You are probably familiar with those wild stories of people making a fortune with cryptocurrency. You may have also heard of people who have lost a lot of money as well.
The difference comes down to doing the homework. Before you put money into any digital currency or token it’s a good idea to understand exactly what you will be investing in.
You need to know exactly what you are investing in, and how it works. You also need to know if it is trustworthy.
This guide is going to break down exactly what you should check on before you buy or trade any cryptocurrency. You’re going to learn about the project that is behind the coin. The people who are tasked with running it as well as the tools that will help you check for authenticity.
Check the Project’s Purpose
Every successful cryptocurrency out there has a clear reason why it exists. Some of them make payments go a lot faster while others are focused on smart contracts or simply building new types of digital apps.
When you’re considering a project you should ask yourself, what problem does it solve, who actually needs it and is there a real product or just a big idea. You can find most of the information that you need in the project’s white paper as well as on its official website.
Be careful of any vague promises or buzzwords such as “next generation” or “revolutionary” without having solid explanations. Real projects will explain their goals in clear language and then back them up with a lot of technical detail.
If you can’t figure out exactly what the project does after reading a few paragraphs then that’s usually a warning sign that it is something that you should avoid.
Research the Team and Community
The people who are behind a crypto project really do matter just as much as the technology behind it. Look for those founders and developers who have real experience in the blockchain industry.
You also want to make sure that they have experience in software development and finance as well. Most of the legitimate teams out there will probably share their backgrounds on LinkedIn or other professional sites that will allow them.
A crypto project that is healthy will also have a very active community. They will have people talking about it on social media, contributing to open source code and joining along with online discussions.
If you see a lot of community engagement it usually means that the project has real support behind it. On the other hand if you can’t find much information about who’s running it or you don’t see a lot of conversation online think twice because transparency is always going to be key.
Verify Activity and Transactions
One of the best things about the blockchain industry is that it’s open to everyone who wants to try. You can see when your transactions are happening and how many people are using the network at any given time.
You can also see whether updates are being made. Before you invest make sure you take a few minutes to check the project on a blockchain explorer. For example, if you are looking to explore networks that use the Optimism layer-2 ecosystem, you should go ahead and use tools like an op block explorer so that you can view live data.
It will show transaction history, smart contract activity and wallet addresses as well. Seeing this kind of information is going to help you to confirm that the project is actually being used and that it is not just being promoted.
It will also build your confidence that the system works exactly as it says. If there’s new or no movement on the blockchain it is probably best to stay away from it.
Look at Market Stability and Security
Even the best crypto projects out there can be a little bit volatile. Before you invest in anything make sure you check exactly how the coin’s price has behaved over time. Look to see if it is stable or if it rises or falls drastically with every bit of news.
Extreme swings will often. suggest speculation rather than there being any kind of steady growth. Security is another major factor that you should consider.
Find out if the project’s code has been audited in any way. This should have been done by an independent firm. Strong security practices are key; you also need to have transparent bug reporting or regular updates.
This shows that the developers take their responsibilities very seriously. You should not forget to check exactly where the token is listed. Established exchanges will usually perform their own reviews before they add a new cryptocurrency. If you are only able to find it on unfamiliar trading platforms or ones that are very small then it is a sign that you need to dig a little bit deeper before you invest.
Smart Investing Starts with Patience
It can be tempting to jump very quickly when you are dealing with cryptocurrency. However, patience is one of the most valuable tools that you will possess in this arena.
The more time that you spend researching the more likely it is that you’re going to make some wise decisions. You should use trusted sources to learn how to read blockchain data. Make sure that you double check the claims that seem too good to be true. When you do a bit of careful investigation you can save yourself from some major losses along the way.
Building Confidence Before You Buy
Crypto investing doesn’t have to be a gamble in any way at all. When you know exactly what you should look for and have a credible team, strong project purpose and visible activity you will give yourself a real advantage. Combine visibility with patience as well as common sense and you are then able to invest with confidence and not fear. In the end smart crypto investing is not about chasing any trends. It’s about understanding value. You should take the time to verify, look and learn.
