The world of cryptocurrency can be quite confusing. Therefore, it is important to Do Your Own Research (DYOR) when deciding which coins you would like to invest in. Assessing which coin has the most potential, whether as an investment or its eventual practical use, can be a rather meticulous task. The number of alternative cryptocurrencies is growing every day and not all of them will live up to the claims and expectations that are being raised by their development teams. To help you get an overview of the most important factors to take into consideration, we have created this article.
Before you make an investment in a specific coin, we suggest you start reading into the fundamentals of the coin on their website. For the technical aspects and more detailed information, you can look into the whitepaper. The whitepaper is a document that includes the goal of the project, governance structures, and its proposed use-cases. Furthermore, it discusses the technical specifications of the project as well as the team’s philosophy and how they expect to achieve their objectives. Basically, all the essentials you need to judge the quality of this coin. Please be aware, the whitepaper is usually written by the team itself, implying a certain degree of bias.
You may also spend some time looking at the team behind the coin, their GitHub repositories, announcement threads and their social media outlets. In summary, all the information on this new coin you can find, you will have to investigate and assess with a healthy dose of scepticism. We have created a list of four important aspects you may want to examine before making any significant investment.
The first important aspect to check is the technical specifications of the coin. This allows you to get insight into a few key aspects:
- Does the coin have its own mainnet or is it a token on another blockchain?
- What Consensus Algorithm does the coin use?
- What is the maximum supply of the coin and what is the inflation rate?
- How much coins were pre-mined?
- What does the network offer in terms of capabilities?
- Any other technical questions that come to mind
These technical questions are arguably the most difficult ones to understand. However, if you do not understand these concepts it is very difficult to make an accurate analysis of what this coin is capable of and its potential usage. Don’t let all the technical terms turn you down, but rather see it as an opportunity to learn more about the technology! When in doubt, you can always check out our coin info pages which include a handy technical summary for every coin that we offer.
The second aspect you should check are the people that are behind the coin. You can start out by checking their ‘’About us’’ or ‘’The Team’’ section on the website, but you can also dive deeper and go through the members individual LinkedIn pages. By taking a closer look into the team and being aware of the career paths, you can get a decent insight into their educational background and experience in the field. In the past, there have been several projects, set up by scammers who created and used fictitious characters. Therefore, the developing team of dedicated people seemed to be overly competent with tons of experience. After looking into the team, you should be able to make a better judgement concerning their legitimacy and their capabilities.
Another vital aspect to take into regard is the team’s activity.
- How frequently is their announcement thread updated?
- Are they making the progress as projected on their roadmap?
- Is there a lot of activity within their Github repositories?
- How many developers does the team have and how much time are they spending on the project?
These are all examples of questions relevant to get an estimate of how viable a project is. A project that is hardly being worked on has less potential for growth.
The community behind a coin can be divided into several different interest groups namely;
- The people that have invested in the project
- The advisors
- Large and institutional investors
- Other industry related partners
You can usually get a feeling of the community surrounding a certain project by checking the bitcointalk-thread or subreddit of the coin. Other social media platforms such as Facebook or Twitter will also give a good estimation of how large the community is and how supportive they are. When a coin has little to no community, it is less likely to gain broad adoption and thus it is unlikely that the coin will be a significant success in the long run.
Then there is the board of advisors, large investors and the industry partners. They play a large role in the decision whether to invest in a coin or not. If a coin has a very specific use case in a certain industry it is important to check whether the team has the right connections that would enable them to reach their set objectives. Being backed by a large private investment fund also increases the odds of success for a project. A combination of these factors should be taken into consideration when drawing your own conclusions.
Every team that is developing a coin has its own vision as to what their project offers to the world. Some of these expected use cases may seem very futuristic while other teams are launching a solution to a very realistic problem. There are also more competitive fields like; privacy, identity protection or fast transaction speeds, where many coins compete to offer the best solution. If there are multiple contenders claiming to be the frontrunner in a particular field, you should investigate and figure out which one has the most potential. Look for an aspect that makes a project unique, something that gives them an edge over their competitors. When a team has multiple competitors in the same sector, we suggest taking a look at the one that has the “First-mover advantage” or have developed a unique strategy to tackle a problem. Unless there is another team that has compelling evidence of having an even larger advantage.
Every new project that is being set up should be able to present a roadmap. The milestones displayed on this roadmap should be goals that are realistically attainable, but also goals that actually contribute to the project in a significant way. You should always check the milestones that should have already been achieved according to the roadmap. When a team is consistently finishing the project’s goals within the deadline, then you have a good indicator that the team is dedicated to their project. This also implies that the team has a certain level of punctuality and this increases the likelihood that future milestones will also be reached in time.
By focusing your research on these four topics, we hope you will be able to decide which coin suits your demands as a long-term investment. On top of this, we hope anybody looking into different cryptocurrency projects can now steer clear from any scam or overhyped project. The most important factor still remains; always do your own research (DYOR).
Read all you need to know in our 'What is IOTA?' info page!