A Guide to Fundamental Analysis for Cryptocurrencies

This article examines Systematization of cryptocurrencies and the importance for cryptocurrencies fundamental analysis of how to conduct and how to engage in your own due diligence before investing.

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Navigating the world of cryptographic features can be very daunting, as there is so much use of computing jargon and technical concepts that almost certainly confuse you. On top of that, the relative childhood of the technique, it can be difficult to find structured resources that will help you in your journey.

Coins vs Tokens: Systematization of cryptocurrencies

It is important to note that all coins or tokens are considered cryptocurrencies, even though most of the coins do not work as currency or medium of exchange. The term cryptocurrency is a misnomer because a currency technically represents a unit of account, a store of value, and a medium of exchange. All of these properties are inherent within Bitcoin, and since the cryptocurrency space was kicked off by Bitcoin Creation, all other Bitcoin conceived coins are generally regarded as cryptocurrency, though most do not meet the aforementioned characteristics of an actual currency.

The most common categorization of cryptocurrencies are:

  1. Alternative Cryptocurrency Coins (Altcoins)
  2. Tokens
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Alternative cryptocurrency Coins are also called Altcoins or simply “coins”. They are often used interchangeably. Altcoins simply refers to coins that are an alternative to Bitcoin. The majority of altcoins is a variant (fork) of Bitcoin, with Bitcoin integrated open source, original protocol with changes to the underlying codes, therefore a completely new coin with a different set of features, the conception.

Fun fact : A software fork occurs when there is a change in the underlying programming protocol, resulting in the “forking” or splitting of the original blockchain. This usually results in the creation of a new coin. There are different types of forks like hard fork, soft fork or a random fork.

There are other altcoins that are not derived from Bitcoin’s open source protocol. Dear, they have created their own blockchain and protocol that supports their local currency.

One commonality of all altcoins is that they each own their own, independent blockchain, where transactions in relation to their home coins occur in.

Fun fact : The first Altcoin was Namecoin, which was created in April 2011. It is a decentralized open source information register and transfer system.


Tokens is a representation of a particular asset or utility that is typically located on another blockchain. Tokens can represent all assets basically, the fungible and tradable, from commodities to loyalty points to smooth other cryptocurrencies!

Creating tokens is a much simpler process, as you do not have to change the codes of a particular protocol or create a blockchain from scratch. All you have to do is follow a standard template on the blockchain — such as on the platform or waves Astraleum — that you can create your own tokens. This functionality to create your own token is possible through the use of smart contracts; programmable computer codes that are self-executing and do not need third-party use. It is really cool!

Tokens are created and distributed to the public through an initial coin offering (ICO), which is a means of crowdfunding, by funding the release of a new cryptocurrency or token project development. It is similar to an initial public offering (IPO) for stocks, with critical distinctions. Many people are crazy about ICOs as they represent a great way to identify interesting projects.

The main difference between altcoins and tokens is in their structure; altcoins run segregated currencies with their own separate blockchain while tokens operate on a blockchain, which facilitates the creation of decentralized applications.

The importance of doing your own analysis

For traditional investments such as equities, fundamental analysis, the financial health and viability of a company after graduation brings the valuation. If the numbers look good, we can be sure that the company has good fundamentals and we can, therefore, invest in them. Performing fundamental analysis for cryptocurrencies, however, is radically different as there is no degree. Why? because:

1. Cryptocurrencies are not companies, but representations of value or assets within a network. Its viability is not based on generating a revenue, but depends directly on community involvement (users, miners and developers). Each cryptocurrency is a manifestation of the various applications of blockchain technology, and usually decentralized;

2. The crypto-space is in its infancy stages, and almost all of the cryptocurrencies are in stages of development. Which means that only a limited number of cases in the real world are currently used and therefore, to have a lack of track record.

So, fundamental analysis on cryptographic functions must be done with another method. Considering the complexity of the cryptographic functions and the underlying technology, it is even more important for us to engage in research to assess the viability and potential of the coins. This ensures that we make better investment decisions and are kept in the loop of things. But more importantly, a good understanding of a coin’s fundamentals allows you to form your own opinion and your own stand, which is rare in the crypto-world because of its complexity.

Finding the Right Sources of Information

Knowledge is power. To judge a coin, we must first know where the most important sources of information are obtained. Here’s where you should get the information out:

1. White paper

A detailed proposal by the development team outlining the purpose and mechanics of the coin. This constitutes the main source, the basics of the coin of the evaluation. You should always read the coin white paper before investing. The downside is that it can give the use of technical jargon and concepts given very technical, which Joe for an average hard to grasp.

2. Coin social channel or blog

This provides the official and main communication channel of the core development team. Join the channel and see the development team’s interaction with the community. Ask questions to get more information about the coin. You should also follow the updates from the developers in their official blog.

3. Community Forums: Reddit / Bitcointalk / systems

Forums are a great way to better understand the coins, as well as the sensations surrounding the coin. You can find simple definitions of specific terms or easy-to-understand analysis of coins from forums as the community is well informed. The variety of thoughts allows you to grasp the mechanics of the coin far better, especially if you are not technically inclined. If you are unfamiliar with the technical jargon, a good tip is sought for your request along with the term “ELI5” which stands for “explain it to me as I am 5 years old”.

Source: https://masterthecrypto.com/differences-between-cryptocurrency-coins-and-tokens/

(Reed also: Avoid Scams and Warn Others: How to Find Fair Project)

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