Investment is a great way to grow your money but before you invest, make sure you’re doing enough research. After all, you should be well aware of all the risks that could come your way when you’re putting your own money at stake. Investing can be difficult even if you have managed to get all the information you can, therefore taking the plunge without proper knowledge is even worse. For a new and volatile asset like cryptocurrency, this becomes even more relevant.
Cryptocurrencies have been created on robust software and you will come across a number of brilliant applications for these systems. What you should keep in mind is the fact that people do make a lot of money through cryptocurrencies but there are also enough instances of people losing money in crypto scams. So then, how to invest in cryptocurrency? Well, the first step is research and we’ll show you how to go about it. learn more about smart contracts
Heard about a new cryptocurrency in town? Do some basic inspection and look for answers like:
- How did you find out about it, and what exactly did you learn about it?
- Did the information come from a reliable and trusted source?
- Is there any information about the project that the currency enables?
- Or, were you able to find out how much money it’s going to make investors?
Two things that amateur crypto investors need to remember are:
- Nobody hands out free coins, ever.
- A deal sounds way too good to be true? Maybe it is and you should stay away from it
While publicly traded companies have to publish reports about their earnings publicly on a quarterly and yearly basis, cryptocurrency developers need to do no such thing. Thanks to this, learning about cryptocurrencies prior to investing can be difficult. Here’s what you can do to learn about a cryptocurrency before investing:
Use case and utility
A number of popular cryptocurrencies tend to have very particular use cases due to which they turn out to be valuable beyond their investment potential. For instance, we know that Bitcoin has a fixed supply, and thus, it is a great store of value and allows you to hedge your funds against inflation. On the other hand, Ethereum lets you have smart contracts which allow developers to create new decentralized applications on its network. When choosing the cryptocurrency to invest in, understand the use case and decide whether it suits your needs.
Certain cryptocurrencies have different use cases while another set can have multiple utility levels. One needs to understand how one coin can be used in an ecosystem and what are its limitations. A coin may be an exchange medium or collateral to borrow funds.
It’s no surprise that developers are incentivised to promote their cryptocurrencies. However, they’re also the ones with the most appropriate and trustworthy information about particular cryptos that you’d find at a source. A good developer’s website will have the purpose of creating the crypto outlined and they even shed light on the creators’ vision that states what makes their crypto better.
The website can give you more than just the basic details. It could tell you a lot about the legitimacy of the cryptocurrency. Several developer websites are not well written and don’t provide any solid grounds for their claim of having the best cryptocurrency. If you notice that the developer’s website is rather unprofessional, there’s a good chance that it was created in jest and is not meant to be adopted by traders at large. This is notwithstanding the fact that Dogecoin was created as a joke but is now one of the leading cryptocurrencies in the market.
Go through the white paper
Besides the developer’s website, each cryptocurrency comes with a whitepaper that details the coin’s purpose and specific characteristics. In certain cases, developer websites tend to showcase pointers from the white paper to use for marketing purposes. Then there are also very detailed whitepapers that have all possible information about a cryptocurrency. How a badly made website is a red flag, the same applies to a whitepaper that lacks professionalism–you shouldn’t trust that cryptocurrency for investment purposes.
In general, blockchain projects are put into the whitepaper which is available to the public and they can learn all about its key pointers, factors, etc. Bitcoin, which was the first ever cryptocurrency and was also anonymously published, has a whitepaper that is still read by investors.
Volume, market cap, and trading characteristics
If you don’t want to blow up all your savings and break the bank, you are better off trading the popular cryptocurrencies with large market capitalisation. You can choose from over thousands of cryptocurrencies that are available in the market but you should stick to the ones with billion-dollar market caps as they’re backed by good investors. This is a major reason why they’re more likely to stay in the game for long.
When you are sure that you are well-versed with the facts about the cryptocurrency you’ve chosen, dive deeper and assess what the online community thinks about your cryptocurrency. Though it’s a space replete with speculators, touts and other unbankable sources, if you look carefully, you will find information that is not available from official sources.
Shiba Inu is a classic example of what happens when a community of online investors back a cryptocurrency together and the kind of results that may bring. Though you should not put all your funds at stake because an online community is positive about the returns, you may still be able to gain some important details.
Ensure that the blockchain address is free from typos. Companies tend to typically put out the address on their websites but you should double-check it on the blockchain or with an online blockchain explorer. Make sure the website’s domain name is the same as the domain in the smart contract code. After this, you see how many wallets have contributed to the ICO against how much money they’ve raised. If you notice that the money is a lot but the wallets are less in number, it is possible that someone is attempting to inflate the funding goal through bots or fake accounts.