There are so many different crypto projects on the scene right now, and with that number increasing every day, it can be a challenge to find the right projects to put your hard-earned money into. So, how do you research a crypto project before investing?
There are a lot of different things that different people use to make a decision. For example, depending on the type of trader you are, you probably use one or more of the following:
- Fundamental Analysis. – Often used by long-term traders or HODLers.
- Sentiment Analysis. – Mainly used by position traders or mid-term traders.
- Technical Analysis. – The day-traders’ favorite.
We will not go into these three different methods here – we need to presume that you have some knowledge about them. This article will focus more on picking a project based on facts that anyone can (or cannot) find out with project research.
There are so many different approaches to finding information about projects that we have many things that you can do. Try to look at and use as many of them as possible to ensure you do not lose your money to a scam.
Disclaimer: We do not offer any financial advice. As with all investments, Do Your Own Research (DYOR)!
Researching Crypto Projects Before you Invest in Them
It can be a daunting task to look at the 92 pages of 100 coins and tokens on CoinGecko and chose the ones you like. Therefore, the first thing you need to do is try to pick out the ideas you like. You may have already read about some projects that pique your interest with their plans, such as a crypto-based marketplace – that is a great place to start.
Make sure that you write them down on a notepad or in a spreadsheet – that will help you o compare them when the time comes. Make notes on everything that you find, good and bad.
Read the Whitepaper
Reading the project whitepaper is essential – do not skip this step. Even if you are new to cryptocurrency investments, you should take the time to read them. There are some tell-tale signs that you need to look out for.
Over the years, we have found some projects that do not even have a whitepaper, or you have to search for it on Google (“project-name whitepaper”). If you have to do that, cross it off your list – if you struggle to find information on your first step, you will struggle all the way through.
All whitepapers, in our opinion, should be visible as soon as you visit the website, even if it is a link in the footer. If you need to spend time looking for it, move on.
Do They Aim to Solve Problems?
When you have the whitepaper in front of you, you should look for a problem they aim to solve with their token/project.
While it is not always the case, if there is no attempt to solve a problem, the team is just looking to gain money – that is never a good sign. That doesn’t mean that they are all going to end in rug-pulls just because you cannot find a goal, but it is a good indicator that they are only in it for the money.
Do They have Information about How they will Solve the Problems?
After finding the problem that they aim to solve, the next step is to see how they will solve it. Much like finding the problem in the first place, if there is no clear aim to fix the issues they present, there are possibilities that they will not solve them.
The more information they have about their aims, the better. For example, if the whitepaper says they want to provide clean water to the world, their method is “by providing clean water to the world” with no information about how it can be a bad sign.
You want clear set steps, what actions the team will take, who specifically they will work with, methods for getting their project to work, and their product or solution to the masses who need it.
Try to put yourself in the position of one of the people who need it (if you are not one of those people), and see if you would be happy with what they offer. If there are no clear steps, it is probably a good plan to avoid.
Do they Provide Information or Just Marketing?
There should be actual information about what they will solve and the steps they will take to get there within the whitepaper. Although we have already covered this point, it is important to note that some projects will only compare themselves to other projects and platforms and aim to solve problems existent in them.
The last thing that a whitepaper should be is another marketing strategy. Investors will use it to make decisions, but this is not a landing page pushing for a sale; it is a technical piece of information with clear outlines of issues and steps.
Tokenomics (Token Economics)
There is a lot at play with the tokenomics of any token or coin – and they go beyond the scope of this article. However, there are many good token economic guides that you can use to figure out what is good and bad.
One of the best ways to figure out what is good and not is to use an already established token or coin to refer to. One thing to remember here is that a well-established token or coin will have some significant differences compared to a new project.
Again, as with the whitepaper, you should probably move on if you cannot find the project’s tokenomics.
Will the Currency or Project Have Widespread Use?
For a token to be worth investing in, it needs to have widespread uses – preferably; you would want to use it yourself. If it seems like only a few thousand people are likely to use the project, it has to be very niche-specific and valuable.
Great examples of this point are all of the tokens built solely with selling a dream of money through token gain. While some of the projects work like that, you have to know what their marketing team is like to understand if they will market the token to enough people to make money. Even if they have excellent marketing skills, the token may fail if there is no use case.
Find the Team
We all know that Satoshi Nakamoto has managed to remain anonymous for the entirety of Bitcoins history. However, that anonymity is no longer something to look for in a team you want to invest in.
When you find the core team members, look for their LinkedIn and Twitter profiles;p they should always be easy to find.
Having faces and names is a great way to prove to the world that you are a real person, not hiding, and most importantly, not looking for a rug pull. If you cannot find information about the core team members easily, again, move on.
How Many Social Groups do They Have?
The most common social groups that crypto projects use are Telegram and Twitter. Any decent project team will have official channels on both of these. However, here is a list of some of the places you should look for official profiles:
- An official website
- Buzz Sprout
- Telegram (public chat and announcements)
The more of these that you find, the better.
Join Social Groups
Not only should you find the social groups of the projects, but you should also join them. The most common way to check a team is through the Telegram groups.
Do They Have Announcement Channels?
Announcement channels on Telegram are a great source of information, especially when looking into new projects. They can help you understand the progress of the project without being filled with messages from other people.
Make sure you find the announcement channel and take a look over it. However, bear in mind that the group may have been made after some of the bigger announcements.
