Investing has been a part of human financial activities for quite a long time now, and it is still running strong in the global ecosystem. Before putting in your hard-earned money into something potentially profitable for income generation, it is important to understand the ins and outs, plus the true intentions behind the target project or currency that you are going to choose.
In this day of age, digital currencies have started to show a huge rise in popularity with multiple use cases, so it is equally important to understand the characteristics of those currencies before making a formal decision. In terms of cryptocurrencies, there are some key points that need to be understood and kept in mind before investing into them. It does not matter if your inexperienced and are looking to contribute towards new beneficial projects or are fully aware of the market and want to increase your reach, understanding the basis of an evaluation structure or framework is necessary to make the best possible decisions.
There are some aspects of a project that includes its vision, tokenomics, white paper, use cases, direction and many others are to be understood clearly, which will help to make better decisions for investments.
We will now move further in detail about evaluating cryptocurrency-based projects for investment strategies.
Evaluating a crypto-powered project
At the time of technical analyses of a certain project that you are interested in, as mentioned above, the key thing is to recognize and understand the aspects and characteristics of a project, which will provide a much clear pathway towards a formal decision for investing. One important thing to note is that you should always keep your emotions out of financial decisions, since it can lead to the possibility of unforeseen losses. Instead maintain focus towards the facts, figures and analysis you have performed, which will not only guide you to the right direction but will also help you gain something out of an investment.
Below are some of the aspects that are required to be highlighted.
- Problem Statement:
In this aspect, it is important to understand the type of issue that the project is trying to resolve, tackle or mitigate. Identifying the project’s main purpose is very important, which gives a much clearer background towards the original intention behind the origin of the project. Projects without a clear goal or problem statement, can often be highlighted as vague and suspicious, so they must be carefully examined.
- Effectiveness of the Project Plan:
This aspect carries equal importance, because a project plan is something that must be clearly defined, well organized and fully structured, highlighting what stages are to be developed at what time of the life cycle. Following a plan is quite crucial for the success of a project, since it not only saves time, but also money, as each individual participating in the development of the project has a clear understanding of what they are supposed to do and at what time they must perform their tasks.
Without a proper project plan, there will be no structural direction for the project, and nobody will understand their duties and responsibilities regarding the project’s development cycle, in term spreading confusion and chaos and eventually leading towards a major downfall.
- Knowledge and Expertise of the Development Team:
Besides other aspects, investors must also learn if the team behind the development of a project has the proper experience and is fully capable of the development of a cryptocurrency-based project. Because cryptocurrencies are still seen by many as a developing currency, crypto-powered projects are quite challenging to develop and require the best to achieve completion.
Knowing about the backgrounds and experience levels can provide a sort of clear idea about the capabilities of the team, and if the team is more than capable enough to successfully finish a project, then investors gain some confidence and satisfaction, having peace in mind that the project that they are planning to invest in, is certainly in good hands.
- Usage of latest and secure technologies
Investors must also make sure that the project they are looking forward to is utilizing the latest technological components and aspects to ensure the project is in line with others as well. Additionally, using the latest tech also ensures that the security levels of the project are good, and it utilizes the latest security protocols to keep not only user data safe, but also to protect its core components and systems.
Using the latest technologies also contributes towards a project’s interoperability levels. The better the technology used by the project, the more compatible it becomes with other projects in the space, leading to collaborations that can be beneficial in the long term.
These aspects are only a small portion of what is needed to be discovered by an investor towards a project and there are many other technical aspects which we will be looking into in much better detail as we move forward, providing you a clear understanding of the project evaluation structure. By the end of this article, you should likely have a broader picture of cryptocurrency projects to investigate, help you to make a profitable investment. Note that there are many bad players in basically ever industry including the cryptocurrency one, so please make sure to perform the proper research and study before putting money on projects.
Different ways of doing research on crypto projects
There are a few different methods of researching the capabilities, the motive and potential of projects powered by cryptocurrencies. Below methods mentioned are mostly platform based, however here can by many other research methods which might take a larger amount of time to understand and implement.
There are several platforms that are dedicated towards helping investors in searching for potentially viable cryptocurrency projects. Mostly recognized as, initial exchange offering (IEO) platforms, these types of platforms provide information and potential outcomes of cryptocurrency projects that are based on a new and unique ideas and problem statements to develop upon. Examples of top IEO platforms according to cryptonews.com include, Binance Launchpad, Ok Jumpstart, Gate.io Startup, KuCoin Spotlight, Huobi Prime and Bittrex. There are many other platforms as well, but these mentioned above are very popular for their work and are preferred by many.
In addition to IEO platforms, also present in the crypto space are initial coin offerings (ICOs). In basic terms, ICOs are operations that focus on collecting funds for cryptocurrency and blockchain projects. The thing to keep in mind is that, since ICOs are not organized and well-defined platforms, they are often seen to carry more risk in comparison to IEOs. This is generally because ICOs are usually present on the crypto project’s official website, so they are quite venerable to attacks from hackers, exploiters or can even give new opportunities for fraudulent and scamming activities to take place.
Because IEOs are properly defined on exchange platforms, having a proper structure and motive behind them, they are more likely to be trusted because of their security levels. Taking more about security levels in IEO platforms, any cryptocurrency startup project looking to register themselves on the IEO platforms are required to be a part of a sort of screening process, before they become eligible to host operations, which means that they are fully checked and monitored on the platform, providing a sense of assurance to an investor.
