With more than 12000 cryptocurrencies in Web 3.0 right now, it’s easy to get lost in projects that either seem shady to give you the heebie-jeebies or shout out red flags like pump and dumps.
No matter how many Bitcoins and Ethereums of the world come into existence, there is still a myriad of crypto projects that could burn a hole in your wallets. With shiny and exciting new projects in the market, the first question that you could ask yourself is – is it too good to be true?
Chances are, it is!
Cryptocurrency is a very young technology. Because of its lack of adaptability (at least for now), we can safely say that it hasn’t hit maturity yet. However, with each passing day, we’re inching closer to global recognition of Web 3.0 projects that run on blockchain technology.
Whether you are a seasoned investor or a beginner, being able to benefit from the web 3.0 space requires you to have a good understanding of the workaround of its technology, and most importantly, the crypto projects you come across.
This is a guide you’d need to identify a good crypto project.
The need to evaluate and assess crypto projects
With the growth and popularity of crypto globally, there is also a growth in the bad players in the market. These bad players not only convince you to buy certain existing crypto tokens but can also push their own scam projects for you to buy.
While exploring your investment opportunities, it’s natural to come across projects you haven’t heard of. What’s important, however, is to examine the project carefully to make informed investment decisions.
Putting your money into unsafe and untrusted assets could evidently lead to financial losses. Here are some ways you can evaluate a crypto project the next time you come across one.
1. Verify the quality of the white paper
A token’s white paper entails all information about a project, its utility, and its use cases. It outlines things like:
- The vision of the project
- The problem that it intends to solve
- The solutions it proposes
When you look at Bitcoin’s white paper, you realize that it’s easier to understand, explains its working methods well, and is open to everybody.
Because of its simplicity, a white paper is practically a testament to the authenticity and credibility of a token.
On the other hand, if a white paper uses obscure terms or looks like it has been deliberately drafted by a confuser machine, it’s already a major red flag – practically something you should keep yourself and your money away from.
2. Find out about the people involved
By this point, you’d already be aware of the infamous Terra Luna crash and the creator Do-Kwon backing up the project. Now imagine the same creator creating another project for you to invest in. Doesn’t make a lot of sense to invest, right? From past history to trust issues, there are a lot of reasons for you to not have faith in his future projects.
The team behind a project contributes a lot to the authenticity of the asset. One of the best ways to identify the credibility of a project is to explore what reputable projects the team has done in the past.
You can start by asking questions like
- What have they contributed to the space in the past?
- How well aware is the team of the market trends?
- What are the qualifications of this team?
Before you make an investment decision, it’s important to feel confident and comfortable in placing your faith in a team that runs a project. This simple activity can save you a lot of trouble and money in the future.
3. The current state of the project
Every new project you come across could be in a few states that range from an idea to full completion. Figuring out the current state of the project is important to feel confident in making investments.
While new projects could ‘seem’ promising and exciting, they could also be a quick cash grab. That’s how most rug pulls and pump-and-dump schemes happen in the first place.
A comprehensive assessment of a project involves figuring out its maturity, proof of concept, and verifying if it’s already running a blockchain test network,
If any technology has everything you wanted to verify, chances are they already have a community and a good product. If it is just in its initial stage with barely any investors or a community, investing a lump sum amount of money might not be a good idea after all.
4. Understanding the problem being solved
Being a new field, the entire Web 3.0 space is a place that expects advancements in the form of apps and technologies that are introduced. Every new cryptocurrency that’s introduced in the market is expected to bring something new to the table.
When Ethereum came into existence, it was built on the need for such a platform that could support smart contracts and expand blockchain technology.
In the same way, Solana, which is a blockchain technology that uses proof-of-history has a good mechanism for improved transaction speed. The internal clock on Solana allowed it to become one of the best blockchains and a great digital asset for many investors.
The more utility and use cases a cryptocurrency has, the more stability it could have in the future. This is something we witnessed a lot with Bitcoin and Ethereum over the last few years.
With so many crypto projects being introduced every now and then, it only makes sense to be on top of them and uncover as much information as possible before you decide to put your money into them.
No matter what, web 3.0 is still a very young industry that needs to be well understood. All the new assets introduced in this space could make or break your portfolio. So be wise before you pour your money into a new asset.
If you are interested in a new project, spend time understanding its long-term plan. Since your investments are usually long-term, it’s better to be prepared well in advance. And talking about being prepared, it’s important to track your own personal tax report on your crypto investments as well. And what better way than to start right here at KoinX and gather all your tax reports in a single place?