It is crucial to properly research a cryptocurrency before investing to get to know it better.
I have made a quick guide to the ten most important things to look out for when doing so.
When researching, make sure to note down positives and negatives about a cryptocurrency, so at the end when you are done you can quickly see whether it is worth investing in the cryptocurrency and also to keep a good overview when researching!
10 Steps On Researching Cryptocurrency
Step 1 – Read The White Paper
The first and most important thing that you should research is the actual White Paper. It gives you the most insight into the technology, and you would be able to see if it is anything revolutionary.
This brings up another couple of questions.
The first one being; does it solve a problem? It is important enough that it actually solves something? Otherwise, the cryptocurrency wouldn’t even be needed.
In fact, it is also necessary to note that not all cryptocurrencies need an actual “cryptocurrency” behind it. The platform alone would be enough in some cases, and the coin has no use.
As said before, the white paper gives more insight into the technology behind the project.
Is this technology new in any way? The technology is obviously in most cases the most important thing about the cryptocurrency.
Finally, what is the scalability? Look into things such as TPS (Transactions-per-second). Would it be able to handle the demand if the mainstream decides to start using the cryptocurrency?
These are all questions that you should be asking yourself when reading the white paper.
Step 2 – Research The Team
A question that you should be asking yourself is; “How is the team?”; “Do I trust them?”
If there is no good team, then it is unlikely that the cryptocurrency will succeed. When looking into this, mainly focus on the actual development team.
When researching the advisors, examine what their roles are in the project and what they advise on.
Step 3 – Is The Cryptocurrency Decentralised?
Some may say this is not always as important, but in my eyes it is.
A cryptocurrency should never be in control of someone. For example, you would not want a large percentage of the cryptocurrency to be owned by the developers.
Another point to make is that large mining cartels are mining proof-of-work based coins. In other words, they have a lot of power in the network.
Unless a particular coin is ASIC – Application-specific integrated circuit chips – resistant.
Proof-of-stake based coins essentially solve this problem in a way, however people with large amount coins still have more mining power. So one could say that the problem is just being moved.
Are you wondering what PoS and PoW mean? Read my last article explaining the differences between proof-of-stake and proof-of-work.
However, cryptocurrencies such as IOTA’s tangle is what is genuinely decentralised, or you can call it distributed.
As there are no rewards and everyone validates two transactions per his/her transaction, which means that if there is one error in the network, it won’t impact the system at all as there are many users.
Step 4 – Familiarise Yourself With The Coin’s History
While looking at the history of a cryptocurrency; focus on things such as; whether the team has experience working together; how long they have been around and other valuable data, such as when partnerships were announced etcetera.
It could raise a red flag when there is no track-record at all. However, this doesn’t mean a cryptocurrency can’t become successful.
Step 5 – Can The Coin Be a Working Product?
It is essential to check if the team already has a working product.
How well does this product work and in what way are they planning to alter this? If they don’t have a working product, research into how far they are with releasing an early version of the product.
This information can usually be found on their roadmap.
Step 6 – Research The Competition
After reading the white paper and getting to know more about the cryptocurrency, it is now your turn to take a look at its competitors and how they go up against each other.
You will mostly want to follow this guide again to research that coin.
Write down the pros and cons of both cryptocurrencies and see which one prevails; at the end of the day, you want to choose the one with better investment perspectives.
Step 7 – Can The Coin Be Adopted Mainstream?
For a coin to grow past a certain level, it will want to be used by the mainstream. Therefore, it is undoubtedly an important factor to take into consideration.
You will want to look at factors such as the ease of using the platform. UI-design is an essential factor. And how hard it is to acquire the cryptocurrency?
There are obviously many more factors to take into consideration. However, these are some of the most important ones.§§§
To get to know more about this, read this article on how crypto-currencies ICOs can be promoted and can achieve mainstream adoption.
Step 8 – Check For Online Presence
When checking the online presence, check the number of followers the cryptocurrency has on Reddit, Twitter, Facebook and other platforms it might use.
You will also want to see how the team communicates with the community and how their marketing is done, as this will be needed for a coin to go mainstream.
If a coin doesn’t have a lot of online presence, it could also mean that people just haven’t discovered it yet and that there is a lot of room for growth, so don’t disregard it.
Step 9 – Does The Coin Have a Potential For Growth?
As mentioned in step 7 and 8, mainstream adoption and online presence show how much a cryptocurrency can grow in some way.
However, you will also have to their current circulating supply, market capitalisation and total supply in consideration.
For example, if a cryptocurrency only has 50% of the coins in circulation at the moment, that means that the currency is going to inflate over time as more coins will come in distribution.
Also, quite often people think that price says everything about the currency.
Take as an example Ripple. There are people out there, and I mean a lot of people that will say: “Oh ripple is only $2. I’m going to buy a lot because I think it could reach $15.000 just like bitcoin”.
This is simply not the case. One should be looking at the market capitalisation to see everything relative to one and another.
Take a look at what problem the cryptocurrency wants to tackle and what the cryptocurrency could be worth when it is solved.
For example, if a cryptocurrency aspires to be a payment network, take a look at the total worth of payment processors such as PayPal, Visa, etcetera.
Step 10 – Look For Potential Partnerships
Finally, the last and quite an important thing to research is the existing partnerships that the coin has.
Make sure you understand what the partnership is about and whether it will help the cryptocurrency out in achieving its end goal.
After following these ten steps, you should have an overview of how to properly research a cryptocurrency.
Now, put the pros and cons up against each other and determine whether it is worth investing in the cryptocurrency.
If this guide helped you, let me know in the comments below!
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