With over 6300 cryptos to choose from, how will you ever pick the right ones to invest in?
These questions should help you filter out the bad cryptos and find the ones that are actually going to be adopted and solve a real problem. I think of it as a filter. Each question should narrow down your search until you find 3, 10 or 20 that you like. But remember not to over diversify.
What problem is it solving?
Store of value, cross border payments, smart contracts, logistical supply chain, gaming, artificial intelligence, data, privacy, security, there are lots of industries/sectors in the crypto market.
What are some of its unique features?
Eg. Fast, Cheap, Low Energy Use, Sharding, high TPS, Smart contracts etc.
Look at the team behind the project?
Are there any big names? Has the CEO worked on other big projects? Do they have a reputable track record? How big is the team? These easy to find answers influence the fundamentals of a project and whether it is positioned to succeed in the future.
Who has partnered with it?
Within the specific industry that it is disrupting, has any big names partnered with it?
If it is a gaming coin has Minecraft considered using it?
If it is a logistics coin has a car company considered using it?
How old is the project?
3-10 Years - Higher chance of success - If it’s 3-10 years old and still doing well, then it’s a lot safer but might not have as high of a multiplier in the future.
2 years - Hit and Miss - If it was created in 2018 it more than likely began after someone made a lot of money from bitcoin and wanted to start their own project, some of these are good while others are not so good.
6 months or less - If the coin was created in the last 6 months, that should put up warning signs. It may be too risky and just some web developer or someone following a tutorial on youtube who cloned another crypto project and made it seem like something when it's really just a money grab.
Bonus Tip: If the coin is in the top 200 rankings by market cap, it is more established and less likely to be a scam coin than coin #201 to #6300. However, there are exceptions in both sections.
Use this as a filter to see if the coin you’re interested in is a failed ICO or a scam coin.
Look at various price predictions online
Find at a minimum of 5 price predictions ranging in price and try to come up with a realistic price range based on the number of tokens and the problem it’s trying to solve.
What’s the consensus mechanism?
1. Proof of Work? (PoW)
Where miners compete against each other to validate transactions and get rewarded, using the computing power of many Application-Specific Integrated Circuits (ASIC's).
2. Proof of Stake? (PoS)
Where a person can mine or validate block transactions according to how many coins he or she holds. This means that the more Bitcoin or altcoin owned by a miner, the more mining power he or she has
3. Delegated Proof of Stake (DPoS)
Where the network determines who the validator of each block will be and reach on a consensus on what data should be added to the chain. This is a technology-based democracy, using voting and election processes built within the system.
There are many others but they are mostly all variants of one of these three.
In the end, ask these three questions before buying.
Are you able to explain it to someone who doesn’t know about it?
Does the project interest/excite you?
Do you think they can succeed at fixing the problem they have set out to fix?
These questions should put you in good stead to picking cryptos that have a higher chance of succeeding.
As I always say,
There are three keys to success in this game.