The cryptocurrency industry is rapidly maturing and has already proven itself an excellent investment opportunity. Like any asset class, though, cryptocurrency requires careful due diligence before making investments; newcomers to crypto may find it more challenging than before to evaluate projects and separate gems from duds; increasing funds being put into circulation has only made matters more complicated as scammers find new avenues of scamming; however there are some precautionary techniques in place that can protect investors against falling prey to these schemes.
Step One: Evaluate the White Paper. A white paper provides an outline of a crypto project’s core technology, its solution for an identified problem and potential user base. Some white papers may include technical jargon; however, comprehensive and detailed white papers indicate that its developers have an articulate vision for their product. In addition to reviewing its white paper, you should also research its team and research them thoroughly as this may give more indication as to their credibility and experience delivering on promises than white papers alone can do.
Step Two: Analyse Market Capitalization and Liquidity.
Regardless of whether you are investing in cryptocurrency tokens such as currency tokens, utility tokens or asset tokens, it is always essential to assess their market capitalization and liquidity before committing any funds. You want to ensure you can sell off investments quickly should necessary and that trading volume supports coin price – a low or nonexistent market cap is often indicative of insufficient demand and should be seen as a red flag that it may fail.
Step 3: Explore Blockchain Structure and Technology. It is vitally important to familiarize yourself with the blockchain structure and technology behind a crypto project before investing your money, in order to determine whether its coin is safe to hold as well as have any chance of increasing in value over time. Some crypto projects build upon existing chains such as Ethereum while others create their own blockchains – for the best returns, opt for ones built upon stable chains with no known security flaws.
Step 4: Consider the coin’s use cases and community.
To maximize long-term returns, it is vital to find a cryptocurrency with use cases that provide solutions to real world issues; this increases your odds of earning long-term returns. Generally speaking, the more widespread use cases a coin offers can increase its value significantly.
Explore cryptos with an active and engaged community. This could mean anything from Reddit threads to large Twitter, Facebook or Telegram followings; any community showing interest and support indicates the success of a project whereas one without such support could indicate fraud or pump-and-dump schemes.