Despite how tempting it might be, before you go ahead buying all of the pretty coins and digital assets you can find, you need to make sure you know the process for doing thorough research and your due diligence on any new cryptocurrency.
When you are deciding on which altcoins (alternative currencies) to invest in you need to look at the fundamentals and ask the following questions to properly evaluate a cryptocurrency.
Breaking Down the Coin or Token
- Is it solving a real problem? What Is the use case? Can it be explained in one simple sentence?
- How big is the problem? This helps us work out if the problem is worth solving and also its value.
- Can this problem be realistically solved or is it a pipe dream?
- Are there alternatives in the space already trying to solve the same problem?
- Have others attempted and failed to solve this problem?
- Is it easier to solve this problem without a blockchain?
- How thorough is the whitepaper?
- Is the altcoin under central control or a decentralized governance?
- Is the purpose of the coin clear?
- How will the coin or token increase in value? What is the incentive to hold it?
- How much of the current price is based on the current value being delivered and how much is based on the promise of future development?
- What is the inflation or deflation rate of this coin?
- How many of the coins are circulating? (circulating supply)
- What is the total number of coins that will ever be produced? (total supply)
- When will the last coin be generated? Mined if Proof of Work.
- Is the coin PoS (Proof of Stake) or a PoW (Proof of Work)? or an alternative proof system?
- If it is PoS, what was the distribution model?
- If it is PoW was it pre-mined? and if yes how many did they mine?
All of these factors impact the supply end of the coin. If the coin creators are in effect the national reserve of this particular coin then they need to be properly evaluated to ensure they are running a credible project.
The majority of the above information can be gathered from the following three websites
While CoinMarketCap is the most popular site to check prices, market cap and other data for more than 1000 digital assets, CoinGecko while on one hand has slightly fewer listings they do provide additional insights and data on each asset including:
- Liquidity Data
- Developer Rating (based on GitHub Repository Data)
- Community Rating (based on community activity, growth and sentiment)
- Public Interest (based on number of search engine results
- Total Rating (based on the overall data available including the market cap and other economic data)
Having the above information at your fingertips gives you a much greater vantage point on each blockchain. I find the developer information that is gathered from Github particularly useful as a way to validate the professionalism and seriousness of the coins development team and ambitions. You don't need to be a developer to work out that a high overall developer score is a good thing!
Marketing & Branding
Another important area to look at is the marketing and branding, this matters for all businesses, and blockchains are no exception. A catchy name, attractive logo and ability to market the project efficiently is half the battle.
- Is the marketing strategy good?
- Is the name good and in tune with the ideal audience?
- is the logo attractive?
- Has the coin rebranded before? once or multiple times? This can be a negative but rebrands in the future can lead to a jump in price but this is often short-lived.
- Does the website use MLM marketing? Again this can lead to a lot of fake marketing by people doing so just for the commissions.
- Does the coin have a cult following? are big or influential people in the space or outside of crypto getting behind the project?
- Do they have big advisors involved? for example, having Vitalik as an advisor is a very good indicator the project has legs.
Positive mentions in online and offline media outlets are great ways to see if a project is credible and learn a bit more about events that have taken place in the story of the project so far. Understanding a bit of a coin's history and timeline can help you get a sense for their overall progress and development.
This can help you find achievements and mistakes that might have been made, but also how the coins have recovered or performed since. You can then correlate these events with the chart data to look for explanations for movements in price.
The team behind the coin is also a good indicator of whether the project has a solid foundation or not. This also extends to the advisors. The Bitcoin Core dev have proven themselves over the years but new altcoins may not have, you want to look into the following when evaluating the development team.
- Are the dev team or any members known for any other crypto projects?
- Are the dev team working on new innovations and technology?
- What is unique about the team?
- Are they accessible and responsive?
- How do the team conduct themselves on BitcoinTalk, Reddit, and other public discussions? Are they professional?
- Are the team's identities public or unknown?
