The rapid growth of the cryptocurrency landscape eclipses even the Internet’s adoption decades earlier, maturing from stable coins and Over-the-counter (OTC) exchange platforms to AI cryptocurrencies and robust crypto wallet development. Cryptocurrency ownership has doubled in the last three years, with billions of dollars in transactions now taking place in this innovative sector. Furthermore, the speed and relative anonymity surrounding cryptocurrencies have led to skepticism as a persistent phenomenon, with numerous individuals raising concerns about the legitimacy of recently developed coins, as they are not backed by such ample history as ETH/BTC.
Research estimates that there could be anywhere from 100 cryptocurrency tokens created each day. Unlike Bitcoin, which has a long history as a means of making payments to numerous individuals worldwide, these coins are surrounded by inquiries of their akin to fraud, surging the need for elaborate assessment and analysis. By learning how to examine a cryptocurrency properly, you can make more informed investment decisions, safeguarding yourself from malicious actors that are increasingly leveraging crypto for fraudulent schemes. Let’s see what you can do for a seamless experience!
Read the white paper
Along with the launch of a new blockchain or cryptocurrency, you’ll be hearing a lot of the word “whitepaper,” for it serves as an explanation that responds to any inquiries people might have regarding the project’s technology and purpose. A legitimate cryptocurrency white paper should be consistent, featuring at the beginning a brief overview that encapsulates the general idea of its context and aims. If reading this overview leaves you with unclarified questions, you may want to doubt the source of this information. Scammers generally do not expect customers to analyze their white paper using buzzwords from ChatGPT rather than offering a realistic plan for the future. If you ever encounter promises of unfeasible returns such as “Get rich in no time,” you should know legit cryptocurrency projects generally have humble beginnings and would never sell you with fake deals or too-good-to-be-true advantages.
Moreover, you should consider the members and developers behind the project as factors of paramount importance when determining whether a coin is legitimate or not. Inconsistencies between details provided in the whitepaper and data available online could be a sign of a scam or a controversial lack of transparency. Generally, networks with members you have already heard of because of their involvement in other successful cryptocurrencies are trustworthy, sparing you from anxious concerns and hesitation.
Overall, the red flags of cryptocurrency whitepapers include unrealistic goals, aggressive marketing, vagueness, and poor language.
Pull the market metrics
Key factors to consider when pulling the market metrics of a cryptocurrency:
- Market capitalisation refers to the total value of coins and tokens generated for a specific cryptocurrency. To calculate it, you have to multiply the current price of the coin by the number of coins currently in circulation. In the analysis of a cryptocurrency, market cap determines the perception of value, indicating whether there is strong buying support or weak interest. Consequently, larger market limits encourage liquidity, while a lower market value generally leads to barriers to entering the project.
- Trading volume establishes market health and sentiment, reflecting the current level of buying and selling activities. It is insightful for determining a cryptocurrency’s liquidity and stability and serves as a fundamental tool for confirming trends and understanding market sentiment.
- Circulating supply is a key factor in shaping the price and market behavior of a cryptocurrency, influencing value, stability, scarcity, and even trust. For instance, cryptocurrencies with capped supplies, such as Bitcoin, are interpreted as more valuable, leading to heightened demand and potentially higher prices.
Explore the use cases
Use cases are crucial for crypto projects as they offer you a snapshot of your current and future operations, capturing requirements and functions while visualising the interaction between you and the system. The whole point of cryptocurrencies is to offer a borderless alternative to fiat currency and open up access to financial services worldwide, offering the ability to transfer funds without the bureaucratic hurdles of traditional banking. Basically, use cases refer to the practical applications of cryptocurrencies and blockchain technology, besides their fundamental trait of serving as a medium of exchange or store of value. Several key use cases include supply chain management, art and digital ownership, gaming and metaverse, remittances, charities, online gambling, and travel.
Scroll through social media
Social platforms have become a fundamental part of cryptocurrencies; the way in which a project engages with its followers counts a lot for a seamless experience. Social media is a powerful tool for answering questions and providing educational content, and legitimate crypto projects would never skip on this part. Immersing yourself in the crypto community, whether on X, Reddit, or Discord, can help you strengthen your position in the market, offering valuable insights regarding overall crypto dynamics and trends and more niche insights into the coin in question. Real-time interaction empowers both seasoned investors and newbies to address their concerns and approach elevated trading strategies, fostering an ecosystem where participants benefit from support and attention.
In conclusion, you should carefully examine a project’s approach to its followers and see if they’re reliable and innovative. Consider what other opportunities it may provide you with, regardless of the coin’s position in the market. Still, it would be wise to remember that an engaging social presence does not always indicate a reputable company, leaving you responsible for distinguishing between viable projects and those with shaky fundamentals.
Concluding remarks
Navigating the cryptocurrency landscape should not pose any issues when caution and diligence are implemented as fundamental traits for approaching this ecosystem. Although this world may appear difficult to understand at first glance, it is more than possible to grasp the basics with research and effort. From that point on, everything is learnable: what to do, what not to do, when to wait, and when to go all in.
