The huge interest in cryptocurrencies and their tendency to make random people overnight millionaires when they’ve managed to get lucky with the right investment has drawn even more people to the scene, and there is a lot of talk about investing in up-and-coming cryptocurrencies nowadays. The process is slowly but steadily stabilizing and a regular procedure has developed for these investments, with companies typically making an Initial Coin Offering to secure funding.
And as you can expect in an environment like this, not every ICO on the market is as good as the next one. If you want to maximize your chances of getting a good return on your investment, you’ll need to spend some time carefully researching each ICO on your radar, and you’ll also need to know what warning signs to be on the lookout for.
Who is behind the project?
New cryptocurrencies come and go, and sometimes the people behind them don’t project the air of confidence you would expect from a project trying to get you on board as an investor. There are several common problems in this area, but the most common ones are that the group either has no active presence on the scene prior to their ICO, or it’s practically impossible to discover who they even are.
Both of those are bad signs for different reasons. If you can’t find out who’s running the show and can’t be sure where your money is going to end up, this should automatically set off some alarms. On the other hand, if the people behind the project are easy to identify, but they don’t seem to have been active in the cryptocurrency scene before deciding to launch their own project, this could indicate that they are not very experienced with the area.
Ideally, the new cryptocurrency should be headed by a competent team with a proven track record in other projects, or at least someone who has been actively contributing to the community. Yes, occasionally we get legitimate projects with completely unverifiable sources – the most notable example probably being Bitcoin – but the situation is different today and it calls for more suspicion.
What problem are they solving?
This is another important aspect of a good cryptocurrency nowadays. Projects are popping up all over the place, each with some unique approach to the way they’re using the cryptocurrency concept. This oversaturation of the market has made it necessary to be a bit more careful in how you’re choosing the right currencies to invest in.
Ideally, you’ll want to put your money towards something with a strong potential in both the long term and the short, a project that aims to address some real current issue. Projects like Golem are a good example of this, as the currency is tied to something more tangible than its value determined by hash computations.
There are realistically many possibilities for how cryptocurrencies and blockchain technology can be utilized, and we’re likely just seeing the tip of the iceberg with the current wave of currencies. It will be interesting to see what new projects come up and establish themselves with a fresh new concept, and you have a real chance to be on board of one of those ventures if you just choose your investments carefully.
Granted, this requires some technical savviness on your part as well, but in the end this is something you should expect when going into cryptocurrencies in the first place. If you’re not able to judge the potential technological merit of a project on your own, and you don’t have partners who can help you with that either, you’re definitely going to want to take some time off and familiarize yourself with these concepts better before spending your money in this manner.
Try to get involved in the community
Another great idea for potential investors is to try joining the discussion about the project without investing anything. New cryptocurrencies tend to generate a lot of talk online, not just by those who’ve already invested in them, but also by technologically inclined users who just like to talk about current events.
Joining these conversations can often give you a good idea of what the community is like and what goals they are pursuing, and it can also give you a more intimate glimpse of what things look like behind the scenes, if you’re dedicated enough in those conversations.
You might even be able to chat with the project owners if you’re lucky, which should give you an invaluable insight into the current status of the whole thing. But even if you don’t get that far, just observing the general tone of discussion in the community should give you a good idea of the stability and long-term potential of the project.
There’s a lot of money to be made from cryptocurrencies nowadays, and the situation is probably going to develop at a startling pace in the coming months and years. Those who know how to properly investigate the investments they’re making and know how to direct their search towards currencies that can actually work, stand to profit a lot.