Cryptocurrencies have become a hot trend. The problem: There are so many cryptocurrencies out there, but honestly, most of them don’t have a promising future. Many investors are fixated on Bitcoin and Ethereum because they are the most valuable, have the longest track record and have the greatest potential for the future. But the deeper you go into cryptocurrencies and delve into less popular altcoins, the riskier it becomes. Therefore, it is necessary to properly evaluate crypto projects before embarking on them.
It is important to evaluate new crypto projects at the beginning if you want to understand how they work. Here is a simple plan to help you evaluate different projects.
How to evaluate a crypto project
Studying the most important aspects of a crypto project should serve to make an informed decision. The decisions one takes should be taken without emotion as they are impulsive and can result in a huge financial loss.
When evaluating, you should answer the following important questions:
- What problem does the project aim to solve?
- How does the project plan to solve the problem?
- Who is behind the project? Do they have the experience and expertise to solve the problem effectively?
- Is the technology behind the project sound and safe?
These questions help identify the key factors to consider when evaluating a crypto project.
1. The project’s website
Any potential cryptocurrency project must have a website if you’re into it. want to invest. However, the website should have several factors to be aware of:
- It is up to date and easy to use.
- It is clean with no typos or other errors.
- It shows the team members and the different partnerships.
- Defines the goals of the token.
- Offers a white paper.
2. The quality of the white paper
The white paper is the backbone of the project proposal, a kind of business plan, and is considered one of the most important tools when evaluating a cryptocurrency. It serves as an official document that describes the goals and strategies for using cryptocurrencies. It is also used as a schedule for the token.
A good white paper is well written and easy to understand without being overly technical. It should also address the problem the project aims to solve and the proposed solution to it.
If the white paper is opaque and you may not understand what is being said, the project is not worth your time. However, if the information in the white paper is so extensive that you cannot read it, you should use the project’s litepapers. These are shortened versions of the white papers but contain the same information. An example is the Ethereum white paper.
3. Team and partnerships
The success or failure of a crypto project can be determined by the credibility and experience of the team behind it. The team must be disclosed for each project, Bitcoin being an exception. A focus on the team should allow an examination of three important points;
- The team members’ experience.
- Their history and expertise in the crypto space.
- Team cohesion.
Projects with respected leaders or partnerships with well-established companies are a positive sign, so another factor to be aware of. Look for the project’s partnerships on the website’s landing page. Some well-known partners are brands such as Google, Amazon, JPMorgan, Visa and IBM. Do your own research to determine if the partnerships are legitimate.
The Tokenomics of a crypto project relates to the economic model of the project and the likelihood of its use in the ecosystem. Tokenomics is a key indicator of a cryptocurrency’s long-term survival. Any project with a poorly performing tokenomic will ultimately fail, regardless of its strength.
Cryptocurrencies are notorious for their volatility, making them more of a speculative tool than a functional token. Through an economist, the purpose of the token is restored through complex mechanisms.
For example, if a token is a means of payment, its value is likely to fluctuate with the market. But if the purpose of the token is to run a decentralized application (dApp), the tokenomics becomes more complex and the value more stable. Understand the tokenomics of the projects before investing to determine the potential value of the token.
5. Market value
The market cap represents the total value of all tokens that have been mined and is a better measure of the overall size of a project. It can be used as a good indicator of an asset’s stability, as cryptocurrencies are likely to be volatile.
Therefore, cryptocurrencies with a larger market cap tend to be more stable than those with a smaller one.
6. The utility of cryptocurrency
Not all cryptocurrencies have a practical use (utility). It is best if you always look for tokens that offer utility in the blockchain ecosystem. Find out if the project aims to solve a problem within the network or improve its functionality.
Other tokens such as meme coins, on the other hand, are only intended as a joke. They are pressured by influencers on social media. However, you can also earn money with such tokens. However, you should be aware of the risk of investing in these meme coins.
If you decide to invest in meme coins, you should learn how to do it safely.
7. Trading volume
A crypto project with a low trading volume is a red flag as it measures how easily a crypto asset can be bought or sold. In most cases, the greater the volume of cryptocurrency transactions, the more liquid the market for that coin or token.
8. Circulating, Total and Max Supply
The circulating supply indicates the number of tokens circulating in the market, while the total supply represents the total number of tokens created. The maximum supply, on the other hand, indicates the number of tokens that will still enter the market, which can be a fixed or infinite number.
With the current development of new crypto projects, one should be able to evaluate them before investing in them. One should try to go beyond the project’s mere hype and marketing machine. Research the project thoroughly, read the documents and technical information.
A project that has a strong community of early adopters or beta testers is an indication of the project’s validity.
Vincent Munene is a freelance writer and a huge blockchain enthusiast. Blockchain changed his life in terms of financial freedom and in return he wants to educate people and update them on everything related to blockchain. He is a biochemist by profession and also enjoys playing the piano.