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In the last 2 years a lot of people started investing in the cryptocurrencies, with a hope to get rich and to finally make their dreams come true. They saw a way out with the crypto currencies. Where you can make a relatively small investment and make huge profits in return, like no other investment. And the fact that you do not need to be educated a lot about investing. The truth is YES, you can make a lot of money by investing in the crypto currencies, and you can lose a lot of money at the same time, if you don’t know how to do it. Many people lost their life savings due to the Hype that was, especially in the last year. A lot of platforms, ICO’s were coming out, and they still are coming today, a lot of people were investing like crazy. With the hope to make millions in a few months. Well, that might happen, but also it might not. Before I continue with the blog I would like to let you know that I am not a Financial Advisor, my blogs are simply educational, so do not take this information as professional investment advice. If you are thinking to make some serious investments, always look for a professional advice.
There are a lot of new ICO’s that are coming out almost every day, and they are advertised as the next big thing. So many people would like to invest in them, without looking at some of the basics about that certain coin. According to a recent survey conducted by Blockchain Capital, 30% of the people in range from 18 to 34 would rather invest in Bitcoin or some other currencies than in government bonds or stocks. The same study also indicates that 42% of millennials have heard about Bitcoin compared with 15% awareness among the people aged 65 and up. This numbers are just showing how big is the interest about investing in the cryptocurrencies. And it is becoming higher every day, especially with the help of the Social Media. It is impossible to avoid it.
If you decide to invest in the cryptocurrencies here are some things that you must take in to consideration before investing it:
- The most important factor of all is, to invest the amount of money, that you can afford to lose it. Never invest money that you can’t afford them. Never put all of your life savings just because someone that you know, told you that this is the going to be the next big thing. Never borrow money to invest in the cryptocurrencies.
- Resist overtrading and FOMO – FOMO (Fear of Mission Out) is one of the most powerful temptations that you need to resist. This is a very old known Marketing Trick, which works well in some cases, but with the crypto it doesn’t. As an investor you will often feel urged to buy a certain coin when the price is lower or the coin is just starting out. Marketers will try to push you to buy more coins. Take this into consideration, the one who is trying to push you, is the one that you need to avoid. Always make you research first, regardless what are they telling you about. A second thing is overtrading – immediately selling your coins if you see the price of the certain coin dropping down. In most of the cases the dropping of the price is temporary, which makes the un-experienced investors sell the coins right away. Do not rush.
In my opinion these are the biggest starting factors that you must take into consideration, before putting any money into cryptocurrencies. We are always influenced by something or someone in our lives. Do not let that happen to you. Even, if it is going to be the next big thing. Stop for a moment, make your research, gather enough information and then do it.
Now let’s look at the technical part of the investment:
- Step 1 Sources of Information
In this Step you will gather your necessary information about a certain coin that you are interested to invest your money:
- Coin’s white paper
All of the coins have a white paper where it’s explained about the purpose and the mechanics of the coin. Here you can evaluate the fundamentals of the coin. What is its purpose? What kind of problems is it going to solve… Usually the white paper can be several pages for example 10, 15 or maybe 20. Many investors like to skip this part, due to the fact that they are lazy to read. Always read the white paper. If you are not familiar with some things, find someone who will explain you.
- Coin’s Slack Channel or Blog
Every coin has their own official channel of communication of the core development team. Join their slack channel and view the interaction of the development team with the community. Ask questions to get some more information about that coin. You should also follow the updates given by the developers on their blog.
- Check the community forums like: Reddit, Steemit, Bitcoin Talk
The forums are a great way to understand the coins better. In the forums you will read lot of opinions and explanation about a certain coin. If you are not familiar with some of the Technical Jargons, a good tip is searching for your answers together with the term ‘ELI5’, which stands for ‘Explain It to me like I am 5 years old’.
- Step 2 – Cryptocurrency Analysis Checklist
In this step you can ask some question on the Coin to getter information whether this coin is a good investment. Let’s have a look at the check list:
- Overall concept assessment
What is the purpose of the Coin? The coin must have a clear objective, especially if it’s revolutionary or first of its kind.
Does it solve a real problem? What kind of solution is that coin offering it is very vital.
Does the coin possess any utility? A coin must have a strong utility to incentivize people to hold the coins as an investment. A coin’s utility is strongly correlated with its value.
Is the white paper clouded in Marketing language? As a rule of thumb, if it is filled with marketing terms that hype the project, then it’s best to stay away from it.
Is the project funded/backed by prominent investors? This adds credibility to the coin
- Operational Assessment
What is the consensus mechanism of the coin? If you know what is the mechanism like: Proof of work, Prof of stake or other, is a great way to understand how the coin work.
Is the coin Centralized or Decentralized? The cryptocurrencies are meant to ne decentralized. However there are certain coins that have a central structure, which can have their own advantages.
What is the Development roadmap? There must be a clear timeline for the development of the coin.
Is there a running proof of the coin?
How much money have they raised? How have they spent those money?
- Market Analysis
Is the coin the first of its kind solving a particular problem? A coin that is the first of its kind has a strong advantage over the other coins
How different is the coin from its nearest competitor? A coin with new technologies that is different from its competitors could have greater adoption
How lucrative is the target market? The target audience for the coin must be large enough to support growth
Are there significant legal barriers? This could compromise the timeline of the project
TO BE CONTINUED….
Thank you for reading
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