How to Check a Crypto Project: Nine Checks Before You Buy an Unknown Coin

An unknown token can be put through its paces in about half an hour, and doing so requires neither programming skills nor a subscription. The core of the exercise comes down to three questions: who stands behind the project, who owns the tokens, and how much of that can be looked up independently?

This guide works through nine checkpoints in order, from the European register to how holdings are spread across a handful of addresses. What it produces at the end is not a verdict on individual projects but a procedure you can apply again to every token that follows.

Why Due Diligence on Crypto Assets Works Differently Than on Equities

With a share, the capital market supplies the homework: audited annual accounts, notification thresholds, ad hoc disclosure duties, plus a supervised trading venue. With a freely traded token, that substructure is largely absent. The figures usually come from the project itself, and the cross-check is yours to organise.

That does not mean there is nothing to check. On the contrary: a public blockchain exposes things that would never be visible at a company. How many tokens exist, where they sit and when they last moved can be looked up by anyone. The skill lies in looking in the right places.

One point up front that puts the whole exercise in perspective: even a project that passes every checkpoint can end up worthless. These checks weed out the obvious cases and make the rest comparable. A total loss remains possible with any crypto asset, including the largest ones.

Checkpoint 1: Is the Provider Listed in the European Register?

The first look is not at the token but at the place where you intend to buy it. Since 30 December 2024, a company that holds, exchanges or brokers crypto assets for clients has needed authorisation under the European regulation on markets in crypto-assets. The European securities regulator ESMA maintains a central register under MiCAR for this, listing authorised service providers alongside whitepapers and companies that have drawn attention.

For issuers themselves, the rules differ by token type. For asset-referenced tokens the regulation requires authorisation from BaFin under Article 16(1)(a) MiCAR; for e-money tokens the procedure runs via a notification. Both categories can be viewed in ESMA’s interim register. What the duties for companies cover in detail we have compiled in our overview of the MiCA licensing obligations.

The opposite direction is just as revealing: supervisory authorities keep warning lists of providers operating without authorisation. How extensive that list has become and where the entries come from is set out in our article on the EU warning list for crypto providers. A hit there ends the review immediately.

Checkpoint 2: Is There a Whitepaper, and Does It Contain Anything Verifiable?

A whitepaper is a project’s self-description. Under MiCAR it is, for publicly offered crypto assets, a formalised document with fixed mandatory disclosures, and the supervisor expressly does not approve it: responsibility for the content stays with the provider.

Read it all the same, with one simple question in mind: which statement in here could be demonstrably false in twelve months? A document consisting solely of intentions, vision and market size contains nothing anyone could be held to. Concrete details on issue volume, use of funds, lock-up periods and responsibilities are the opposite of that.

Checkpoint 3: Who Are the People, and Are There Any at All?

Names on a project page are not evidence. It becomes verifiable only once those names can be found independently: in commercial register entries, in professional networks with a history, in conference programmes, in source code contributions with a long back story. If every trace outside the project’s own channels is missing, that is a serious signal.

Anonymity alone is no disqualifier, and the industry’s history demonstrates that vividly: Bitcoin came from a pseudonym. The difference lies in whether the work can be verified. Where nobody is liable, the program code must be open and the distribution of power must be auditable. An anonymous team plus closed source plus central control over the tokens is the combination at which a review ends.

Checkpoint 4: How Many Tokens Exist, and Who Owns Them?

The decisive figure is rarely the price but the distribution. Two terms help here:

• Total supply: how many units will exist in all.
• Circulating supply: how many of those are freely tradable today.

If the two diverge widely, a large share of the supply is still waiting for the market. Every later release increases supply without anything needing to change on the demand side. A look at the release schedule therefore belongs to every review.

Concentration in a Few Addresses

Public blockchains allow something no annual report offers: you can look up how the holdings are spread. Every block explorer shows the largest holders of an address. If eighty percent of the supply sits on a handful of addresses, the price hangs on the behaviour of a few participants. Strip out addresses that clearly belong to a trading platform, because those pool the holdings of many customers. Which tools make such analyses accessible without specialist knowledge is shown in the overview of analytics platforms.

Checkpoint 5: Does the Trading Volume Hold Up, or Is It Manufactured?

