Find the whitepaper
A whitepaper is a document that outlines a project's purpose, vision, and philosophy. Whitepapers for crypto ventures are generally published alongside the project's launch to attract investors. These include detailed statistics, graphs, and algorithms describing the resources and technology used through various technical analyses.
A whitepaper’s primary purpose is to illustrate a project's fundamentals and explain how it can benefit potential investors. A solid whitepaper will have specific qualities, outlining things such as:
Project’s purpose
Each whitepaper has a purpose for being written. This is usually present in the abstract, which summarizes the whitepaper's underlying philosophy and helps you comprehend the problem the whitepaper is attempting to address. The whitepaper will also outline how its solution differs from existing ones.
Utility
This is a crucial component of any whitepaper and the project it represents. Many crypto projects today are utilitarian and not simply used as a medium of exchange. Some coins are used as native fuel to power a blockchain—like Ethereum (ETH)—while others are NFTs that provide proof of ownership.
In short, many distinct utility tokens serve a wide range of use cases. Some coins may seem more valuable than others. If you find yourself gravitating toward the practical nature of one coin, it could be the one for you to invest in.
Supply
It's important to check a cryptocurrency's circulating supply before investing in it. Some cryptocurrencies, like Bitcoin (BTC), have a fixed supply of coins, which makes them scarce and increases their value. In contrast, other cryptocurrencies have an infinite supply, making them less valuable. It's also important to check whether the supply is already completely mined or is yet to be mined.
The difference between a cryptocurrency's future supply and its current circulating supply shouldn’t be too significant. This indicates a greater pre-mine supply. Such currencies may end up having an excessive amount of coins, and most of these projects are usually scams.
How it works
Some whitepapers can become too technical and detailed for the average consumer. Investors might have money to spend but not have the technical know-how that the whitepaper's author (or authors) did. As a result, it's important to look for a whitepaper that simplifies a project’s technical aspects and explains its working in a simplified manner. A well-written whitepaper will allow you to grasp the project's overall scope without obsessing over the minute details.
Timeline
A comprehensive whitepaper will outline the project's timeline for the foreseeable future. It should contain information such as the token's launch date, an initial coin offering (if there’s one), and the length of the sale. A precise working plan can reveal the creator's vision and judgment and helps investors plan.
Look for the project’s activity
An inactive cryptocurrency venture may be discontinued or fraudulent, although that doesn't mean all active projects are reliable. Even if a cryptocurrency is listed on a crypto exchange, it's still important to check the activity surrounding it.
Here are a few things you can look for to check a project’s activity:
Social media activity
Check if the crypto project has active social media handles on platforms like Instagram, Twitter, LinkedIn, etc. These handles should link to the company's official website, which should be updated regularly, and have routinely published content. This does not immediately mean the project is strong, as many scammers attract users via social media.
Community activity
Many cryptocurrencies have dedicated communities with the coin's enthusiasts. Community participation is a positive indicator of a well-functioning project. You'll often find these communities on Reddit, Discord, Telegram, Slack, etc. Again, some scam projects have a large amount of community activity, but a project without any is likely a red flag.
Developer activity
Cryptocurrency ventures—especially new ones—will often have developer communities who discuss the latest and greatest in programming, coding, and software development.
Cryptocurrencies work on a concept called decentralization, which means they function without the oversight of a regulatory body like a bank or a government. Decentralized digital assets are open-sourced and have online repositories like GitHub, where developers gather and exchange data and ideas. A bustling project will have plenty of developer activity. The absence of such activity could be a worrying sign.
Trading activity
Trading activity is one of the most critical factors for any financial asset. Successful cryptocurrencies have plenty of trading volume on various crypto exchanges. It shows that many people are interested and want to stay involved. This keeps the cryptocurrency relevant and helps maintain its value. A larger trading volume indicates higher stability and liquidity.
Is the project transparent?
Creators of a legitimate crypto project will remain transparent and keep themselves accountable. Alongside a whitepaper, creators should share enough information with investors so that they can make the right decisions. There should also be a forum or interactive panel where investors can raise concerns or ask questions and expect prompt replies. This helps to know the developers' identities and the people behind the project, enabling investors to gauge their experience, expertise, and track record. Reputed names usually launch legitimate projects and have pre-existing community support.
Comprehensive projects will share detailed analyses and statistics on their cryptocurrency and its corresponding blockchain. For example, a blog with detailed articles that outline the blockchain's consensus mechanism, hash rate, data transaction capacity, block height, circulating supply, transactions per second, price, and more.
Check your sources
Unfortunately, the internet holds a significant amount of false information on crypto. However, familiarizing yourself with the crypto market through proper research can help you filter fabricated information from the truth. As a result, it’s essential to check your sources for their legitimacy. Here are a couple of questions to help you do this:
Is the site properly edited?
Many established project websites have a dedicated blog with articles offering more information on the native cryptocurrency and other cryptos. Besides this, check the website’s overall language and grammar. Is the interface easy to use? Is the content easy to understand? Is the website transparent about the information and the author?
How biased is the information they’re presenting?
A company needs to be aware of its strengths and shortcomings. If it’s presenting information on its cryptocurrency, it should be from a neutral point of view that weighs the benefits and risks before making an assessment.
A reliable company will cover these aspects on its website to make the reader’s journey easier while reliably informing them of relevant crypto topics. If you find these aspects lacking, it could be a red flag.
If you're looking to invest in cryptocurrency, you must create your own premise and be aware of your financial objectives and risk tolerance. With practice, you'll be confident enough to know where to invest wisely.
Wrapping up
It’s important to look at a few things when researching crypto. Reading the whitepaper, checking the project’s online presence, and assessing its transparency are some good places to start. It’s always a great idea to double-check every project you find interesting; you never know what you’ll find! Remember, crypto is a volatile digital asset, so do your research and choose wisely before investing.
If you’re new to cryptocurrency, you can get in touch with more experienced crypto community members and ask them for their thoughts and experiences regarding various cryptocurrencies and the general crypto ecosystem. But make sure you can trust them first!
One company you can trust is Worldcoin. We’re a new company that aims to offer complete transparency to our users, so you don’t have to worry about your privacy. We also aim to give each individual on the planet a free share of our cryptocurrency. Subscribe to our blog to stay updated on all the latest news on the world of cryptocurrency.
