The cryptocurrency ecosystem is still developing with most of the projects still young and projects that are not mature. It can be tempting to invest in many projects with the promise to revolutionize the world.
Among the wealth of information available, it is usually difficult to sort out in order to form an opinion on a specific project. In this article, I’ll suggest a list of useful resources and where to find them.
I hope this can help you better understand the challenges of the project that interests you and guide you to invest intelligently in cryptocurrencies.
Know why you are investing in a cryptocurrency project
Investing in startups is a very risky activity since the chances of failure are very high and many projects collapse after a few months or a few years.
Most crypto projects can be likened to startups, but the investment is much more accessible to the general public. Indeed, if you want to invest in startups you will need a privileged contact with the founders, an incubator or be a professional investor.
These barriers do not exist in cryptocurrencies and you just need to participate in an ICO, an IEO, an STO or go to an exchange platform to buy the different tokens or coins.
But the difference does not stop there because you do not invest in a business when you have a token, only in its cryptocurrency.
It is very different since it is obviously necessary to analyze fundamentally the project, the team and their execution, but also the crypto in question and its utility, the synergy with the ecosystem and the users.
A very good project will not necessarily give good value to the cryptocurrency. It is, therefore, crucial to properly analyze all aspects of cryptocurrency and with maximum discernment.
Read the white paper and project documentation
Generally teams wishing to promote their projects work on the development of what is called whitepaper. It is a document, generally technical and commercial, on the specifics of the project.
This covers investment needs, target users, project revenues and technical specifications. It is a long and confusing read for beginners, but extremely revealing for insiders. Indeed the white paper of a project can expose the weaknesses of the project and determine the scams.
It is, therefore, necessary to have a certain experience or technical background to venture into the documentation produced by the team of a project, but in my opinion, it is also a criterion before investing so early in projects of the ‘ecosystem.
If you can’t really understand the innovations carried by these teams, do like the others and focus on more developed projects and covered by more resources in the community.
Finally, what interests us is the vision, the philosophy of the team and the articulation of the project in the ecosystem. A team that takes the time to study external aspects of the project has a real vision for it.
A team that does not focus on the sale of their token and takes the time to get involved in the ecosystem seems more relevant and the project more promising.
Observe the community gathered around the cryptocurrency project
If this is a way to quickly learn about the project and its challenges, this technique is double-edged. Indeed you may be confronted with individuals who do not take a step back on the subject and only present you the good sides of it.
This is particularly the case on social networks like Twitter or on Telegram channels where certain messages can be censored. A side effect may be the many cognitive biases present in the community gathered around cryptocurrencies. The best known is the survivor bias, that is to say, that only the winners boast of their winnings publicly, letting ease appear to other users.
In addition, you must be particularly attentive to mass communications on social networks since it is possible for projects to manipulate crowds. Communication bot networks can and are set up in the cryptocurrency community.
Searching, for example, the name of a cryptocurrency or a token on Twitter can be dangerous for a beginner who will very often see messages and comments encouraging him to buy. Bots are indeed very often used to deploy many strong buy signals allowing confusion.
Examine the project team
If checking the project team and their previous work, jobs or activities will not allow you to define its own quality, this at least gives you the opportunity (with other criteria) to spot the scams.
Indeed if the profiles are ghost, little highlighted or not specified, this can draw your attention to the probability that the project is not as promising as what it presents.
If you are more advanced in the world of cryptocurrencies or in the specific sector of the project, you will also be able to evaluate the network of the team and the potential historical partners of the project.
Study the GitHub repositories and the public code of the project
This method Is usually recommended to developers or other profiles with experience in the technical part. In reality, anyone can do their personal audit.
Indeed there is no need to understand all the code to perform a quick verification of the project. You just have to observe two or three important parameters.
The first parameter is the activity of the project. If no one has contributed to the repository recently this is generally a bad sign and the project is losing momentum in terms of development.
The number of contributors can also be a clue about the team even if a single developer can add the work of different team members.
Another interesting point, used to spot mundane projects or even scams, can be to observe if there is no massive reuse of code from other projects.
Most of the ecosystem projects are open source and it is a good thing to use codes that have already been used, there is no point in recreating the wheel.
But if almost the entire project comes from another team, there is no added value or evidence of innovation. This is a red flag as to the investment to be made in the project.