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How to properly analyze tokens and cryptocurrencies before investing

September 9, 2020

When you ask people what they know about cryptocurrency, you likely hear the words bitcoin (BTC) or blockchain – or even both. However, What many people don’t know is that there are over 5,000 cryptocurrencies on the market today. This huge number makes things a bit confusing for investors.

With so many options, choosing an investment can be tricky. At the same time, howeverThere are several potential ways for people to get scammed in the crypto room.

You’ll see, Some bad actors have designed tokens to cheat people off of their hard earned cash. Whether you choose to move funds transparently or privately, your first priority should be to find authentic cryptocurrencies to invest in.

How to properly analyze tokens and cryptocurrencies before investingHow to properly analyze tokens and cryptocurrencies before investing

In this article, We have compiled a list of some precautionary measures you can take to properly parse tokens and cryptocurrencies – be it a utility or a security token – in order to make a safe choice.

Read the Token White Paper carefully

In the white paper of an ICO or a cryptocurrency The background, strategy, goals, concerns and schedule of the Blocckhain project are given for its successful implementation.

Since white papers are meant to be detailed, they can be very insightful. The biggest benefit in this case is that you can find out if a company has a carefully crafted company execution plan, which can be very useful for token analysis. So the review of the white papers can be very helpful.

A white paper should answer this:

What is the project’s unique offering, especially when compared to its competitors?

What is the project manager’s vision and methodology and how do they want to be successful?

What steps will the company take to achieve its goals?

What are the token use cases?

Start an investment decision in a cryptocurrency or blockchain by carefully reading the white paper and checking if you have any supporting documents. This can include financial modeling, SWOT analysis, legal reservations, as well as a roadmap for implementation. You can also determine the suitability for bulk trading the tokens.

If a company doesn’t offer a whitepaper, treat it as a serious problem and move to another. At the same time, remember that white papers should not be seen as the holy grail of authenticity. A fraudulent company can produce compelling white papers. For example, PlexCoin managed to raise more than $ 15 million using its remarkable white paper before the US Securities and Exchange Commission shut it down.

Learn more about team leaders

The developers and management team are a critical part of a token’s success. So you have to get a feel for the people who are behind the project. Find out if anyone has worked on reputable projects before or are notable members of the crypto ecosystem. In addition, your qualifications and experience should be important considerations.

Make sure the token is backed by people who know what they are doing. This will help you stay away from companies where personal gain takes precedence over ethics.

See this lagoon Scammers have started to invent fake founders and biographies for their projects. Sometimes they can even use the personal identity of unconscious victims to their advantage.

Hence, the best protection against this fraudulent tactic is to do your research and get it right. Skip the tokens for whose developer or founder you cannot find information.

Even if you find profiles, check that the activity matches the number of followers and likes, and look out for other similar nuances.

Determine the likelihood of a legal problem

Finding a great ICO to invest in is not enough. Sometimes your jurisdiction prevents you from attending. If you choose to do so in these cases, you could be breaking the law.

To avoid this, you need to make sure that the regulatory authorities in your country have not restricted participation in such tokens. While ICOs are still unregulated, the good news is that regulators are working to create friendlier rules that can lift most of these restrictions in a number of regions.

Check if the token solves a specific problem

Before investing in a token, ask yourself this question: What problem does this project solve and what makes it unique? Verification is vital for token analysis, especially if you want to ensure the safety of your investment. People are increasingly aware of the looming threat posed by online cybersecurity. The average cost of a data breach is currently $ 3.92 million. This is the same precaution that needs to be taken in determining the utility of a token’s market value.

In addition, investing in blockchain projects that solve a unique problem also increases demand, which in turn increases the commercial value of your token. Therefore, when you invest in the ICO of such projects, the more likely you will get a safer and more profitable investment.

Observe the token selling process

All ICOs rely on a token or currency system to enable crowdfunding. You should always watch the token sales numbers while the ICO is running and keep an eye on the progress over time.

In fact, companies and other initiatives are deliberately taking a look at their system and progress of token sales to potential investors to determine their legitimacy. With the increasing popularity of business models for cloud-based infrastructures, “Blockchain-as-a-Service” is also becoming more widespread, which should further facilitate transparency.

In other words, there is no reason for a company not to show you their progress in selling the tokens. A company that makes it difficult to visualize the development of its ICO is very likely a scam. Try to avoid such companies at all costs.

Stick with people you can trust

Cryptocurrencies have shown considerable maturity in providing wallet solutions that operate on both a custody and a non-custody basis. But security is still a problem in space. That’s why we recommend working with people you trust whenever possible.

As you can see, it is not possible to thoroughly examine every project. So when you work and follow trusted people in the crypto landscape, you can rest assured. These industry professionals have a good understanding of the blockchain ecosystem and can provide solid advice too.

The final result

The cryptocurrency and ICO areas offer several investment opportunities. The only downside is the ability to make informed investment decisions and have your homework done. At the same time, these areas also have their own share of fraud, exposing people to fraud and fraud, while even legitimate companies with poor implementation strategies can cause serious financial losses. Also try to stay away from illiquid instruments.

Of course, there is no guarantee that a cryptocurrency or blockchain launch will be successful or legitimate, but following our guidelines above can certainly help you reduce the likelihood of fraud.

This article does not contain any investment recommendations or recommendations. Every trading and investment step is associated with risks. Readers should do their own research in making their decision.

The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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