- Check the project's Github to see how active the developers are with the codebase.
Brand Alignment & Strategic Partnerships
Does the coin have any close allegiances with bigger players? This could include other crypto projects or non-crypto businesses like Microsoft, IBM or Google. Partnering with one of the silicone valley powerhouses is a sure way to boost your profile and if a coin has been picked up by a company as big as one of these three you could bet your bottom dollar they have done some serious due diligence first.
So how do we find all of the information to help us answer these questions...
Visit The Website
Checking the website is one of the best ways to learn more about all aspects of the project, what problems it aims to solve and if they are a viable team with a professional approach.
On a cryptocurrency website, you should be able to find the following
- The purpose of the blockchain
- Information about the team (with REAL identities)
- The specifications, technology and coin info
- Links to social accounts and channels on Slack / Telegram or Discord.
- The Whitepaper (technical document explaining the aims of the project)
- Information on downloading their wallet or DApp.
Check BitcoinTalk Forum
BitcoinTalk has long been one of the central points of discussion on anything Bitcoin or cryptocurrency related. In fact Satoshi Nakamoto (creator) and the original Bitcoin devs had many of their discussions on this forum during the very genesis of Bitcoin, the first cryptographic decentralized currency.
Every project in the space tends to launch with an announcement thread on this forum which then becomes the initial place to discuss and ask questions.
If you go to the thread for the coin you are researching you can start by reading their introduction post and then to get a sense for the community sentiment and what is happening at the moment, jump to the last page in the thread to see the latest replies and comments. If you want you can ask a question yourself or pitch in with ideas.
The best sections to find discussions on coins is in the Altcoin Discussion and Speculation (Altcoins) subsections. If you want to learn about newly released coins or read a coin's Bitcointalk announcement thread then the Announcements (Altcoins) section is where you want to go.
Use Social Media & Sentiment Analysis
Social media is the ultimate social proofing tool. Whether you are researching a company, product or a cryptocurrency you are sure to get a good sense of the public opinion here.
Search the coins name or code like "$BTC" or "#BTC" using a dollar sign instead of a hash into Twitter, Reddit, Facebook and other social networks and you can quickly gauge the community sentiment around the coin and find out if there is any news or interesting conversations going on.
Social media is one of the best ways to follow the rumors and what's going on each day in crypto with your favorite coins.
Guage market sentiment via social media by checking Facebook, YouTube, Twitter, Reddit, Steemit, Medium and any other tool where people are talking on the public web.
One great tool for judging public sentiment on more than 200 different cryptocurrencies is StockTwits, check out their BTC analysis page to get an idea of how it works. They index the latest mentions, have a sentiment chart, post volume history chart and give each tweet a sentiment score.
Make sure to check the official website and see what community tools they are using, often these projects have a Slack channel, Discord server or Telegram group you can join and talk to other investors and people following the development of the project.
Get a Second Opinion
If you have exhausted the above options and want to get a second opinion from someone with more experience then you still have some options.
Remember nobody has a crystal ball and can be sure that something is going to go parabolic but there are many people with a significant amount of experience in the space.
1) Go to YouTube and find out what some of the most knowledgeable commentators in the space are saying about the project. We have a list of approved and validated YouTubers that produce regular content if you go to our Crypto YouTube Guide.
2) Research Services like Cryptonaire are another interesting way to at least get ideas as to what is being hotly tipped by experts so you can then go and do your research.
If you are already looking at a coin, cross reference it with websites like this to see if some of the main research groups are tipping the project to have a big future. Cryptonaire has a verified digital assets list which shows they have done thorough research and marked it as approved, a handy thing to check.
3) Start a thread on a relevant subreddit such as /r/cryptocurrency and ask the rest of the community to give you their thoughts and crowdsource opinions and answers to your questions.
4) Follow the official communities for the project such as Discord, Slack or Telegram. Many projects will use more than one, but keep in mind those invested in the project have a vested interest and may shill a coin and engage in astroturfing to market it to newbies.
