You’ve been living under a rock if you haven’t seen the roller coaster action that cryptocurrency has had on the wallets and minds of broke millennials and Wall Street goons alike.
Given a passion for all things tech, I’m constantly reading about how so-and-so made this many dollars, buying this coin and selling that coin. Consistently, I’ve kicked myself for not taking the risk and taking the plunge, and over-edited Instagram pictures about living the dream don’t really help.
Everyone is apparently an expert overnight, and the confidence is completely intoxicating. Everyday a new coin like DragonCoin, Neo, RaidBlocks is released claiming to fix anything and everything. But as the current market shows, Cryptocurrencies are volatile.
As someone making only enough money to blow on useless needs of a foolish young adult and complain after, I was tempted and yet still scared to dip in the investment waters.
How could I know which coins to buy instead of say, paying off OSAP, or even saving for that downtown apartment? I tried doing the whole day trade thing, but I kept losing money due to inexperience and a lack of time to do the proper due-diligence.
Finally after some significant trial and error and a marathon of Youtube videos and Google Scholar searches, I began making some smart investments in everything from Ethereum to Litecoin and everything in between. Slightly more informed and aware, I realized that a million questions later, there were a few key questions that set me on the right path.
So anyways, after researching the nitty-gritty about what cryptocurrencies are, the science involved, and some of the background context on currencies in society, here are 6 Questions That I Ask Myself Before Investing In A Cryptocurrency:
1) Is There a Whitepaper to the Project?
The answer to this should be YES, and if it isn’t don’t even think about it! If there isn’t a properly constructed paper detailing the goals, technology and future plans for the project, then it’s a huge red flag for me and an instant cut from my list. A serious project would publicize these plans to attract investors, new developers, and most importantly, instill trust.
2) What is the Problem and How is it Being Solved by this Cryptocurrency?
A good cryptocurrency project will have a well defined problem it addresses, and an immediate real-world application. I’m not looking for a coin that was vague about its goals and uses, or unrealistically ambitions and I’m definitely not looking for a coin created as a meme (Dogecoin anyone?)
3) Who’s the Development Team Behind This?
A project is only as good as the team developing it. It doesn’t matter if the whitepaper is the most revolutionary thing in the world; it won’t mean anything if it isn’t implemented well, or at all. This means I would like the team to have a track record of results, as well as evidence that the project is getting the attention it deserves insofar as expansion and growth of developmental support is concerned.
4) Who’s Behind Them?
The leaders and backers play an important part in the cryptocurrency’s success. What I would like to see are informed leaders that have played a role in the project’s problem space before. The same could be said about the backers of the project. I give more weight to reputable tech companies backing a coin than being backed by Baskin-Robins, or Kodak.
5) Does This Technology Create New Markets, or Disrupt Existing Ones?
Though not a necessity, it’s still a very good sign if this project can actually change the game and market dominance by really innovating the landscape. Investing is not just about the technology, it’s also about the market research and macro-economics involved. Take a look at the big 3 tech giants; Apple. Amazon, and Google. All of them are flexing their muscle by initially disrupting the market in a big way.
6) What Would I Do if the Coin Crashed?
This is always my last question, and arguably the most important (especially right now with everyone freaking out about this recent dip). At the time of writing, every Cryptocurrency took a massive fall from 50% to 90% drop in value. If a coin is truly worth buying, then a crash should be seen as a fire sale and not a cause for concern. That being said, psychologically being prepared for the fear and anxiety that comes with crashes is needed and more importantly, I should be aware and well-researched on what crashes mean for my particular cryptocurrency.
Well those are some of my guiding questions when it comes to cryptocurrency. It’s an exciting space, and as a software guy myself, I know it will change how we think of money and assets.
But I try to be careful on what I invest into simply because I know that I know very little, in an area where knowledge is king. I hope these questions help you in navigating the unknowns in the cryptocurrency world, and be sure to always do your own research! And as well, this is not investment advice, it’s just an omelette of words!