Refrain from letting the allure of quick gains lead you to gamble on a coin – put in the effort to make informed decisions.
The more that you read, the more things you will know. The more that you learn, the more places you’ll go.” – Dr. Seuss.
There is this set of people that are very good at doing deep research and finding hidden gems.
When it is time to invest with their hard-earned income, they would drawback but share this information with their friends.
This always occurs because they don’t understand their risk tolerance level to gauge investment amount.
Start With the Basics.
As a newbie in crypto, how to do research on crypto can be overwhelming because you have a lot of things to read and terminologies to remember.
However, you should start by doing the following.
- Read the bitcoin whitepaper.
- Read the Ethereum whitepaper. Ethereum whitepaper can be too technical for a newbie. However, you need to understand why Ethereum was created. The problem it tends to solve.
Reading both whitepapers will give you a basic understanding of why smart people are interested in blockchain technology. It will give you a clue about the problems that we are facing in the Web3 space. So when a project is selling to its investors an unrealistic or unrelated vision that doesn’t improve the blockchain industry, you can discern it and save yourself from investing your hard-earned money.
Start Your Research From The Project Website and Read its Whitepaper.
Thorough research is crucial when considering investing in new or lesser-known cryptocurrencies. While this may be more challenging than researching established platforms, gathering as much information as possible is key. Start by looking for general information on the project’s website and whitepaper. As you gather information, pay attention to the following factors:
- The purpose of the token and its intended use case.
- The technology behind the token, including the blockchain it is built on and the protocols it connects to.
- The supply and distribution of the cryptocurrency or token, including its total and maximum supply, circulating supply, and any mechanisms in place to control inflation.
- The market capitalization and price history of the cryptocurrency or token can provide insight into its economic value and potential for price appreciation or depreciation.
- The allocation and distribution of the cryptocurrency or token, including who receives it as a reward and the vesting schedule.
- The regulatory status of the cryptocurrency or token, including whether it is classified as a utility or a security token. You should read more about tokenomics here.
- The team behind the project, including their experience and track record.
By gathering this information and conducting further research, you can make informed decisions about investing in a particular crypto project.
You can make a career out of research ideas in the crypto space. There are a lot of 9-5ers who do not have time to spend on crypto research.
VCs, crypto projects, influencers, etc., need the services of a crypto researcher. You could offer such services. I wrote extensively about how to make money without money in crypto.
1. Does the project’s website look legit?
This is a first sniffing test to check for any obvious weaknesses.
- How much content is there, and is it up to date?
- Watch out for poor grammar and spelling.
2. What does the crypto project do, and what problem does it aim to solve?
Dig deeper and discover why the people behind the project think their actions will help solve an existing problem.
- How exactly does the project approach the challenges within that niche? When Ethereum had scalability issues, several projects built alternative projects.
- Which problems does the project try to solve?
- Taking a step back, does it make sense to introduce blockchain technology to solve the specified problems? A crypto project only has a chance for success when it is an upgrade to the existing solutions. That’s because the currency will likely have difficulty reaching wide adoption without a significant advantage provided to the user.
- Do a SWOT analysis based on the information you gather from points 2 and 3. What are the strengths, weaknesses, opportunities, and chances regarding the cryptocurrency you are researching?
3. What is the actual use of the cryptocurrency or token issued by the people behind the project?
This is very important from the perspective of an investor. A crypto project might have an excellent use case.
In many cases, the tokens that go with them have no real use. This, in turn, means that the coin or token has no real value, even when price trends look attractive on an exchange. As a result, they become objects of speculation, and you should refrain from investing in them.
4. What is the consensus algorithm of the chain a crypto project uses?
The consensus algorithm is a vital part of how decentralized a project is. The more decentralized, the better.
Why is this important?
One of the most important use cases of blockchains is that they decentralize certain tasks which otherwise would be done by central servers. Trust in institutions and the participants in a network play a big role in this.
Blockchain nodes can be run by several partner companies or a few whales, depending on the algorithm. This means that a few parties have much control over the whole system. For example, they can roll back the transactions on the chain.
5. Find out whatever you can about the team behind a coin.
Researching the team behind a cryptocurrency or project is very important. You only want to invest in something if you know that the team is qualified to handle all the challenges that might come it’s way.
- A few names plus some titles on the website are not enough. At a minimum, there should be sufficient information about each team member’s previous experiences, achievements, and qualifications.
- Do not be satisfied with the information provided on the project’s website. Do more research and see if you can look up the founder and team members’ profiles on platforms such as LinkedIn and Twitter. Check how active they are on these networks, what they talk about, and so on.
- Reach out to the team and ask them your questions. If they come back to you and provide good feedback, you will gather more useful information and a feeling of how dedicated they are.
