How to Spot a Fake Token or Asset
Tokens of the ERC-20 standard have been multiplying. Other platforms also offer easy token creation- but beware where you send your funds.
If you truly want to, you can acquire Useless Ethereum Token and Useless Waves Token. They exist, and the former is thinly traded, with a market price of one cent.
But what if you meant to buy the next big thing and ended up with a fake token?
Imagine you are looking through ICOs to do your due diligence. After a while, token fatigue takes over. So it was easier than one imagines to just send a piece of Ethereum to an ICO whose name mimicked the name of another upcoming ICO. Sending to the wrong ICO may turn out fine in the end, but it is a small mistake that may cost a lot. And even if it costs just a little, it undermines the credibility of the system.
But there are other known scams. This guide aims to warn of potential risks and build good habits on using the right tools to check the legitimacy of a token.
The Waves Platform Scam
The Waves platform is all about people creating their proprietary tokens. Unfortunately, copying a well-known name and even creating fake official Waves tokens is entirely possible. There was, of course, fake Bitcoin.
The only way to know a real asset from a fake one is to check the asset ID. The Waves platform suggest users search by asset ID, and not by name. And as of May 2017, it promised to work on the problem of spam tokens.
Always take token offers with a grain of salt and do not exchange funds unless you are confident you are getting a valuable asset.
Recently, the Jelurida company warned of fake tokens, surprisingly on its very own Nxt platform. Specifically, scam tokens were being sold through the marketplace built into the Nxt wallet, which can easily confuse users and potential investors.
The company behind NXT and Ardor projects is planning another ICO and is selling intermediary tokens right now. But some users were scammed into buying fake Jelurida tokens.
And there is more than one token, as this Bitcointalk thread reveals:
You can protect your holdings by double-checking the page and the address. Also look for outright warnings by the sales team, if there is a known threat:
So with the IGNIS ICO coming up fast, make sure you pick the right tokens.
Fake Agrello Tokens
Estonian blockchain startup Agrello has been plagued by counterfeit tokens. At one point, the main website of the company was cloned. So make it a habit to check the URL before sending money to any given Ethereum address. Double and triple check all social media and channels to verify that it is precisely this company and project that are selling tokens.
Links to scam crowd sales may also arrive through email or other spam messages. Avoid going to sales pages through an email that may be a phishing attempt.
Be very wary of OTC markets for tokens. Even resources like Token Trade that claim to check their tokens may be overwhelmed by all the information and miss a scam.
Fake ERC-20 Tokens
Luckily, Etherscan is a powerful tool to reveal all the details about a token. If you are buying a token on the secondary market, you may ask for the contract number.
And then check the receiving wallet. Look out for negative comments or users demanding their money back. Remember that sending Ethereum is irreversible, and after you receive a token that is not traded anywhere, you are stuck with this zero-value asset.
Usually, receiving addresses for scams will be flagged, so use the information in the comments at the bottom of the page. This is an example of a wallet address with fake tokens, with zero ETH or dollar value.
Prefer KYC ICOs
While proving your identity may be a hassle, it is better to choose a process that has a know-your-customer (KYC) procedure in place. This way, you will know to only buy tokens under your official account name.
Fortunately, the address was only distributed through personal messages or mailing lists.
Too Good to be True
Beware a price that is too low and too attractive. Usually, fake assets built on platforms will have a very low price. If it is an ICO token, always check the official page for the usual token compensation for your Bitcoin or Ethereum.
Also, use the technique of small transactions to see if you bought the right token. Avoid sending funds you cannot afford to lose- essentially all new ICO tokens go through a zero-value trade before they hit the open markets, and until then there is no knowing if the investment would have any value.