When it comes to crypto investment, such practice is required to navigate through the deep blue sea of crypto currencies to stay on the safest side.
This practice of research becomes crucial with the uncountable number of crypto projects in the crypto sphere, each with its unique dynamics, promises, and potential.
Even though keeping tabs on all crypto projects can be daunting and near impossible, being informed about the coins you choose to invest in will help you mitigate your exposure to potential scams.
Why it is Important to research Crypto Projects before Investing
Crypto is filled with many investment opportunities through countless coins, tokens, and projects.
But a lot of people only understand that they have to buy a coin, not many of them know that they ought to do research about the said coin and find a rationale or conviction for buying such coin.
Crypto investment should not just be about asking your friend what the latest or reigning coins are so that you can buy them.
The danger inherent in this is that a lot of coins are in the headlines based on hype that when all quietens down, and there are no fundamentals backing these coins, they come crashing and you lose money.
Even though it is often said in crypto that “you have not lost until you sell” what are the chances of a crashed coin without fundamentals making a comeback? There are usually no chance at all.
The hype disappears, the headlines move on, and you are left with a bag of dead coins.
Victims of such escapades end up declaring that crypto is a scam even though they skipped the number one lesson of crypto investment, which is doing their own research.
Why you should do your own research (DYOR)
As said earlier, the crypto market is filled with many crypto projects, each with its unique dynamics, promises, and potential.
However, not all these projects will succeed.
And since not all crypto projects will succeed, some are not initiated with the thoughts of success in mind. Rather, they are designed to outrightly scam investors and disappear with their funds.
Such projects start with anonymous founders seeking funds to launch their projects. Potential investors are then requested to invest in the project by exchanging their coin of value, be it Bitcoin, Ether, BNB, USDT, or any other coin of repute and value to the founders’ own coin.
A lot of investors troop in and invest in this project. When the founders have raised enough funds, they deactivate their social media channels, take their website offline, and disappear with investors’ funds without ever launching the project or listing the coin on any Exchange.
This instance is just one of the numerous scams in crypto. Hence, you must always research a crypto project before investing.
Before investing in a crypto project, you should conduct the following research.
It is important to research the purpose of a crypto project before investing in it. This is because a lot of projects in crypto do not have any purpose behind them.
They exist because someone or a group of persons thought “let us create something and see what comes out of it”
This is not the kind of risk investors should be taking with their money.
Also, some projects may get laced with ideas on them whether they are useful or not. Often from a desire to sell crypto coins to investors and make money off them.
Since such projects have no useful idea or purpose, they wither off in no time and become dead projects, taking investors’ money with them.
Crypto projects should have a solid purpose behind them to have a chance at survival. A lack of purpose often translates to a lack of users and the subsequent demise of such a project.
When having a purpose, projects should transcend beyond inane ideas and random thoughts to actual useful purposes that identify real problems and attempt to solve them.
Hence, you must research the purpose of a crypto project before investing. Do not just get suckered in, find out what it is about, and then you may proceed to invest if you are convinced.
One of the best places to find the purpose of a project is in its whitepaper. Search for and read it. A project with no whitepaper can be a red flag because every well-meaning group of developers should have one.
This is not to say that having a whitepaper automatically makes a project good. However, a white paper helps you understand what a project is all about and if it is worth your money.
A crypto coin needs utility to remain in the game. This is because crypto has evolved from the early days of Bitcoin where crypto currency simply served as a medium of exchange to a wide range of usages these days.
The utility could be as a native coin powering transactions on a blockchain network, or a crypto coin fueling a game, a governance token decentralizing on-chain governance, a decentralized finance-based coin, or any other creative utility the founders can think of.
The point is to have a use case to encourage diverse usage and subsequent investment.
So, before you invest in any coin, understand its utility. If it does not have any known use, it may be as good as a project without purpose.
The supply of a coin is critical information for investors to have before investing in a project.
This is because the less supply a coin has, the more disposed it is to appreciate. The greater the supply of a coin, the less disposed it is to rise in value.