5) Quora is another great website where you can reach out to an educated community and ask for other people to sound in with their views, oppinions and analysis. There seem to be a growing number of cryptocurrency enthusiasts and blockchain experts on this site but remember to have your astroturf filter ready.
6) Get in touch with me and I will give you my input if it is a coin on my radar or point you in the right direction of someone that might be better suited to advise. Remember, this isn't financial advice. Purely opinions and based on personal experience evaluating the technologies and potential a coin has.
Spotting Red Flags
It's always a good exercise to scrutinize cryptos for any red flags to make sure you don't invest in a scam-coin or a coin that may not have a great future, the last thing you want is to be left holding a bag of digital nothing.
The Team - Look into the individuals and see if they have been involved in any previous projects that have failed or gotten into trouble somewhere along the line. Equally important, check the team is real, one ICO I won't name as to not give them any more publicity actually listed a famous Chinese actor as an advisor though fortunately someone following the project noticed it and went public on Reddit to let other potential investors know their team was likely fake and to stay away.
Pre-mine - Some projects have heavily pre-mined their currency before allowing others to get involved. This means they are holding a grossly disproportionate amount of the coin supply, not a healthy attribute of any crypto. Keep in mind there are legitimate reasons to pre-mine a cryptocurrency and even Satoshi himself mined the first coins on the Bitcoin network however it can easily be abused.
Token Distribution - Similarly to pre-mining when a coin or token is issued on another existing blockchain, like when an ICO launches a token on the Ethereum network there is no pre-mining, however, the founders can hold back a large number of tokens for themselves and even buy more as part of the ICO privately. This means when the project launches a small number of wallets can control the majority of coins. These are called whales and aren't healthy for the economics of a project due to their ability to move the markets.
Censorship - Do the devs or mods heavily moderate and censor comments on the official Reddit, BitcoinTalk thread, Slack channel or other community spaces. If they are deleting negative comments or questions they are unable to answer this is a bad sign.
Professionalism - In crypto world, every Tom, Dick or Harry is trying to setup a blockchain or token. Many of the people in the space came from non-fintech backgrounds, and some were just gamers, trolls or nerds who got rich early on and are using their wealth and experience to manipulate newcomers into making them even wealthier. Also, consider how they respond to people, are they use bad language and being demeaning? This is another red flag of an egomaniac behind a keyboard.
Plagiarism - Is the content, design, idea or codebase stolen from another existing project? While it's legitimate to fork a codebase that is open source to start a new chain, lifting the text, whitepaper, and other materials is not and shows a project is lazy and likely has a surprise exist strategy up their sleeves.
Lending platforms - Be very wary of any platform offering you a guaranteed % return in USD value. These HYIP type projects have popped up everywhere over the past few months though many have proven to be nothing more than a crypto Ponzi scheme.
GitHub Repository Updates - Take a look at the projects GitHub. You don't need to be a programmer don't worry. You aren't going to be analyzing code here, you are simply going to look to see how much activity there is. GitHub displays the number of updates, how recent they were and how many contributors there are. This is good information to check if a project is being regularly maintained. Avoid buying coins that have been around since 2014 and haven't been updated for years.
Word to the Wise
1) Don't just buy a coin because someone told you to. They may have an agenda. Do your homework!
2) Don't buy a coin just because it's going up in price, this is called FOMO (Fear of missing out), this is one of the easiest ways to get 'rekt' as they say.
3) Equally, don't just buy a coin because it's cheap, this doesn't mean it's a "bargain" it could be a shitcoin! ( a derogatory but appropriate term for coins that shouldn't exist). Many projects are cheap or have lost a lot of value for a reason. Find out why and then make an educated decision.
Look at the date the price started dropping or other major dips in price and then look on places like BitcoinTalk forums and skip to around that time in the thread to get a sense of what was happening at the time. This is just one way to dig into a coins history but you can also use popular news media, Twitter, Reddit and the other popular spaces discussed above.
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