But despite its very secure and structured mechanism, you as an investor should perform your own research in conjunction, instead of putting your full trust on platforms, because it is still possible that even after going through the screening process, there is not telling the true and original intention behind a certain project, which has the chances of being either beneficial or harmful for investors. Performing your own research will indeed provide a much clearer view projects that can be invested upon for futuristic benefits.
Major aspects of cryptocurrency project evaluation
As mentioned previously, aspects of project evaluation are required to be fully understood by an investor to make the correct decisions and ensure beneficial returns. These are some of the principal aspects that need to be carefully investigated when evaluating a cryptocurrency powered project.
Project foresight
During the process of evaluation, an investor must carefully learn the foresight of the project to have a clearer picture on what the project is trying to achieve and what it will achieve in the coming times. The cryptocurrency space has a thing called a “vaporwave” which includes projects that are quite attractive from the front and look to be very impressive, however there is a different story on the backend, where the project is struggling to take a stand and develop a core structure.
Investors should be vigilant of such kinds of projects that look impressive from the front but lack a proper plan or organized foundation behind them to provide the necessary power to launch. There are tons of new and unique projects that show up in the space, however only some of them are practically eligible for real-time application.
Project environment and team expertise
The people involved in the development of a crypto project are very important to analyze and study. The projects success depends upon the capabilities of the development team behind it, so there is a significant importance to them. There are a few things to watch out in a development team.
Firstly, the overall level of experience of the team, highlighting their experience of working with cryptocurrency projects. Secondly, their time and level of understanding of the overall crypto space, which helps them to understand different scenarios to tackle. And lastly, to check if the team members are compatible with each other and work in a coordinated manner, respecting each other’s characteristics.
These three details can clearly highlight if the people working on the development of the project are going to be able to successfully complete and launch the project into the cryptocurrency space.
White paper grade level
A white paper is basically as formalized piece of document that generally mentions all the necessary details behind the project, which includes the foresight, the problem statement, solution implementation, the economics and many other areas.
A white paper with immaculate quality should be written in a professional manner, while its contents being easy to read and understand for investors and other entities. Without going into the most technical details, the white paper should clearly define the problem statement, what solution the development team has conjured and how they will implement that solution.
In the case of a white paper being too long, technical and not making things clear, it becomes quite difficult for investors and other entities to understand the motive behind the project, so investors are less likely to put more of their time and effort into studying the project.
White papers can sometimes be a bit lengthy, so the alternative to that are project litepapers, which is basically a shorter version of white papers, but are made to provide the information that is most effective and easy to read.
Target market and use cases
While analyzing projects, investors should have an idea of the target market that the project is looking to go for, finding out whether that target market needs that project or not. To better understand this, we take the example that if a certain project is proposing a problem statement that has no use in that target market or has already been resolved, then there will no use of powering such a project in the cryptocurrency space.
Alongside that, it is also important to know about the use cases of the project. As an example, if a certain project is targeting a very niche market, then it means that the overall scope and vision of that project is very limited, meaning that it might not be beneficial in the long term for any investor.
Understanding tokenomics
In basic terms, tokenomics involves studying the entire economical structure behind a certain cryptocurrency token, mainly to describe its core value and usefulness in the market. Taking an example of a token, if that token will mainly be used as a method of payment, then it means that is price and worth will change in conjunction with the market.
However, if the token is going to be used inside of much more complex solution like a decentralized application (dApp), then its tokenomics will obviously be more sophisticated, however its valuation will be much more robust and have a good standing ground. Investors can study the tokenomics of a project to paint a picture of the potential value that the project carries.
Spectrum for growth
If a project must flourish in the long term, it is important that its valuation grows with the passage of time. To ensure that, a project must have an experienced and well-equipped development team, a clear pathway and strong tokenomics to tackle challenges and keep itself maintained for future scenarios.
The solution
In reference to the point on target market, investors must make sure that the project they are planning to invest in is effectively providing a solution to a problem that has not been dealt with. Without a solution, there is no point of investing in a project.
Community support
Having a strong community behind a project, who are interested in its successful can be extremely beneficial. The better the community, the better the chances of success. Looking at the example of Bitcoin, its improvements are powered by its community via Bitcoin improvement proposals, in which capable members of its community can suggest improvements for Bitcoin’s systems, ensuring that it stays alive and relevant as time passes by.
Project platform
Another thing to watch out for is the background technology that the project is being build over. Different platforms are powered by different technologies, each of them having a set of benefits and downsides. So, learning about the project’s background platform technology is very important, as it may sometimes decide the project’s status.
Project transparency levels
Transparency is basically the level of information that is publicly available. The more the transparency, the more information is available to the public. Not only that, having transparency can also provide a way for developers to update investors and other entities about the status of a project. Some projects are not keen on being transparent, so finding out their progress levels can be quite a challenging and tedious process. Investors should find projects that provide better transparency.
Overall direction
The direction of the project should highlight its business plan, while also providing clarity on how the development team is planning to implement a solution. A solid roadmap is carefully developed, with clearly defined milestones for the team to fulfil for the success of the project. This directional roadmap should also be updated according to the status of the project. In the case of a roadmap being vague and outdated, it can signify that a certain project’s development cycle is troubled and should be avoided.
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