Best Practices For Investing In Crypto Projects
The ICO frenzy is over, but that is a good thing, as mixed within that very attractive fabric there were a lot of false beads, shining hard but, in the end, worthless. So, what are a few simple guidelines - or, as the topic of our writing challenge calls them, "best practices" - for selecting a successful crypto project?
Here are just a few:
The Problem Solved
Is there any real problem solved? Or is it just mumbo jumbo about "the next best thing on the internet", or "the revolutionary token bigger than Bitcoin"? You should be able to understand exactly what the problem that project solves and then do some due diligence:
- is the problem really solved?
- is it better solved with blockchain?
- are there any other people / teams / companies working on the same problem? If yes, how's their approach comparing with this specific project?
The Underlying Token Tech
The project should be by definition tokenizable. So, suppose they got the problem solving right, let's see if their token tech is relevant for you. Here are some common question that I ask:
- is this a utility token? a security token? both?
- what's the governance mechanism? PoW tends to fade out these days and other modern algorithms are kicking in (BFT, DPoS, etc)
- what's the generation block time? Anything that goes over a minute will be obsolete soon.
- what's the access interface (wallet, producing node, etc)?
- how centralized / decentralized is the token generation and consumption?
If the answer to both the above questions is "yes", I usually move forward to the market. Here's what I ask about it:
- how big is the market now? How big was it 10 years ago and how big it is believed to be in 10 years from now?
- how crowded is the market? How many actors are at play on it?
- how's the market regulated (if it is at all)?
- and closely related to the one above: what is the regulation framework across the market and how the project tries to comply or go away from it?
This is very obvious but often left unattended. Sometimes it's a central figure announced as "being part of the board", and the rest of the people are left in the dark, sometimes there's a bunch of fake, "Mickey Mouse" like photos instead of real people, and just very seldom you can find real persons behind such a project. Here are the question I ask:
- what is the exact role of all these persons and how "real" it is?
- what are the credentials of the people in the team? can they be verified somewhere online?
- closely related to the one above: did they work together before? Did they have a history of successful / failed projects together? Note that if they have a failed project, that doesn't necessarily mean they will fail on this one too.
The Overall Presentation And Marketing Discourse
If their web page shouts "give me your money now and we'll see what we can deliver" this is a complete NO from me. Here's what other stuff that I look over too:
- is there a coherent white paper?
- is there a plausible Roadmap?
- are they focusing on communicating what they are doing, or they just want to impress you?
The Distribution of The ICO Funds
That's the last one I look over, really. But if more than 25-30% of the ICO funds are going to the team, that screams "centralization" and it has a very high probability of being just a fraud.
So, this is my (very short) list of criteria for selecting a crypto project for a potential investment - being it time as a coder or token buying.
Initially published by myself on Steemit.com.