These are only basic steps to researching projects. Researching is a such a speculative opinionated skill so always remember to think for yourself. These steps are originally made for a beginner who wants to research but has no idea where to start. The rabbit hole gets much deeper than these few steps. Try to stay in a direction that you feel comfortable with and understand.
Crypto may peak the interest of many new investors that find themselves wondering how to properly judge a crypto project. From my own personal experience understanding crypto projects could be comparable to understanding companies with stocks. Investors usually choose an industry they understand. To understand these cryptos you may first want to understand their blockchain and try to see if you can relate to its original purpose. Understanding blockchain technology can be a complex thing, but if you are even a little tech savvy you may find ways to simplify and comprehend what is going on. Most blockchains are decentralized. This means that it is not controlled by one central authority and when the creators finished the network they released it as open source for any one to use and build upon. When a blockchain is built upon you have created what are called tokens. Understanding the difference between a crypto token and a crypto coin is important to know when researching crypto projects.
A crypto coin is a cryptographic data block that has its own native blockchain that was designed specifically for the technology usage of that particular crypto. Bitcoin is a coin because it has it’s own blockchain that uses a Proof of Work (PoW) consensus mechanism to verify the value of each individual block.
A crypto token is code designed to integrate with a specific blockchain. Ethereum blockchain is the perfect example to use in this situation. The Ethereum blockchain has built in it’s code what is called the Ethereum virtual machine. This open source technology allows developers to create smart contracts, that usually results in the creation of a crypto token that is utilizing the Ethereum blockchain. Chainlink is an ERC 20 token. This means that it is coded on the Ethereum blockchain but it represents it’s own token through usage of buying and selling on the market.
Using your own judgement when observing crypto projects is critical to your research. You may look at a project and think it is really cool, or you may think “Well isn’t there a major project that already does this?” There are so many creative ideas surfacing on the crypto scene. New and innovative technology like Decentralized Finance and Yield Farming. Your perspective is your own and no one else can make a project more interesting than it really is. If you understand the technology of a project and how it plans to change or solve a big problem in the world today then by all means research it.
A great starting point for research is Coinmarketcap.com. This site is a one stop for current market data on all cryptocurrencies. Visiting coinmarketcap.com will immediately introduce you to the top 100 cryptocurrencies by market cap. This means that they are listed from the highest market value to the lowest. Bitcoin is at the number one spot with a market cap of over $600 billion at time of writing. If there is a crypto project you are interested in you can use the search bar and find it data.
Some key factors to take into consideration are the maximum supply and circulating supply. The maximum supply of a crypto will give you an idea of how much this particular crypto can scale. Scalability is important for preventing one large entity from gaining majority control over these projects. Scalability can also be important for networks whos use case requires a wide range of users. The maximum supply may sometimes differ from the circulating supply. Some crypto networks are designed so that tokens are minted over time or for specific network verifications. So the circulating supply could be what is available on the market and what investors are holding, and the remaining maximum supply could be stored inside the decentralized network awaiting task to be complete in order to release new tokens to the circulating supply. Some cryptos have a low supply overall and this may sometimes result in a high demand.
The market cap is a representation of the overall value of all the circulating tokens combined. For example if there are 10 million tokens and the value of the token is $1, the market cap will be $10 million. Judging whether a market cap is impressive or not is up to you. Cryptos projects with a multi billion dollar market cap tend be very volatile. This means that they move up and down a very lot. It is ideal to find a project with a lower market cap that you believe has potential to grow in the future. Getting in early projects before they take off is what most crypto investors are seeking to do. It is definitely a good idea to thoroughly investigate the purpose of a project. This is where your own perspective comes into play. Do you believe this project is great technology? Is it decentralized and community driven? If these things are important to you then make a check list and find your favorite project.
The number one thing I always look for is the team who created the network. Researching the team shouldn’t be that hard if they are good actors. Transparency is very important when choosing to invest in a project. Most cryptos will have a direct link to the website designed to illustrate the basics of the network. Usually project websites will have an about section or a team listing. Look up the team and their history with blockchain technology and make your own conclusion on whether you think they are good leaders for this particular project. Some Founders and CEO’s have no history in blockchain, but may have a impressive background in other sectors. Not everyone will have experience as a cryptographer or full stack developer. It’s up to you to decide if this team is transparent and community oriented. Many founders have history with major companies in the stock market and decided to give a go at crypto projects. A good team that acts as a steward to a decentralized network that they designed is an important factor to take into consideration.
Some projects have bad actors that build networks with the intentions of stealing money from investors. These bad actors usually hide their identity or try to create a fake profile of professional individuals to trick investors. That’s why it is very important to make sure the people you are researching are real people. Good actors will be transparent. You will be able to find their professional profiles on Linkedin or Twitter. Check to see if these team members are active. Do they interact with the community? Do they hold public AMA’s for the community to directly communicate with them? You will want to know if these actors have the community interest in mind.
Most projects will have a blog on a major blog site likes Medium or Write.as. They also use Telegram and Discord as a base for the investor community to communicate directly. Joining these community channels is a great way to dig deep into the project and learn more. If you are new to cryptocurrency take extra precautions when joining these groups. Scammers like to disguise themselves as administrators of groups with large community reach. Always take extra steps to make sure you are speaking to the correct individual and never give anyone keys to your wallet. Also, never connect your wallet to a network that you do not recognize.
Crypto projects have what is called a white paper. This is an original document drawn up by the creators explaining the purpose of the network and its native crypto. These documents are sometimes called “Litepaper.” Read over these documents to get a better idea of the structure of the decentralized network. Some white papers are subject to change unless it is stated in the official document. Community driven projects usually have voting mechanisms so whenever changes are brought to the table the community votes and decides on whether it is a good idea or not. Make sure to read the white paper and understand whether or not this is a good project for you. It is a good idea to make sure the project is legal. Make sure they have been security audited and that they have registered in the necessary manner. Some crypto companies must register as a Money Service Business which mean they fall under BSA laws. Understanding a few requirements by law may help you avid investing in a scam.
It is not necessary for every crypto project to have major partners. But having major partners is a great look for new startups. Certain partnerships in the cryptosphere trigger extreme demand for projects. There are many crypto projects with partners outside of the blockchain and crypto industry. Partnerships do not guarantee success. Try to dig deeper and see if you can find out more information on the partnership and how it benefits each network involved. Also, check on the status of their efforts towards the expansion of these partnerships. It is always a good idea to double check and make sure these partnerships are legit.
Understanding these few things will help you from getting involved in scams. I am not your financial advisor so take this as education but this is some the best information I can give you to guide you in the right direction. Make sure to always do your own research.