a coin is legit so that you do not lose money to scam coins.

Top 5 Strategies To Spot Legit Coins

Cryptocurrency has tripled in popularity since the last bull run, and now everyone is aiming for the moonbag.

On the dark side, scammers have seized this as a ploy to create fake coins, pump the price and rip investors off.

Don’t wanna fall for this? Here are five ways to know if a coin is legit.

1. Use Token Sniffer

Token Sniffer is a smart contract scanner that can help you spot scam tokens.

It does this by providing a quick contract audit of tokens, highlighting any red flags it finds.

More like a crypto detective.

To use Token Sniffer, simply paste the token’s contract address into the search box and see what it finds.

If the audit shows that a token is linked to a previous scam, has a zero audit score, or is a honeypot, those are big red flags.

Even if a token has a clean bill of health from Token Sniffer, it’s still important to do further research before investing.

But Token Sniffer is a great place to start your investigation.

Other similar tools include Honeypot, Staysafu, RugDoc and Defi Scanner.

Continue to number 2.

2. Team

Finding out how legit a token is, is as crucial as finding out the team behind it.

A coin is likely legit if it has a strong team backing it.

Here are some things to look for in a team’s profile:

•  Skillset: Does the team have the expertise to deliver on their promises? 
• Track record: Have their past similar projects been successful or failed?
• Motive: Are they passionate about solving a problem, or are they just looking to amass personal wealth?

Ethereum’s team, for example, has a good track record, so if they create a token, we can trust that it is in good hands.

If none of your research findings is positive, it is likely not the right coin to buy, unless you are willing to take a high risk.

Generally, it is best to avoid investing in tokens with anonymous founders, especially when the token has no clear purpose.

In addition, a coin is not safe when it has a team that is embroiled in serious disputes.

The reason is that the conflict may lead to the project being abandoned, or the disagreeing members may decide to sell off their tokens to significantly manipulate the market. 

3. Real Use Case

Legitimate tokens are created to solve real-world problems or power blockchain ecosystems.

For example, Bitcoin was created to be a digital currency that can be used to buy and sell goods and services without the need for banks or governments.

And Ethereum was created for running smart contracts and decentralized applications.

Tokens with clear and useful use cases are more likely to be adopted by users and businesses, which increases their demand and value.

Bitcoin and Ethereum, renowned for their well-established use cases not only gained widespread acceptance but are also used as reliable stores of value today.

Conversely, tokens with no use case are essentially worthless. Their value is dependent on speculation, and it is likely to collapse when the hype fades.

Here are some examples of tokens with no use cases:

• Meme coins: Meme coins are tokens that are created for fun or as a joke. They have no real-world utility and their value is based entirely on speculation.
• Pump-and-dump tokens: These are created by scammers who promote them to unsuspecting investors and then sell their own tokens at a profit, leaving the investors with worthless tokens.
• Ponzi scheme tokens: Ponzi scheme tokens are created by scammers who promise investors high returns, but actually use the new investors’ money to pay off the old investors.

It is important to consider a token’s use case before investing and avoid tokens with no clear and useful use case.

It doesn’t matter if it is listed on top-tier centralized exchanges or not.

4. Trading Volume

Trading volume shows the number of traders that are actively buying and selling a token.

It also serves as an indicator of the token’s supply and demand dynamics.

A high trading volume indicates that there is a lot of interest in a token, while a low trading volume suggests the opposite.

 Legitimate tokens typically have high trading volume because of healthy interest or strong demand.

Steer clear of tokens with low trading volume – they can be extremely volatile because only a small number of trades can move the price.

Imagine buying a coin at a high price only to watch it plummet because there aren’t enough buyers.

Again, beware of tokens that are trending upwards but have low trading volume, it could be a sign that the price is being manipulated.

5. Liquidity

Coin liquidity refers to how easily you can buy or sell a coin.

In other words, liquidity means that there are always buyers and sellers willing to trade a coin.

When choosing a coin to trade, it is important to consider its liquidity. A legitimate coin should have decent liquidity.

Investing in a coin that is illiquid could be very risky, especially if the coin’s price starts to fall, you may find it difficult to sell it.

Next has to do with developers locking liquidity.

Tokens are generally considered safer investments when developers have locked liquidity.

Developers lock liquidity by depositing a portion of their token into a smart contract where it cannot be withdrawn for a certain period of time.

Why is this important?  It shows the developer’s long commitment to the project and also reduces the risk of rug pull.

However, it is important to note that locking liquidity is not a guarantee against scams.

Conclusion

As we conclude, here are some key takeaways:

The cryptocurrency market lacks strict regulations, making it a breeding ground for scammers and questionable projects.

Distinguishing legitimate coins from risky ones can be challenging.

Following the guidelines provided here is a solid starting point for your research.

However, keep in mind that cryptocurrencies are known for their volatility and risk.

To stay safe, only invest money you can afford to lose.

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