The Sacred Laws of Cryptocurrency Due Diligence

I need to tell you something. Something really important. The Crypto Space is the Wild West. It's a relatively new asset class, being just barely over ten years old. It's also an asset class that maintains decentralization and anonymity as the main priorities and its main reason for existing. There are a lot of altcoin projects out there that are well meaning, innovative ventures. There are also incredibly dishonest and shady things out there too.

The bottom line: In order to keep your money and potentially make more, you need to do your due diligence like some sort of... due diligence master. If not, you're the next sucker and become just another figure on the ledger of folks that have inadvertently contributed to the declining reputability of the entire space.

That sounds scary. But it's okay, because I'm gonna give you a few pointers on how to research your pet Crypto, and how to do it with confidence.

Don't Listen to Me.

Okay, listen to me for a moment. what I mean here is that on the Interwebs, everyone and their mom has an opinion. If you go on the Twitter space or Instagram or whatever, people are gonna tell you about how XRP is the best damn thing since sliced bread, while the next person is gonna tell you how it's crap and that it's gonna go down the sh*tter next month because of reasons. In any case, everybody knows that TRON is the best out there anyway.

See what I mean? The point is that if you're gonna base your opinion on other opinions, you're gonna come up against some cognitive dissonance. Look for FACTS and RELIABLE INFORMATION. Suss out the standards, and compare them to the facts and reliable information. That easy.

Then, when you're done with that, you can go ahead and spout your opinion all over the web. Kinda like I do. It's actually great fun, I recommend it. Especially here.

What Does the Tech Look Like?

If you haven't noticed already, Cryptocurrency is all about the technology. In fact, Crypto wouldn't be possible without it. YOu might hear me say it time and time again, and I don't mean it in a pejorative way: Crypto is Magical Internet Money. And as Arthur C. Clarke has told us, any sufficiently advanced technology is indistinguishable from magic.

Blockchain technology and the myriad concepts around it are incredibly new. You need to know your basics, and then be able to apply those basics to the assessment of your candidate project. Is it a PoW like Bitcoin? Is it a fork? Is it based on a proof of stake mechanism? Know your terms, read the Technical White Paper, and be able to tell someone who has never heard of it what type of blockchain technology they use. Furthermore, is it a viable technology? Very important.

Also, Do they have a nice wallet? The wallet is where you will store any of the asset you receive from them. Do they have a decent one? Are they updating it?

If a crypto project doesn't have that sort of stuff immediately available, be wary.

What Use Cases are They Proposing?

This is a big one, perhaps the biggest one depending on who you talk to. What is the crypto foundation/company/whatever trying to solve, and how are they gonna apply their solution and ensure a wide adoption? Also, how many other well accomplished competitors are there that are trying to solve the same problem? If your target project is dedicated to bringing a tokenized, decentralized solution to the underwater basket weaving industry in the Sahara, you're probably looking at something that's either not gonna grow or become obsolete. Ain't no good.

The best case scenario is that your target project has a really good solution to a common problem, has little competition, and has a solid plan for expansion and adoption, you might be on the right track.

What Do the Financials Look Like?

This is an important question that covers quite a bit, but I can break it down to three major components: coin supply, availability on exchanges, and Daily Volume.

Coin supply will make up a big piece of the future value pie. What I mean is that if you have a coin that has 300 Trillion coins, it's possible that unless we become an interstellar civilization with a trillions of people, this might not be something that has a sufficient amount of scarcity to drive demand - and prices. Depending on the amount, you might find that this is a longer term investment strategy. But, take note: perhaps they have methods of deflation that burn a particular amount of tokens every so often, or some other process that drives demand. Look into that, and if you have followed these steps in order, you probably already have. A good whitepaper has all the technicals necessary to help you understand the ins and outs of how they expect the economic model of their currency to function.

Coin exchange adoption is another big one. More broadly, this is a question of besides mining, PoS, Nodes, Etc. how are people obtaining this coin for investment purposes, speculation or usage? A big indicator is exchange availability. Furthermore, if the coin is already being traded, what is its volume? A high volume would indicate popularity, and it would also indicate a nice steady system of In-Flows and Out-Flows. This is crucial to the appreciation of the asset, since if there's not activity on exchanges, chances are it is so new that people haven't learned about it, or there is something wrong going on here. That takes us to our last point:

What Does Their Team/Community Look Like?

This is important. Does their team consist of a couple code monkeys in a basement, whose server goes offline every time the Lead Dev's mom answers the telephone? Or do they have a well qualified team that consists of crack Developers, maybe even some vets from reputable Crypto projects. And an office. What did their fund raising look like? Are they communicative? Can you learn more about the project by tweeting or contacting the via email?

By the way... Do they have a robust online presence? Things to look for is a Website, a Facebook Page/ Twitter account, Telegram, Discord, Youtube, etc. These things indicate not only an outlet for promotion, but also a desire to reach out to their community and prospective investors. If they don't have any of this or are otherwise uncommunicative, this is a red flag. Communication is key in many facets of life, so too in new crypto projects. This also extends to the community; are there people who are interested in "XCoin" and are looking to learn more, invest, and talk about it with others?

A really good indication of competence is simple English. Not to disparage any of you that have English as a second language, it's just that good copy and good writing implies revision. This implies care and it can make or break the way someone - especially in the United States - might perceive the project. I have seen several projects that have been nearly impossible to read. Tron had a similar issue with this in its early days; Western adoption was damn near out of the question because their whitepaper was exclusively in Chinese. That was an issue for some of the early investigators who would have otherwise taken on learning more about the project.

What do They Promise Their Backers?

Oh man, this is important. If people are staking a portion of their ownership in the project, are they being promised unrealistic or otherwise unsustainable returns? There's two options: either they are relying upon some fundamentally new technology that makes such returns feasible, or they are simply a Ponzi Scheme or something similar. If it sound too good to be true, it is. That's the bottom line here. There's little wiggle room for that.

Another thing unrelated to outright fraud is their Roadmap. Are they staying true to their predicted timeline and goals? This is a great indicator of dedication and a measure of how realistic the team is.

The Last Word on The Matter:

In Crypto, there is a common piece of advice: Do Not Trust: Verify. I cannot stress this enough to my readers. Our money is hard won, there are many great projects who deserve our investment money, and too many bad eggs that pop up in the infancy of this new space. But it's okay! With proper research - and investing only that which you can afford to lose - Cryptocurrency investing can be a fun and profitable venture.

For those of you who follow me, I'm hoping to stretch out a bit and write more stuff up. I wanna break into doing more things like using a new product or service, and telling you guys what I think of it. This is fun for me and hopefully informative for you too.

This was originally my post published On Publish0x and I figured it was so well received there, I might go ahead and try it out here.