Cryptocurrency exchange, Coinbase (NASDAQ: COIN) has developed a tool to detect scam cryptocurrencies.
Announced on Tuesday, the aim of the Scam Token Detection System is to identify and filter out fraudulent ERC-20 tokens and improve security cryptocurrency investors. This system combines two approaches to enhance user safety by identifying both established and newly emerging scams. These are smart contract auditing and machine learning prediction.
The world of cryptocurrency is rife with scams. Scammers use various deceitful methods, from Honeypot scams that trick investors into traps to Internal Fees scams with hidden or excessive transaction charges. These scams keep evolving, with new types emerging regularly, posing a significant risk to investors and the entire crypto community. The system examines the smart contracts of new tokens to determine their trustworthiness, using tests in search of known scam type.
This helps investors avoid tokens linked to known scams. Additionally, the new system watches for new scams by observing how people use tokens, checking all transactions, and if something looks strange, the system will flag it for a follow-up and record it in the system’s database.
Coins that pass the assortment of tests and show no negative behaviours are immediately placed on a list of trusted tokens, known as a “whitelist.”
The whitelist is essential for the introduction of Coinbase’s asset recovery service for unsupported ERC-20 tokens, which has already allowed users to reclaim nearly 4,000 ERC-20 tokens.
Diagram via Coinbase.
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Coinbase introduced scam token concealer into its wallet service
Coinbase introduced a feature into its wallet service that conceals scam and spam tokens. This integration has improved the company’s ability to screen out spam tokens and has experienced a twofold increase in the effectiveness of its spam token filtering, resulting in a cleaner and safer experience for investors.
An estimated 200,000 fraudulent tokens were created between Sept. 2020 and Dec. 2022, causing over 2 million investors to become victims of rug pulls and exit scams linked to these tokens, according to crypto analytics company, Solidus Labs.
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