Most people who lose money in did not lose it because they made a bad guess about the price. They lost it because they never checked what they were buying, or where they were buying it. The good news is that the most useful checks are simple, free and take less than an hour. This lesson gives you five questions to answer before you send any money.
Before we start: what do you think?
Which of these is the strongest sign that the returns of a crypto product are real?
✗ Reviews and screenshots are easy to fake or buy, and scams often have the most of them.
✗ Real markets go up and down; a smooth high return is a warning sign, not a good sign.
✓ Right: real returns come from a real source, and if you cannot name it, you may be the source.
✗ Famous faces are often paid, or used without permission.
Question 1: Who is behind it?
Start with people, not prices. Ask:
- Are there real names? Can you find those people outside the project's own website, for example in news or past work?
- Is there a company, and in which country is it registered?
- If it is a service that holds your money, is it authorised? In the EU, crypto service providers need an authorisation under a law called MiCA, and the EU markets regulator keeps a register you can search. Outside the EU, check the website of your own country's financial regulator. Many of them publish warning lists.
An anonymous team is not proof of a scam. But it means that if something goes wrong, there is nobody to hold responsible. Treat it as a big minus.
Quick check
Where can an EU resident check whether a crypto service provider is authorised?
Question 2: What does it actually do?
Try to finish this sentence in plain words: "This coin or is used for , and people pay for that because ."
If the only honest answer is "the price goes up", there is no use behind it. Its price depends only on new buyers arriving, as the lesson What crypto is explains.
Be careful with long documents full of technical words. Length is not proof. A real project can explain its basic idea in two sentences.
Question 3: Can you sell it?
Buying is always easy. Selling is the real test. Look at:
- Trading volume: how much is bought and sold per day. If your planned amount is a large share of one day's trading, you may not be able to sell without pushing the price down.
- Where it trades: only on one small platform, or in many places?
- Who holds it: if a few hold most of the supply, they can sell at any time and crash the price.
Some scam tokens are built so that you can buy but not sell. The only way to know is to check before you put in real money.
Quick check
A token trades only $10,000 per day and you plan to buy $3,000. What is the risk?
Question 4: Can you withdraw?
For any platform, app or exchange, test the exit before you trust the entrance.
- Deposit a small amount you can afford to lose.
- Withdraw it back to your bank or your own wallet.
- Note how long it took and what it cost.
Red flags at this step: withdrawals that are "temporarily paused", long waiting times that keep growing, or a request to pay a "fee", "tax" or "unlock charge" before you can withdraw. Real businesses take fees from the amount you withdraw. They do not ask you to send more money first.
Question 5: Where do the returns come from?
If a product pays you a return, someone is paying it. Ask who. Possible honest answers exist, for example a fee paid by borrowers. Those returns are usually modest and come with risks of their own, which a serious provider explains in writing.
If the answer is "our secret trading strategy", "our AI bot" or "arbitrage", and the return is fixed and high, stop. Real strategies have losing weeks. A fixed high return paid every day usually comes from new users' deposits. See Common crypto scams.
If you cannot find out where the return comes from, assume that you are where it comes from.
Quick check
A platform pays a fixed 1.5% per day from "our AI trading bot". What should you conclude?
Worked example: Checking an offer you saw in a group chat
Marko sees a new app in a group chat. It offers 1.5% per day on deposits, paid in its own token. He goes through the five questions:
| Question | What he found | Pass? |
|---|---|---|
| Who is behind it? | No names, a company address in a country he cannot check, not on any register | No |
| What does it do? | "AI trading", no explanation | No |
| Can you sell the token? | Trades on one small platform only, about $4,000 per day | No |
| Can you withdraw? | His $20 test deposit is "pending" after 5 days | No |
| Where do returns come from? | No answer, only "our bot" | No |
Five out of five answers fail. Marko loses his $20 test deposit and closes the app. Without the checklist, his plan was to deposit $2,000.
Your own side of the checklist
Even a real coin on a solid platform can fall 80%, as Why crypto swings shows. So add two questions about yourself:
- Can I lose all of this money without hurting my rent, bills or savings?
- Have I written down when I would sell, before I buy?
If either answer is no, wait.
Key takeaways
- Check people first: real names, a real company and, in the EU, the MiCA register.
- If the only use of a token is "the price goes up", there is nothing behind it.
- Buying is easy. Check that you can sell, and how much trades per day.
- Test a small withdrawal before you trust any platform.
- If you cannot find who pays the return, assume it is you.
Try this
Copy the five questions into a note: who, what, sell, withdraw, returns. Add the two questions about yourself. The next time a coin, app or platform tempts you, fill in the note before you send anything. If any answer is "I don't know", that is your answer for now.