1.3 - The Cryptoexplainr - How to validate a solid cryptocurrency project

At the time of writing this article, there are currently 1523 cryptocurrencies listed on coinmarketcap with more and more getting added each week. If you're looking to invest in a new project to diversify your portfolio or alternatively just looking to get started, with so much choice where on earth do you start? Many new token based projects that are released, claim to be solving a problem, it's also easy to get drawn into adverts and news articles with titles such as "Could this coin knock Bitcoin off the throne?".

The birth of the ICO has meant that individuals & groups can raise vast sums of capital in a short period of time, which of course has caused a flurry of new projects to sprout up at a staggering rate. Some Great, some good and some awful.

I thought it would be useful to write a short guide on validating a crypto project to help you sift through the 'sh*t', and aid your research in the world of Crypto.

1 - DOES THE PROJECT SOLVE A PROBLEM?

When assessing a crypto project it's important to ask yourself, is it solving a real-world problem? Would this project improve your life? If not your own, does it help other groups or populations? It's probably surprising to know that the biggest beneficiaries of crypto-related projects won't actually be the developed & economically stable countries, but more so the developing third world who have a need and will adopt the technology rapidly. Take Bitcoin for example, there are 2 billion people on the planet who are classed as 'Unbanked'. Bitcoin & other crypto projects are helping to provide financial systems to those individuals.

Brock Pierce a strategic advisor to EOS says it best in this Video. Check it out!

2 - DOES IT NEED TO BE DECENTRALIZED?

So you have gathered that the project does indeed solve a problem. Now ask yourself, does it need to be decentralized? While Dan Larimer founder of Steemit, EOS & Bitshares believes that every application can and will run on the blockchain, this may be true, but in the early stages of this technology, it is industries or products which dramatically improve being decentralized that are going to gain mass adoption first. If your looking at a cryptocurrency project that advertises it's USP as being able to buy 'Fastfood', then does that need to be decentralized? I would argue at this stage 'No'.

Take a step back and look at the bigger picture.

3 - CHECK OUT THE TEAM

Become a talent scout, stalk out the team. On most cryptocurrency websites you will be able to find the team behind the project. Whats their background? Have they been involved in cryptocurrency or disruptive technology before? You may think its excessive, but I go as far as looking them up on LinkedIn to see where they have worked in the past, what university they graduated from etc. There are a lot of new projects that look the part and claim big, however, a lot of it is clever marketing. Don't buy everything you see!

Dig deep into the team.

4 - GET A PIECE OF THE ACTION

This is an important point which often gets overlooked. Check out the project on Github. For those of you who don't know Github is like a 'coders social network', where 'techies' can collaborate on projects, make revisions & updates to software while all being stored in an accessible central repository. On Github, you can check out how active the developers are and what activity is going on. Look at how many commits have been made to the project and how often. Compare them to other successful crypto projects. You will also be able to check out how many contributorsand collaborators are involved. For the non technically minded like me, this process can seem a little dull, but rest assured it's a great way to understand how active a project really is!

5 - COMMUNITY

It's important to get a feel & flavor for how passionate the community is around a certain project. Is there strong belief and support behind the project for it to succeed? Is there excitement in the community for the right reasons? Or are they just getting exciting because there is hype around the token/coin 'Mooning' in the next couple of weeks? You can look into or better yet join communities through a few different mediums. Some channels that are easily available are the likes of Twitter, Reddit, Steemit of course and also the Telegram app. Some telegram channels will allow you to communicate with project team members which is great if you're looking for a deeper understanding, however, pay attention to how transparent they're being around the project. If the team aren't very transparent then there's a strong chance that the project has a lacks integrity or an outright scam.

6 - ECONOMICS

While total market cap & circulating supply isn't everything, it can certainly help to give an indication of how fast the value of a coin will increase and also how much room there is to grow in the 'short-term'. What do I mean by the 'short-term'?
Well despite cryptocurrency being around since 2008, the technology and market as a whole are still very young, at this point we don't know how high the total market cap will grow in 10-15 years down the line. In the short term, If a coin/token already has a large market cap, let's say over $10bn, then in the short-term, there is less room to grow.

The circulating supply of the token can also have an impact on how quickly the value of a coin/token will rise. It's simple maths. The total market cap of coin/token = (price per coin) x (circulating supply). Therefore it would take more investment for a coin/token value to increase if it has 2000,000,000 circulating supply than a project that has 50,000,000 for example. As I said earlier, this two metrics aren't everything, but they are good indicators for the short terms of how quickly the value of a token could increase. I would also recommend checking out trading volume over 24/hours. The trading volume gives you a good indication of how active investors are in buying and selling that particular token/coin. As a minimum, I tend to look at projects around the $800,000 to $1.5M 24 hour trading volume.

I hope this article has been helpful in providing some basic guidelines when it comes to assessing and validating a cryptocurrency project. Of course, there will be other methods that are used, though I wanted to share my personal thought process before investing. If anyone else has other methods or checkpoints they feel are important then feel free to comment below and share the knowledge!

The Cryptoexplainr.