How To Identify & Analyze Crypto Fundamentals
Do you know which cryptos to invest in? There are over 1000 digital currencies available, and more appearing each day. This article will identify characteristics of good cryptos that will stand the test of time. You can hold or hodl these coins and not worry about selling them the next time people move out of altcoins and into Bitcoin, because you know you can ride out the dip and in a few weeks to a month, the price will be back where it is and possibly higher. When you believe in the underlying fundamentals of a crypto coin, you can rest easy knowing that your investment is safe.
1) Was the coin distributed fairly? What’s wrong with a pre-mine?
For a coin to have value, it must be made available to the public. There are a number of ways to distribute a brand new crypto currency. The most important thing to check here is whether or not the coin was pre-mined. Generally the crypto community frowns on this on any level.
You may be asking “What is a pre-mined coin” or “Are there risks with premined cryptos”, so let’s explore. When a developer creates a new crypto currency, they have a decision to make before they release to the public. They can start the ‘genesis block‘ (first block of a new blockchain) behind ‘closed doors’, and reserve any number of coins to keep for themselves. This is generally a bad thing, however there have been many successful crypto currencies that are 100% premined, such as Ripple and NEM.
Pros and cons of premined altcoins
2) Does the coin serve a unique purpose or utility?
For a coin to have lasting value you must look at the underlying technology and make your own decisions whether you think there exists a lasting reason to use it. Bitcoin pioneered the industry, is the reserve crypto currency, and earns crypto dividends though forks and air drops. Ethereum is a platform for ICOs. Of all privacy coins, Monero is said to have had the fairest launch. These are examples that will keep people coming back time and time again. There are countless ‘me-too’ coins. Just look at Litecoin. It is literally an exact copy of Bitcoin with a slightly faster block time. However you can see that even though it was a copy, being the first copy, and a fairly distributed copy, has helped launch the project into world-wide adoption.
3) Is there a good team? Is the code open source and active on Github?
It’s best to only invest in coins which are open source. This means anyone can look up how the underlying technology works. Thus technical users can verify that there is a minimal chance of scams, or any nefarious possibilities. Plus, this usually encourages community support so any developer can help fix bugs and offer general project support. The other benefit here is that anyone can look at recent ‘commits’ to see how often the code base is updated. The more the better!
There is another important factor to consider here, and that is team viability if laws change. As of , Crypto currencies are not yet outlawed in most jurisdictions. However if governments ever feel threatened, after they outlaw them they could try to go after individual projects to take down one by one. Since Bitcoin is community driven and has no central leadership, it will live on as long as the internet is available. However other centralized coins like Ripple or Factom could possibly be taken down with a court order. Hopefully things will never come to this, but it’s best to explore all contingencies.
4) Will holding (hodling) provide crypto dividends?
If you ask, “what are crypto dividends?”, they are ways of obtaining additional value by simply holding a crypto in a private wallet. Proof of stake (POS) coins are one type of crypto dividend. These allow the holder to earn rewards by helping to secure the network and process transactions. Other types of dividends include air drops and forks. This is when a developer distributes a new currency that existing users can claim by proving they were holding a wallet at a specific time. Everyone likes free money, and you should too!
5) Other market forces: Price, Volume, Demand, Adoption
If the overall market capitalization of a crypto is growing, that’s great! It means that more and more people are buying into it, and the price is going up as a result. This might also mean that the inflation rate of the coin is low or zero, so the demand for the coin will grow. This can also be confirmation that the other market factors are in place, but it’s best to do your own research.
Let’s hear from you!
What are some things you look for before you buy in to a new crypto currency? Are there some things you look for that we missed? Let us know in the comments!