There are two types of supplies to look after. They are circulating and total supply.
Circulating supply is the number of coins out of the total supply which has been released into the market. Hence, a circulating circle.
The total supply is the overall number of coins in existence, both the circulating supply and the remaining supply not yet released.
Some crypto coins have a fixed supply, while some have an infinite supply. When researching the supply of a coin you want to invest in, find out if the coin’s supply has been minted completely or if there is still more to be mined.
This is because some projects start with a smaller amount of coin supply, along the line, more coins are minted into existence, saturating the supply of the coin, thereby leading to an excessive number of coins.
If the margin between the existing current supply of a coin and its future supply is big, such coins may suffer a huge market crash and may fail to recover.
So, before you invest in a project, find out everything there is to know about the supply.
The Project Team
The importance of knowing the team behind a project cannot be overstretched.
People hide behind anonymity to launch all sorts of scams. Do not invest in blind faith, know the team.
Knowing the team provides you with the satisfaction of team presence and at the same time, makes the team accountable to the public and their investors.
Projects without a known team or face behind them are a huge red flag and often end up as scams.
If the team behind a project does not trust their project enough to have a face behind it, should you, an investor trusts it? The answer is no.
So, look up the team on social media and follow them to stay informed on what has happened so far with the project and what the future holds for it.
The Project’s Activities
It is important to check the activities surrounding a crypto project before investing.
Look up the project’s social media handles. Are they still active and regularly sharing content on them? If not, this could be an indication that the project is dying or fraudulent.
Endeavor to make all this research to help you make wise investment decisions.
Other than these guidelines, it is also important that investors understand the types of coins in the market before making investments.
Below is an outline of some types of coins in the market with their examples.
Types of Crypto Coins in the Market
There are diverse types of coins on the market. Every one of them is designed for specific purposes which, nonetheless, may overlap in function across different blockchains.
The different types of crypto coins are:
Native coins are crypto coins that are primary to a blockchain. They serve as fuel powering that blockchain. Examples of native coins are Bitcoin, Ether (Ethereum), Klever coin, Tron, Binance coin, Polygon (Matic), Cardano ADA, Sol, and other similar coins.
These coins are the main utility coins of their specific blockchains and are used to pay network fees when transacting on those blockchains.
The advent of blockchain games necessitated gamify tokens which are simply crypto coins of a given game.
These coins fuel the game’s economy such as the purchase of game items like game NFTs, weapons, skins, and other game perks. Examples are Devicoin of the Devikins game, Sand, Gala, and other gamify tokens.
Governance tokens are crypto tokens used to participate in the on-chain governance of a protocol. They are used to make proposals and vote for changes or adjustments to a protocol. They are famous among Decentralized Autonomous Organizations (DAO)
Examples of governance tokens are Klever finance token (KFI), YFI, UNI, and ENS.
The existence of governance tokens helps members of a DAO make decisions that affect the future of their protocols democratically.
These are crypto coins designed to weather the volatility of the crypto market. As the name implies, stablecoins are static in nature, their price does not fluctuate like that of other coins.
Often pegged to the US dollar, stable coins are used to preserve funds and protect them against a market crash or depreciation from local currency’s devaluation.
Individuals from Countries whose national currencies are at a higher risk of devaluation often resort to digital dollars in the form of stable coins to preserve their funds.
Examples of stable coins are USDT, KU SD DAI, and BUSD.
There are a lot of other coins not mentioned here which have specific uses or purposes.
Understanding the types of coins will help you know what kind of coin is best for you to invest in.
Having known some types of coins, let us now take a specific look into the importance of researching a crypto project before investing.
Importance of researching Projects
- Researching projects helps you know what kind of project you are investing in.
- Research provides information about projects you would otherwise not know.
- It helps you to easily identify scams.
- It helps you to learn more about crypto in general.
- It helps you to have more realistic expectations of the market.
Essentially, researching crypto projects before investing in them is a very valuable practice when it comes to crypto investment. Therefore, endeavor to do your research before investing in any project.