Are They Active on Any of Their Social Groups?
It is rarely good enough for any crypto project to only have social groups; they need to be active on at least some of them – especially Telegram and Twitter. Telegram groups are a great way to stay active in the community and answer questions from the public and people looking to invest.
Find the admin accounts and see how often they reply to messages. Furthermore, are the other people in the groups active, do they talk, or are inactive accounts added in for the numbers?
Not all social channels will have huge amounts of activity, even if they are legitimate projects. However, it would be best to find the projects that the team members are involved in and active in. That should give you some reassurance that you will get answers to the questions you will undoubtedly have at some point.
Any Members from Trusted Communities?
This is a little more complicated than some of the other steps. However, it is something that you will thank yourself for checking. It is pretty easy to see who is following the Twitter account:
- Find their official account
- Click on the number of followers
- Check for big names, groups, etc.
Telegram is a little more challenging. You will need to look through the member list and see if you notice any names from other big groups or large numbers of people from other chats. Sometimes you will be lucky to see emojis that groups use, such as the lightning flash of Elrond.
This step is a challenge but well worth the effort. If you find staking companies, blockchains, etc., that is a good sign.
What Do Others Say About the Project?
Sometimes it is good enough to find big names in the groups; it shows they are interested. Many of the big names in crypto will not stick around if they think a project is not worth their time.
However, it is still a good idea to look through the chats, Tweets, and anything else you can find to see what people are saying about the project. Remember, though, some people will say bad things just to say them.
Anything you find, research to see if it is true.
Talk to The Team
You want the team to be there when you need them. Furthermore, you want them to be approachable. While not all team members may engage in chats, the ones who do should talk to you about your concerns.
Two of the primary things you are looking for are:
- Are they professional?
- Do They Answer Your Questions?
Different crypto projects will have different native languages, so remember that when you are talking to them. Most will use English in their main groups, a primary language in the crypto world. Therefore, you need to understand the differences in how they talk. While some of the answers may seem short or blunt, that is fine, providing they are not rude and answer honestly.
What Blockchain are They Building On?
There are currently 1054 coins listed on CoinMarketCap. Not all of them will use their own blockchains; some will have forks of a primary. However, it is fair to say that there are over 500 separate blockchains. If we presume that half of them are unusable by the public for building, we are left with ~250 blockchains to chose from.
Therefore, it is wise to ask two further questions:
- Is it a well-known blockchain?
- Are they using it because it is easy or because it helps the project?
Many projects will choose Ethereum as it is very well known. However, that doesn’t always make it good for the use-cases the project aims for.
For example, if the team is building a project that requires tens of thousands of transactions a day, ETH’s transactions per second rate will not be beneficial, whereas the Elrond blockchain can handle 15k TPS at the time of writing.
Likewise, are people willing to pay the transaction fees on the blockchain the project picked?
If the blockchain doesn’t seem a good choice, they will probably encounter issues down the line.
Any Project Partnerships?
Most of the time, you will find a list of partners on each of the project’s websites. However, it would be best if you were a little wary of people claiming partnerships with businesses because they are using them. For example, tokens built on the Ethereum blockchain are not partners with Ethereum in the same way that hosting your website on AWS doesn’t make you a partner with Amazon.
Partnerships require reciprocating deals, and you should be able to find some details on the partner website.
Do They Have a Working Product, or Are They Just Selling?
This is a difficult issue to address, but one you should try to consider.
Not all projects will have the financial ability to create a working product before sales rounds. However, although an MVP (Minimum Viable Product) is best, having detailed plans and sharing most of them is vital. I say most because there will always be things that the team wants to keep private until the official release.
Check the Roadmap
If you haven’t already, now is the time to look through the roadmap with a little more attention to detail. There are various things that you need to look for:
- How long has it taken to get where they are? – If it has taken an extraordinary amount of time to get where they are, are there reasons for it? Did they have setbacks – if so, did they deal with them well while keeping the public informed? Or are they on target?
- How long will it take to finish? – A timeframe is only an estimation. However, it is always nice to know how long it will take to finish their goals. It could be a red flag if it seems like a surprisingly long or short time to finish what they plan.
- Are there signs of progress? – Is the team making progress and, most importantly, keeping the investors updated on the progress?
- Does the roadmap match the results? – Roadmaps can change over time due to setbacks that are not always in the team’s control. However, the team should always update their roadmap to show what has changed. If they do not, it can be another red flag.
- Is the roadmap over a substantial time? – While some people may think that short roadmaps are good, the opposite may be true. Having long-term goals are always good for businesses – they show planning and thought. Even a couple of years is good enough to show that the team is considering long-term solutions.
Is There Competition?
If you know what type of project you are looking for and their problems, you should look for any competition in the same space. There will likely be others trying to do the same thing. However, take some time to analyze the competition and ask yourself some questions:
- Does anyone already solve the problem?
- Does the problem need blockchain?
- Does anyone have a stronger team?
- Do any of the teams have bigger backing?
- Are any of the other projects closer to completion?
After you have asked yourself these questions, you will better understand which project is more likely to deliver its promises. However, research should never just stop here – always have these questions in mind.
Remember to use these points alongside your technical analysis. However, it would be best to remember that not all projects you find will be listed on exchanges yet. You may well be lucky enough to find one or two that are in the start-up of something completely new and inspiring, so keep looking!