Before investing your hard-earned money in any asset class , figuring out whether it's a good idea or not should be your first priority.

Cryptocurrency is no exception. Though cryptocurrencies can provide a high return on investment in the short term, they are still a relatively new and unregulated asset class. They are subject to dramatic market fluctuations and are highly volatile.

To avoid getting caught up in the hype of cryptocurrencies and investing more than you feel comfortable losing, it's essential to do your homework first. Even if you're only considering investing in one or two coins, it's worth your time to read up on them.

In this article, we'll take a look at some of the most popular ways of conducting cryptocurrency research so that you can make an informed decision about which currencies - if any - might be right for you.

1. The Crypto White Paper

The white paper is the foundation of any crypto project. It's a document that explains what the team is trying to build, how they're going to do it, why it matters, and why their token has value. The white paper is also likely to include details like the project's pre-mining status and ICO. Most importantly, it should include detail on the team's roadmap for development. This can help you understand whether the project has adequate time and a plan for completion.

What you're looking for in a whitepaper is not just the information but also the tone. A long, verbose whitepaper and full of jargon may indicate an overly complicated project. On the other hand, if it's brief and shallow-sounding, maybe there isn't much to it either.

A good whitepaper will be neither too long nor too short and neither overdone nor underdone.

If a project doesn't have a white paper or an incomplete one, you probably shouldn't invest because it suggests that there isn't enough thought behind the project to be successful.

2. Social media

Social media presence is important. If an ICO is actively followed by users on social media and has a lot of engagement, it's usually a positive sign. Social channels are excellent ways to find out about any issues investors face with the project or its team members and how the company responds to them.

The most important thing is that if you see some weird stuff or no response to your questions posted on social media channels, it's a bad sign.

Facebook, Twitter, and any other social media platform can be an excellent source of information when evaluating a cryptocurrency.

Some things to look out for include:

  • The number of followers or subscribers a currency or its developers have. More followers usually mean more popularity, which can increase the value of a currency.
  • How active the developers are on social media. Active developers who are willing to answer questions and engage with users are always a good sign. In contrast, developers who never seem to be around may indicate that they're not working on their project or don't care about their community.
  • General sentiment toward a specific coin or project. You can also see how people feel about a particular coin by looking at social media posts about it - especially posts from people who have experience with cryptocurrencies and blockchain technology.

3. Check the Crypto GitHub activity

GitHub is a website that hosts tens of millions of repositories for software projects of all kinds - open-source, closed-source, and everything in between.

Every cryptocurrency has a GitHub repository where developers post updates and fix bugs or other issues. In addition, there may be several other repositories related to the project in one way or another.

The most important factor is to see whether the main repository has had recent activity. If so, that's a good sign that development is continuing on the project. If not, that might mean that it's been left in the dust by newer cryptocurrencies with more active development communities.

4. Crypto distribution and development planning

Find out how many tokens will be generated before the ICO is over. As an investor, this will give you an idea of ​​how many tokens the team is willing to sell out. It will also help you determine the value of your investment. If the distribution is not well-planned and too many tokens are created, the price might drop due to an oversupply.

A common token plan has three parts: private investors / institutions (typically around 50% of all tokens), pre-sale investments (usually about 40% of all tokens), and the actual ICO (only 10% -20% of all tokens ).

In addition to this, figure out how much money the team is looking for when doing their ICO. While this may not be important, it's crucial to know whether or not they have enough funding from private investors to make their project a reality. Do they need $ 500K? $ 5 Million? Or $ 50 Million? If they don't have enough money from private investors to build their product, they may not have enough funding to complete their product on time (or at all).

5. Token use cases and utility

Token use cases: Many of the most popular cryptocurrencies have specific use cases that make them valuable beyond their investment potential. For example, Bitcoin's fixed supply makes it an attractive store of value or hedge against inflation, while Ethereum's smart contracts allow developers to build decentralized applications on top of its network. These use cases can be important when choosing which coins you should invest in.

Utility: Just as some cryptocurrencies are designed for specific use cases, others may have different levels of utility. It's important to understand how a coin is used within its ecosystem and its limitations. For example, a coin might be used as a medium of exchange for buying things in a given ecosystem, or it could serve as collateral for a loan.

6. Crypto Supply, volume, and market cap

Supply: There are a finite number of each cryptocurrency available, unlike publicly-traded stocks that can issue more shares if they need more money. Markets will typically react strongly when a new token is announced, so it's important to understand how many new tokens will be available to the public and how much of the existing supply is already owned by large investors or developers.

Market Cap: Market cap tells investors whether or not a coin has growth potential. If the market cap is high, it means that the coin has established itself as a reliable investment. If it's low, that means that there's room for growth.

A quick Google search can show you each coin's market cap on any given day. The higher the market cap, the better off you are.

Volume: Volume tells you how much a coin trades in a specified time (usually 24 hours). The higher the coin trade volume, the more liquidity there is, and the less volatile prices will be. You'll want to look for a high trading volume, as this indicates a healthy market for that coin, but this isn't always feasible. If the crypto has a low trading volume, that can be because it's a new or emerging currency and hasn't yet found its audience, but it could also be that there are serious problems with that currency, and people don't feel safe investing in it.

7. Crypto Community 

Another vital component of a cryptocurrency's appeal is the degree of community involvement. If there are active forums, blogs, and other platforms where people talk about the coin and its use, that's a good sign that the coin has an engaged user base. That can be important for two reasons.

One is that it's a sign that the coin's developers are still actively developing and improving it. When a coin stop being updated, it quickly becomes vulnerable to attacks, which can cause its value to decline rapidly.

The other reason is that an engaged user base can significantly impact the value of a coin. As people talk about it and more join in, they're also buying more coins and driving up the price. This effect - known as the network effect - can be self-reinforcing if users buy into a cryptocurrency because they see many others using it and want to join in on what seems like a potentially lucrative investment.

8. Check the Crypto on CoinMarketCap for its “Developer” section

This is where you can see if the coin has any development activity. The Developer section on CoinMarketCap shows how active the developers are with the code and how often they update the software.

CoinMarketCap also provides information about each project's GitHub repository and an indicator of their social presence (at least on Twitter).

If there isn't much information about the developers and their backgrounds, that is a red flag.

9. Does the Crypto have real-world applications?

The first thing you want to look into is whether the cryptocurrency has real-world applications. If the coin or token isn't solving any real problems, you should probably avoid it. Every cryptocurrency needs to have some kind of useful application that will give it inherent value in the real world. The best way to gauge this is by looking at how the coin or token is being used today and whether anyone has adopted it as a payment method.

An excellent example of this is Ripple (XRP) . This cryptocurrency helps banks settle international payments faster and more efficiently than current methods. Banks worldwide are currently adopting Ripple as their preferred method for international transactions. This trend will increase in the coming months.

10. Check the blockchain address

Make sure there are no typos. The company may put this address on its website, but it's best to check directly on the blockchain (you can use an online blockchain explorer like etherscan.io ). Double-check that the website domain matches the domain in the smart contract code (this protects against typosquatting).

Then, look at how many wallets have contributed to the ICO compared to how much they raised. (You can find this in a project's summary tab on etherscan.) If there are too few wallets contributing too much money, that could indicate that someone is trying to artificially inflate their funding goal by sending money from fake or bot accounts.

Conclusion

There are many different coins out there to choose from. But here's the bottom line: if you're going to invest in cryptocurrency, do your research. Put in the time and effort at first to educate yourself on what it is and how it works, and you'll get much further down the road.

Hopefully, this guide has shared some pointers on where to start. Good luck!