Cryptocurrency Research- An Extensive Guide
While everyone is interested in cryptocurrencies for different reasons, making money is perhaps the top reason on their list or the second one. In the past few years, this virtual currency has received extensive popularity. But, no matter what your reason is to invest in this space, it is essential to put in some effort in order to understand it. Buying your first Bitcoin or Ether can definitely be a red letter day for you because you will be joining the biggest financial revolution in these times. However, if you learn more, you will discover that there are tons of other cryptocurrencies that can be found and their number is growing daily.
The downside of having so many projects is that it can be difficult to sift through them to find the reliable ones. You have probably come across the exit scams, Ponzi schemes and more that continue to plague the cryptocurrency market. You don’t want to become just another statistic. So, how do you avoid doing that? This is where cryptocurrency research comes in. No matter what you are investing in, researching can be instrumental and cryptocurrency is no different in this regard. This can seem quite overwhelming when you are new to the cryptocurrency world.
You can certainly talk to your friends about their investments and there are also cryptocurrency review sites that you can explore for this purpose. These websites can provide you valuable and useful information that can help you in making good decisions. It is not a good idea to blindly invest into anything without doing research. But, what should you look for when you start cryptocurrency research? First things first, you should check out the absolute basics of any crypto project, which include:
- Market cap: First things first, check and see how big the market cap is. Theoretically, the larger the market cap of a cryptocurrency, the lesser room it has for growing. However, there is also less risk of the project failing.
- Number of Exchanges or Liquidity: How many exchanges are dealing in the cryptocurrency? Is it available on major exchanges? If it hasn’t made it to any of the major exchanges, there is a good chance its price will increase if there is an increase in demand.
- Circulating Supply: If the circulating supply of the cryptocurrency is in billions, it might be better to avoid it because there is already enough of it.
Once you have learnt the basics, you need to move onto deeper cryptocurrency research. Doing your due diligence can have a big impact on your profits. What factors should you check out? The prominent ones are highlighted below:
Read the cryptocurrency’s Whitepaper
The team behind every cryptocurrency creates a Whitepaper for providing investors with details about their token; what will it be used for, its economic model and other technical details. You don’t have to understand the technical aspects of the project, but it shouldn’t be without a roadmap. This gives you an idea of the project’s timeline and is a vital part of the whitepaper. It is not necessary for the team to be super specific with dates, but having a general outline will give you an idea of when the major milestones will happen. It is also important to check if the team has met any of their previous deadlines. The milestones help you decide when it is a good time to invest in the cryptocurrency.
Take a look at the team
An idea can go as far as the team behind it. Thus, it is absolutely necessary for investors to do some research into the team behind a cryptocurrency. Usually, you can find details about the team on the project’s website. When you are researching a team, there are a lot of different variables that you should consider. Start with their education like considering their universities and the qualifications they have achieved. While this may not always be necessary, it shows you how knowledgeable they are.
Their experience is the next thing you need to look for. Have they worked for any blockchain companies or those in the cryptocurrency sphere? The size of the team matters as there should be enough members to achieve the goals. Checking the developers is also part of research, which includes their number and expertise. Plus, there should always be transparency i.e. you should be able to find out information about the team easily.
Check out the advisors
Since the industry is still growing, teams don’t always have the money or the experience for attracting big talents in the blockchain industry. Having big names on the team is important, but if you don’t, having them on the advisory board can make a difference.
Consider the investors
It is not just the team and advisors that you should consider; the investors backing the project are equally important. When you are looking at projects, it is best if you can find some big names or venture capital firms with excellent track record on the list. This can reassure you about the project’s reliability because it must be doing something right to attract such a tough audience.
Look into the partnerships
Partnerships are one of the most important aspects of legitimizing a cryptocurrency project. If a partnership is announced between a large company and a cryptocurrency, this means that the latter is on its way to becoming a part of the real world. This means that the cryptocurrency goes from being just an idea to a reality. It is even better if the cryptocurrency partners with the government. This doesn’t just show real-world adoption; it also indicates support from a sovereign state.
These might not be that common in the crypto space, but there are projects that have partnered with Chinese, Thai and Australian governments. When you do research into cryptocurrency partnerships, it is also crucial to look at the extent of the partnership. A lot of projects claim to have large partnerships, but it is only when you dig a little deeper that you find that it is quite small.
Don’t forget marketing and community research
This aspect might not be as important as the others, as long as the team continues to deliver in a timely manner. There is a major difference between proactively using social media and being too active on social media. Good projects are the ones that update their communities biweekly or on a monthly basis. They will be active on different communities. Marketing is also an essential component of a project and can play a great role in its success.
Explore the token economics
Most people who do cryptocurrency research don’t really pay attention to this aspect, but token economics may actually be the most important thing that you should research before investing in the coin/token. What purpose will the token serve? Where will it derive its value? You will be quite surprised with the number of projects that exist in the market that don’t really have a real use for their token.
It is possible for a project to have a wonderful idea that could revolutionize the world, but if it doesn’t have a use for its token, then it is just a way for the team behind it to get investments. But, how do you understand token economics? There are some factors that can help you figure it out, which are:
- Token Distribution: You can find this in the Whitepaper and is released before the ICO. Are most of the tokens available to the public or do the founders hold the majority share? If the founders are controlling 70% of the token’s total supply, it is certainly a red flag.
- Token Release Schedule: If there is a big share of the tokens locked up, you need to find out how long they will remain that way. Have they provided a timeline for when the tokens will be released? Will they be released together or a percentage with be released over time?
- Token’s Value Determination: Will the token be used as fee for the blockchain? Is it necessary for companies to buy the token in order to use it? Are there any rewards for staking it? Are there multiple ways for the token to obtain its value?
Apart from these factors, you should also see whether the token is mineable and if its economic model is inflationary or deflationary.
Don’t forget the competitors
The fact that cryptocurrencies have increased exponentially indicates that the market is quite competitive. You need to have a strong understanding of the basic crypto classes and figure out the competitor for a given project. Consider what makes this particular project unique from its competition. Chances are that the project doesn’t have first moving, so it is vital that it has something unique differentiating it from rivals.
Find out about scalability, security and decentralization
Most people assume these are buzzwords and don’t really pay attention, but these can play an instrumental role in the success of a project. How does the new project ensure its decentralization? Some projects may appear to be more centralized than they are. Look at the scalability of the project. If the project is adopted by the massive, will it be able to handle the high traffic on its network? Lastly, don’t forget to check the project’s security because this can have an impact on its success. If it is not secure, no one will bother investing in it.
As long as you do your cryptocurrency research, you will be able to make the right decision regarding your investments and enjoy the rewards.
