4 easy ways to tell if a cryptocurrency is worth buying
1. Is the coin a currency, utility token or security token? If the coin is linked to a specific use case, like using the coins for supply chain management, then it’s likely a utility token that would be deemed a security in many jurisdictions like the United States. Utility and security coins/tokens require their investors to go through a formalized Know Your Customer (KYC) and/or Anti-Money Laundering (AML) process and if that wasn’t done, then the coin is likely a scam or will collapse under regulatory pressure.
2. Now that we’ve determined its a currency you can legally buy and hold, are the basic fundamentals in place?
- Mission-driven experienced team
- Passable website, whitepaper, digital marketing effort. Avoid coins with a website built from this common cheap template. You’d be amazed how many there are.
- Sound core technology – either forked off a good project or developed by experience blockchain developers
- Strong community support across their online channels (Telegram, Discord, Reddit…). Are community members doing REAL work for the project?
- Compelling, unique long-term roadmap with specific market differentiators
3. So the coin looks legit and not a knock-off short-term pump and dump. Next we look at the team’s track record. Is the team shipping code or promises?
- What has the team accomplished to date? If it’s just marketing and exchange listings, you have a problem.
- How much software code has the team developed and deployed? Not including wallets.
- Are third parties developing software solutions to increase the adoption of the currency? Places to use or spendit?
- (the most important factor on this list) Has the team proven their ability to execute through adversity? This includes coin swaps, hard forks, surviving attacks.
4. Do the economics make sense? Crazy high ROI for early investors through block rewards causes unsustainable hyperinflation which inevitably leads to a collapse in the value of the currency. Imagine a digital version of the Venezuelan Bolívar. Don’t buy that currency.
If you still feel like you must own this coin because you believe in its long-term potential to displace the U.S. dollar, or even gold, and you’ll be circumventing the traditional banking systems and incumbent government-backed currencies of the World with this new coin, then go for it. But only as much as you’re willing to lose.
You’re buying into a 5-10 year pipe dream, and as long as your expectations are inline with that you’ll do great.
Here’s a fun score card that highlights some of the common pitfalls.
JD is the founder of Graphcoin, Graphcoin Labs and Beam, a platform built for the cryptocurrency community. He does not give financial advice, except for when he thinks you should NOT buy a coin and stick to real estate.
Also published on Medium.