How to evaluate a good cryptocurrency project? - The Five Points
A question I get a lot is “how do you find good projects? and how do you protect yourself from scams?”
At this point in the development of the crypto-economy, FOMO is in full effect. The meteoric success of Bitcoin has prompted many to either invest in existing projects or to create their own coins/tokens to capitalize on the hype behind the crypto movement. On the whole, I believe this is a good thing for the long term growth of cryptocurrencies and digital/global markets--but nonetheless, this too creates opportunities for scammers to prey on those less familiar to the space. Additionally, not every idea is a great one and many will fail even when created with good intentions.
So what can you do, or look at, to hedge against investing in a potential scam or poor project? Here are 5 things that I look for in any potential crypto investment:
The Five Points
Persistence and transparency
Participation from the community
-Plausibility - does this idea make sense? Is there clear market demand for this tool or service? As a rule of thumb, I stay away from projects that merely seek to replace fiat currencies--it needs to be more than just a store of value. I generally reserve my funds to invest in platform projects that provide a service that intends to disrupt an existing sector/market (think Ethereum, Syscoin, Vechain, Stellar etc).
-Persistence and transparency - how long has the project been around? And who is behind this project? When you first start out, stick to projects that are tried and true. Two years is a good benchmark indicator of a committed development team. Two years is enough to validate the use case/idea and is usually paired with community adoption and support.
Try to answer these questions: are the project developers known/well-regarded? Are they public personas or only a twitter handle? Are they licensed? Do they have prior work history they can point to?
Seems like common sense right? You’d be surprised how many anonymous teams are in the space… a common thread in almost every single cryptocurrency scam horror story is an anonymous team. All it takes is 15 minutes of research to see if a team is legit or not. Another thing to note is that large corporate backers rarely, if ever, support anonymous projects--and for good reason.
There is a lot more risk involved with investing in ICO’s (initial coin offerings) since these ideas have not been proven-- I strongly urge newer investors to play it safe before taking on the added risk that comes with ICO’s.
-Participation from the community - Do they have an active community on twitter? Reddit? Telegram? Etc.? Look for projects with community interest, the projects that will succeed are the ones with strong communities behind them.
-Partnerships? There are plenty of incumbent technology and service companies that are scrambling to be competitive and take advantage of blockchain technologies. Projects that partner and collaborate with established companies (think IBM, Google, Microsoft etc…) have more access to funding and resources that give them a clear competitive advantage over similar projects.
-Prior fundraising rounds? VC funding? Successful ICO in the past? To use a real world example, lets talk Ripple (XRP). Last year google ventures invested over 40 million in ripple, that (in conjunction with the other 4 points covered here) motivated me to invest a couple hundred dollars. I figured the google VC guys were doing their due diligence. In a little over a year I was able to make over 200x on this trade alone. Point of the story is FOLLOW the BIG MONEY.
Wrap it up...
Remember that since the release of the bitcoin protocol in 2008, hundreds of new projects have emerged claiming to be the “next bitcoin,” promising lambos and penthouses. Though some projects have in fact taken off, a great majority have stagnated or been proven to be outright scams. The best way to stay ahead is to do your own research. The five points covered in this post aren’t a recipe for success, but they can GREATLY increase your odds of finding an investment that will perform well in the long term.