A high reported volume looks reassuring and is easy to produce. Trading against yourself generates turnover with no economic substance. Three cross-checks that cost little time:

1. Count the venues. If the entire volume runs through a single, unfamiliar trading venue, the figure carries little weight.
2. Look at the order book. Check how far the price would move on an order the size of your intended purchase. A book that already gives way noticeably at small amounts is thin, whatever the daily statistics say.
3. Check the ratio. Daily turnover on the order of the entire market value is unusual in established assets and deserves an explanation.

The practical test remains the same as with any new account: a small amount in, a small amount back out. A trading venue where the return path stalls is finished, regardless of any metric.

Checkpoint 6: What Happens Technically When You Connect?

With tokens traded on decentralised venues, a further danger arises that need have nothing to do with the project itself. Connecting a wallet to an unfamiliar application grants approvals, and some of them are unlimited. An approval once granted keeps working, long after you have closed the page.

Two rules suffice for everyday use: for such experiments connect only a separate wallet with a small balance, and read what the confirmation window actually says. What exactly is being signed there, and how an abusive approval can be recognised, we broke down in our article on wallet drainers and signature approvals.

Checkpoint 7: How Is It Being Marketed?

The marketing often reveals more than the product. Four patterns that show up regularly in supervisory practice:

• Return promises with a figure and a timeframe. Anyone guaranteeing a fixed return is making a statement about the future that nobody can keep.
• Time pressure. Countdown, limited places, bonus today only: pressure replaces the argument.
• Advertising through fame. Prominent faces and supposed media reports are interchangeable and often used without the knowledge of those concerned.
• Referral chains. When the reward depends above all on recruiting new participants, the earnings lie in the recruiting and not in the product.

None of these patterns is proof on its own. When several appear together, the probability is high enough to skip the purchase.

Checkpoint 8: Can the Token Actually Be Sold Again?

Getting in is easy with every project; getting out is not. So check before buying what the return path looks like: which venues list the pair against the euro or against an established asset? How deep is the book there? Are there lock-up periods during which a sale is ruled out? And does the platform impose conditions for withdrawal that did not apply at the time of purchase?

A common pattern with questionable offerings: deposits work smoothly, and only on withdrawal do fees, taxes or verifications appear that were nowhere to be seen beforehand. Additional demands at the moment of payout are an alarm signal, not a formality.

Checkpoint 9: What Applies for Tax If It Does Go Wrong?

This point comes last because it is readily forgotten. Crypto assets held privately fall in Germany under private disposal transactions pursuant to section 23 of the Income Tax Act. A gain is taxable if no more than a year lies between acquisition and sale, and remains tax free if the total gain from all private disposal transactions in a year stays below 1,000 euros.

What matters on the loss side is that it can be evidenced at all. So from the very first purchase, record when you bought at what price, through which platform and to which address. Anyone wanting to claim a loss later needs exactly these records, and retrospectively they are often no longer obtainable once a platform has disappeared.

A word on expectations: a token that has become worthless does not automatically disappear from your tax file, and the treatment of such cases is disputed in detail in Germany. Anyone with larger amounts at stake settles that with tax advice rather than with a forum post.

The Half Hour in the Right Order

Taken together, this yields a sequence that sticks in the mind because it works from the outside in:

1. Look up the trading venue in the European register and cross-check the warning lists.
2. Read through the whitepaper for verifiable commitments.
3. Search for the team outside the project’s own channels.
4. Compare total supply, circulating supply and the release schedule.
5. Look at the distribution of the largest holdings in the block explorer.
6. Cross-check trading volume and order book depth.
7. Read and limit the approvals when connecting the wallet.
8. Put the marketing patterns in context.
9. Settle the return path and the record-keeping before any money moves.

One failed point is not yet a verdict. Three failed points give you a decision, and a reasoned one.

Checking a Crypto Project: What to Take Away

1. Check the trading venue first, not the token. An authorised provider removes no price risk, but it removes the question of whether your money even arrives where it is meant to. The overview of regulated crypto exchanges is the starting point for that.
2. Look at the distribution before you look at the price. Total supply, circulating supply, the release schedule and the largest holders say more about the risk than any forecast. What lets you analyse that without specialist knowledge is set out in the comparison of analytics platforms.
3. Settle the return path and the custody in advance. Check trading pairs, lock-up periods and withdrawal conditions, and decide where the tokens should sit after the purchase. For longer-term holdings, the hardware wallet comparison is worth a look.

(As of September 23, 2026. This article is not investment advice. Prices and fee structures change; check the terms with the provider before you buy.)