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Introduction
There’s a buzz that comes with investing. You’re putting your money into an asset in the hope that it goes onto make you a profit. A return on your investment.
The anticipation is very exciting!
But for many, it is a different story when it comes to cryptocurrencies. They are hesitant.
Because how do you know if a crypto will be a good investment?
Well, when you realise there are more than 18,000 cryptocurrencies in existence, finding ONE to invest in is a bit of a needle-in-a-haystack moment.
Plus, there are more launching every day. So yes, understandably, it can be overwhelming trying to determine which ones are worth investing in.
And yes, they can be more risky than other investments because the crypto market is very volatile.
Having said that, if you know what you are doing, you can make some fantastic returns with crypto investments.
Read on to discover the main things you need to focus on when evaluating and researching a cryptocurrency investment. It can even help you with finding a cryptocurrency course.
What is the Technology Behind the Cryptocurrency?
So you know a cryptocurrency is a digital or virtual currency. You know that cryptography helps keep it secure and nearly impossible to duplicate.
But there is also something called blockchain. This is the technology behind cryptos that enable them to exist. Blockchain’s power cryptos.
A blockchain is essentially a set of connected blocks of information. These act as a ledger. A bit like bookkeeping. Only a blockchain ledger is public.
Each block contains a set of transactions. Each transaction is independently verified agreed by validators on the blockchain network.
Every new block must be verified. This makes it almost impossible to forge transactions and their histories.
As a technology, blockchain is also powering many other technologies and digital infrastructures. It is becoming the backbone for many industries and operations, such as:
Online payments
Financial processes
Supply chains
Business functionality
Crowdfunding
Online voting
Who is Behind the Cryptocurrency and What is Their Reputation?
When you think about it, whatever we do generally involves “research.”
When we go to buy a product online, most of us will scour the product spec thoroughly. The ingredients. Materials. Check if it’s eco-friendly and so on.
Then we will check the reviews. This is all research.
So it’s the same with any investment, but even more so when it comes to cryptos.
That’s because it is such a new technology. Things are developing in this space all the time. 24/7.
The world of crypto and blockchain never sleeps.
So when it comes to investing in cryptos, you need to research:
Who its developers are, their background, credentials
Are they experienced
Are they experts in their field
Have they worked with other top developers
What is their reputation
You want to be sure the creators of the crypto you are interested in are credible. You want to have some confidence the crypto is likely to succeed long-term.
For instance, the more established cryptos are actually integral to the blockchains they are built on.
Bitcoin for example goes hand-in-hand with blockchain. Bitcoin was the first crypto. It needed the blockchain for it to exist. There would not have been one without the other.
Ethereum and its’ ether is used as ‘gas’ to power smart contracts and perform transactions.
Ripple and its’ XRP helps facilitate real-time global payments for banks and financial institutions.
Similarly with Cardano and Solana.
How Widely Adopted is the Cryptocurrency?
Once upon a time, there was just Bitcoin. That was only 14 years ago. A lot has happened since then.
Back in 2009, bitcoin wasn’t even an investment asset. That didn’t really start happening until 2011 when it went from $0.09 to $26.90. It spiked in 2014 at $1,238 then fell shortly after to $687.50 in the space of a few weeks.
But as bitcoin has grown and become more widely accepted as a digital currency, so has confidence in it.
This is what is known as “adoption.” Bitcoin used to exist solely as an “underground” entity. Now it is “mainstream.” Its price hit a record $69,000 in 2021, to then slump to $18,000 in 2022.
The point is, the more a crypto is adopted by mainstream society, the greater the confidence in it as an investor asset.
Cryptos are also becoming legal tender in some countries, notably El Salvador and the Central African Republic. But more are following.
In the US, cryptos are legal, but regulated by the Securities and Exchange Commission (SEC). It’s the same with Japan’s Payment Services Act which recognises but regulates cryptos.
In the European Union (EU), cryptos are legal.
In the world of finance and commerce, PayPal accepts crypto payments and transactions.
Mega bank JP Morgan has launched Onyx, “a Digital solutions enabling instant transfer and clearing of multi-bank, multi-currency assets on a permissioned distributed ledger.”
Financial powerhouse BlackRock is making a bid to manage Bitcoin ETFs.
The Bank of England is working towards launching a CBDC (Central Bank Digital Currency).
Even former US President Donald Trump owns up to $500,000-worth of Ethereum’s ETH coin.
These are all examples of crypto adoption.
What Problem is the Cryptocurrency Trying to Solve?
At heart, cryptocurrencies are a digital money. They are becoming more popular because the blockchain makes payment transactions quicker.
But cryptos are more than just money because they also come as crypto tokens. These are used as a way of raising funds for projects and are generated through the ICO process (Initial Coin Offering). This usually involves crowdfunding.
Crypto tokens then have other purposes and solve different real-world problems.
For instance:
XRP and ETH are utility tokens because they serve specific functions on their own blockchains
Bitcoin is a transactional token because it is used for payments
This is why it’s important to research cryptos thoroughly. Because cryptocurrencies designed to solve real-world problems and fill clear market needs are more likely to succeed long-term.
When researching, it’s a good idea to weigh up if the problem versus the solution. Is the problem the crypto aims to solve a meaningful one? Is the solution viable?
You should also take time to research any of that crypto’s competitors to assess the competitiveness of the one you have your eye on.
Conclusion
Investing in cryptos is a whole different ball game to investing in stocks. That’s because stocks are associated with companies that have been established for many years. Sometimes more than 100 years.
Because of this, investments with companies that have a strong track record are generally safe. They are fundamentally strong.
Cryptos, however, have been around for less than 15 years.
So you really need to double-down on research. That cannot be emphasised enough. Research everything – the technology, team, adoption, supply schedule, and above all, the purpose.
This will undoubtedly help determine its investment potential. You should also take into account both short-term and long-term value propositions.
In a nutshell, you need to be as confident as can be that the crypto you want to invest in, is confident of its own success.
One of the advantages of crypto investing is prices can be very reasonable, a few dollars, even under $1.
And because crypto is highly speculative, prices are always fluctuating.
That’s what makes crypto investing so exciting!
So who knows, maybe you will discover the next Bitcoin and reap the reward.
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