6. What does the project’s road map say?
Road maps help you to understand what a crypto project wants to achieve in a given timeframe. Note that software projects are often very complex, so delays happen frequently.
- Expect things to take some time to materialize if the team wants to start from scratch. Delays of several months are not unusual. However, if developers constantly miss the timing for milestones, it is a bad sign.
- If the timeframe given in the road map is too short, it is probably not realistic.
- It might take a long time for results to show, especially when you invest in the very early stages of a project. If your money is locked up in a smart contract, this means you will have to be patient before there is a chance to turn your investment into profit.
7. Who are the strategic partners?
Established partners are vital for any crypto project because they help the team to tap into additional resources, get publicity, and learn from their experiences.
- Having many partners is good. But quality is more important than quantity. If a project cooperates with a renowned company, official institution, or research institute, it will get much more credibility.
- Because it gives them credibility, crypto projects usually list their partners on their websites. Analyze how cooperation is portrayed.
- Don’t be fooled by a few logos. Do more research to ensure that the strategic partners mentioned by a project’s website are real. Check for press releases from both parties or other external sources that give information about the nature of the cooperation.
Try to find out as much as you can. As a rule of thumb, the more information a team is willing to publish about its project on its website and in its whitepaper, the more trustworthy it is.
8. Research their competitors.
- Are there competitors? If there are any competitors, how are they different from the one you want to invest in?
- How strong is the competitor’s brand?
- What are the competitor’s strengths and weaknesses? Do they have any comparative advantage over their competitors’ weaknesses?
- How does the competitor’s product or service compare to their project?
- How does the competitor’s distribution network compare to its network?
9. Search for more information from external sources.
As important as it is that developers do proper marketing to get the message out, from your perspective, it is even more important what others have to say.
- Check different sources for all kinds of information you can find. Sources include news websites, analysts, discord groups, Telegram groups, Twitter comments, and influencers. Be creative in digging up information.
- By doing this, you will be able to find information the people behind the project probably don’t want you to know about. For example, has the project been hacked before? If yes, how did they deal with it? Did the team show unprofessional behavior, such as careless use of funds? Did important members leave the project?
10. Social media are a rich source for finding information about a crypto project.
Check whether the project is active on social media and if users are creating content. You can learn multiple things from doing so:
- Does the team have its own social media channels to get the news out? Are these channels well maintained?
- Does the team often update their progress to keep the community(Twitter, Discord, or Telegram) up to date and involved?
- Are there a lot of people talking about it? It is also a healthy sign if there is a lot of engagement not only from the users’ side but also from the developers.
- What is the general sentiment? Is the community friendly and helpful? Are they only interested in the price of the token or coin? You want to see a positive atmosphere surrounding a crypto project.
- People who invest money in crypto projects get hyped and emotionally attached easily. In such an environment, people try to get something positive from bad news. For this reason, you must always take a calm look at things.
11. Check out GitHub.
Many crypto projects claim to be open source. As a result, they should have posted their code on Github. Check it out. While you probably cannot understand the code, you can still see how many contributors there are on the insight page.
- Are developers contributing regularly to the project?
- When was the last time the project code was updated?
After you are done with these steps, you should have gathered a lot of information from different sources that list the pros and cons of the crypto project you are researching.
12. Is the currency supported by hardware wallets such as Ledger or Trezor?
This will influence how you can store your coins/ tokens. Usually, only well-established cryptocurrencies are supported by hardware wallets. For smaller projects, you can usually use dedicated wallets or keep your coins in exchange. Both come with risks; therefore, ensure you inform yourself to find the best solution.
By now, you should have a lot of information at your disposal. Now it’s time to evaluate all the data you gathered.
Here’s what you should take into account:
- Not all the information you found might have the same quality or level of trustworthiness. For example, a comment by a random person on Twitter should have less weight than a press release.
- Also, some of the information you find will be more important and useful to you than others. For example, news about a hack or everything directly related to your investment’s safety should be more important than news about a new planned feature.
- Make a list with one column each for the crypto project’s positive and negative aspects.
Summarize every piece of information and data as a bullet point. Then add them to the positive or negative column. This format helps you to get an overview and compare different aspects easily.
Based on your list, you will be able to find well-founded arguments for or against investing in a crypto project or cryptocurrency.
Remember that this kind of research can take a long time to complete. While in some cases, it might not be necessary or possible to cover all of the points I listed in this guide about how to research cryptocurrencies and projects. Your aim should be to cover as many as possible and be convinced enough to have confidence in your investment decision.
Because, in the end, this is all about protecting your investment and avoiding mistakes I made a few years back. I lost a lot of money because I thought it was not worth spending time making sure a project was legit; instead, I gambled my way into it.
Disclaimer: This is not financial advice. This post was made for educational purposes. Consult your financial adviser before taking action.