During the past 18 months, words like Bitcoin, blockchain, ICOs, and many more have become popular household phrases. This trend was a direct consequence of the growing value of various cryptocurrencies. Now, most investors are familiar with the market and millions of beginner traders are looking to get involved. The problem, however, comes with selecting the appropriate digital coin to obtain. For example, most people know about Bitcoin as the largest cryptocurrency and essentially the industry standard that many others are compared against. What very few individuals are familiar with is the fact that there are over 1,600 so-called “altcoins”.
As Mark Dukas, a financial consultant at Bitcoin Smart Money, notices, choosing the right cryptocurrency is the most important part of the process. Such choices are often made during initial public offerings where new cryptocurrencies are presented via platforms like Ethereum. Once the buyers see a coin that they want to own, they buy tokens of it using fiat money or other crypto assets. So, how exactly can an investor properly research blockchain investments and make good purchasing decisions?
The Importance of the Whitepaper
One of the few reasons why cryptocurrencies remain heavily unregulated is due to their underlying nature. Somewhat like stocks, they gather money from large crowds of people. Unlike them, however, they do not come with any equity. Instead, the buyer simply owns tokens of the cryptocurrency and hopes to see their value increase. Unfortunately, this practice makes it hard to place fair regulations. It also removes most barriers to entry as there are no strict rules in place.
Whenever a new cryptocurrency is launched, the company behind it creates a whitepaper. In simple terms, that document is a blueprint for the venture and helps investors make a buying decision. Well, as Mark Dukas mentions, large companies are using investor’s lack of knowledge to create schemes. For instance, millions of people wanted to get involved with this market towards the end of 2017. As a consequence, dozens of new cryptocurrencies were created every day without as much as a single whitepaper.
Investors who were eager to earn Bitcoin-like returns bought tokens of the new altcoins. After a while, however, the vast majority of the ventures failed miserably and people lost millions of dollars. Thus, the very first factor that must be considered during any crowdsale investment is the whitepaper. 95% of the time, Mark Dukas says it’s better to buy Bitcoin or a coin with at least $1 Billion in market cap if you want to diversify your crypto investments.
Even if a new company has a solid whitepaper, the investor will not understand it absent basic cryptocurrency knowledge. So, one must learn about mining, blockchain-based technology, soft and hard forks, and much more. Only after the investor understands how digital coins work will they be able to compare technical factors. Consider the keywords below as a good starting point:
Wallet – In order to store private keys for one’s cryptocurrency, they must use a wallet. So, one should always look into the compatible options that will go alongside their latest altcoins.
Ledger – All cryptocurrency transactions are recorded in a public ledger where the public keys are shown. The way that privacy is maintained is via hidden keys. As expected, every investor should do a detailed overview of the ledger. Doing so will help them find potential vulnerabilities and shortcomings. It could ultimately save them from a giant loss like the one almost seen with The DAO scandal.
Regulation – Cryptocurrency laws vary from country to country. Thailand, for instance, recently passed an important regulation that solely addresses digital coins. Others, however, are usually not as proactive and the rest of the world has yet to create explicit laws. So, when buying a new coin, one should look at the country of its origin. They should also consider what they will use their coins for as there are countless tax implications involved.
Buying the Existing Coins
An easy solution to help avoid Ponzi-like schemes with ICOs is to buy existing cryptocurrencies. Just consider the fact that neither Bitcoin nor Ether, per se, are yet at their full capacity. Meaning, there will be more mining and more coins released to the market during the next few years. So, new buyers can look into purchasing options and obtain an already-proven digital coin. Such route makes it easy to sidestep any credibility landmines. It also works better when it comes to selecting exchange platforms where these assets are traded. After all, the ultimate goal is to be able to make transactions. Not to mention that most larger cryptocurrencies have a plethora of wallets to choose from while new coins might be limited.