4 Things to look at when choosing a Cryptocurrency – Sam MacDonald
4 Things to look for when choosing a Cryptocurrency
Did you know that 55% of all new cryptocurrencies failed in 2018?
Ouch. It’s a sobering number.
Choosing the right cryptocurrency is a complicated decision and let’s be honest, there’s a lot of garbage out there, so how do we determine which tokens are worthwhile?
If you say YouTube, I will reach through the computer and slap you.
There’s no doubt it can be overwhelming, and that’s why we provide a 10-step blueprint to minimise your risk. No-one does this by themselves.
Simply though, it must answer this question — does the token solve a real problem in a unique way?
For example, Bitcoin was created to address problems with our current financial system and since then, numerous iterations have been created to address Bitcoin’s shortcomings. Bitcoin’s value proposition is well understood but what about the others nipping at its heels?
Cryptocurrencies come in many forms and not all are in direct competition with Bitcoin. Many are software platforms or utility tokens designed with the purpose of disrupting an existing industry.
Here are four (non-exhaustive) ways that will hopefully give you an edge when choosing a cryptocurrency.
1. The Team & Roadmap
Nothing is more important than making sure the team behind a cryptocurrency is as ironclad as a Viking’s battle helmet.
Any centralised crypto project must have a strong team of people working day and night toward its success, and like any company it’s essential to scrutinise the experience of those who’ll make or break it.
Is Jeff Bezos sitting on the board or is Benny BBQ and his best mate Johnno driving the ship?
A legitimate project will have a website with their team prominently displayed. A positive example could include MIT engineers, programmers with backgrounds at prominent companies (google, apple etc.) and advisors/administrators/board members with strong experience in relevant industries such as finance and tech. You could also factor-in marketability here. I know a few cryptos off the top of my head whose charismatic leaders market their brand and their token to the masses, ultimately increasing its value.
But don’t be fooled by the charlatans. I’ve seen a few outright scams that have literally just copy-pasted Ryan Gosling’s portrait and passed him off as the “Lead engineer” and CFO. Cue for laughter.
Another good indicator for new and old cryptos alike, is to check out the roadmap on their website. A good roadmap should succinctly outline the progress of upgrades, partnerships, adoption goals, and clarify future objectives. It’s good also to see if the developers have met historical deadlines and commitments.
2. Read the Whitepaper, if you dare
It can look like gibberish but understanding a token’s whitepaper can quickly sort the wheat from the chaff. Of course, reading a technical document is likely outside the wheelhouse of most investors but there is much you can gleam from a whitepaper even if you don’t speak calculator.
Whitepapers essentially outline a project from top to bottom and it’s important to note that even the best whitepaper in the world doesn’t guarantee a token’s success.
As a benchmark, there’s no better or more concise whitepaper than Bitcoin’s — its entire existence summarized in just nine pages!
Things to look for in a whitepaper include:
· What problem does the token aim to solve?
· Is blockchain necessary to solve this problem and what is the competition?
· What partnerships does the company have?
· What technology is behind the token?
If a whitepaper doesn’t satisfactorily address these points, or they’ve blatantly copied another project, move on. Don’t spend too much time here as being efficient with your opportunities matter. Again, it’s not essential to read a whitepaper, but diving into the nuts and bolts of your investment can be advantageous.
3. Does the token have a use-case?
Ok, so you’ve settled on SpaceCoin — the next interstellar currency. It sounds cool, has a great team, and ticks a lot of boxes.
Cool those thrusters, Elon.
Is there really a gap in the market that this token solves in a unique way? Can Bitcoin or another incumbent cryptocurrency be used instead? These are questions that must be asked and answered.
What is your time horizon? Are you prepared to wait 10–20–50 years to see a return on your investment?
In this example, the need for an interstellar currency is arguably a problem that doesn’t require solving for the foreseeable future, if at all — and you could be waiting fifty years to know if those Mars colonists will adopt your token. To make a return on your investment you’d be gambling that SpaceX or NASA announce a partnership in the near term however unlikely.
Hmmm, SpaceCoin sounds like Hopecoin. No thanks.
An example of an immediate problem in the crypto space that many cryptos are trying to solve is Ethereum’s scaling problem. For new users to onboard, decentralized apps need to grow bigger but Ethereum’s network is congested and slow. Tokens, such as EOS, Cardano, Tezos (just to name a few) are attempting to usurp the incumbent and are approaching the problem in unique ways.
Whoever wins here, wins big.
4. Does the token have liquidity?
No matter how good a token’s use-case is at some point it just boils down to buyers and sellers. Without them, no coin will last.
The top 20 cryptos have liquidity, brand recognition, and are entrenched in high-volume exchanges across the world. We talk about this a lot and it’s worth considering in your decision.
Even if a big brand company launches a token with partnerships ready to go, there is a high probability you’re signing up for the long haul and it may be some time before the token will be traded on highly liquid exchanges.
This is a worry for a few reasons:
1. Smaller exchanges are likely to be less regulated and are more likely to be hacked or shutdown.
2. If your token appears on a few minor exchange’s volumes are likely to be small. The big risk here is that when you want to take profits or cut your losses there may be no liquidity to action your plan.
3. As ground-breaking as your token is, if it doesn’t have exposure on larger trading platforms it can get lost in the bottom dwellers that eventually dwindle into insignificance.
Plan to have liquidity on your side.
Blog by Sam MacDonald
Content Director
Disclaimer. Sam owns Cryptocurrency
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Published at Fri, 18 Oct 2019 01:22:47 +0000
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