Top 10 Questions To Be Asked Before Investing in Blockchain Startup
The popularity of cryptocurrencies is steadily on the rise, despite the market’s volatility in terms of costs and regulations. With the price of Bitcoin consistently over $ 9,000 in recent weeks fell to $7200, cryptocurrencies makes a quite risky investment. So, how do you know if this is the right investment for you? Specifically, what information about a project is useful, and what is not?
Your number one consideration should be that, like all investing, you shouldn’t invest anything that you aren’t prepared to lose.
Don’t go all in on an investment.
This market is extremely young and volatile. No matter how many people claim to know the future, I promise you — anything can happen.
Cryptocurrency is a high risk/high reward investment. You have to be prepared to accept the risk. Consider an investment in blockchain as though it is an investment in a startup; something new, exciting, yet unstable.
So how do you know what to look for before deciding whether or not to pull the trigger? Here are some important questions you ought to ask yourself when doing your research for a potential cryptocurrency investment.
1. Does the project actually solve a real-world problem?
So many coins out there are simply value transfer protocols that offer nothing that Bitcoin or Litecoin do not already provide. It is worth reminding yourself of what problems blockchain actually aims to solve, and then to verify whether a specific project can deliver a solution in the real world. If the project can solve a problem using distributed ledger technology that was previously unsolvable, then clearly such a project is likely to be in high demand once it is up and running. And that makes it an attractive investment prospect.
2. Does this project need a blockchain and what does the token do that cash, or another cryptocurrency, cannot?
Aside from a project’s team, product and technology, an important question to ask yourself is whether this startup actually needs blockchain and a native token for its product, platform or service.
Due to the low barriers to entry, there is a substantial amount of startups that are simply looking for easy funding by claiming to be implementing blockchain technology to improve their existing product or to start an entirely new product that requires it.
3. Who are the token issuers marketing to? Investors or users?
Follow the call-to-action: Does it give confidence they can capture a market of users? Or are they better at capturing FOMO of crypto noobs?
4. Is there a market for the project’s product or service?
For your chosen coin to succeed, the product must be needed and desired. It doesn’t have to reinvent the wheel, but it has to meet the demands of a clear market.
5. Is the project’s technology viable?
Next, you need to ask yourself how viable the project’s technology is. A whitepaper is the foundation of a project and ought to offer a clean layout and accessible language, explanation of value, position in market, market analysis, how will product work, use of tokens and statistics to prove its case.
If a project’s whitepaper is not able to clearly detail the technology that the project intends to use that is a clear sign that the project is lacking in professionalism and may even point to it being a scam.
6. Is there already a working product?
With most blockchain projects — especially those staging ICOs that provide investors with tradable tokens in exchange for financial capital for future development — a working product or service remains months or even years away. A lot can happen during that time, both good and bad, and that means there’s a lot of uncertainty and, therefore, risk until that time.
Clearly if the project already has a working product, or at the very least has completed the alpha and/or beta stages of development, it should provide more reassurance of its current legitimacy and of its future success.
7. Who are the project’s team members?
Technology is the cornerstone of all blockchain projects. If the team behind a project cannot clearly communicate the technology it intends to deploy through its whitepaper, website, and social media channels, the project is doomed to fail.
Personnel with proven blockchain development experience should be observable at an absolute minimum. Marketing credentials that demonstrate that the project is serious about building the business long-term.
If you can’t find any information on the team, investing in their ICO is a valid risk. They may have the grandest designs for their new technology but if they don’t have the proof they can pull it off, you’re better off holding on to your precious dollar bills.
And the team should have a solid social media presence — LinkedIn profiles that detail demonstrable prior experience related to the current project, as well as Facebook/Twitter profiles, should be easily available and verifiable. Have the senior team members previously had roles in blue chip companies? Are they well-known in their respective industries?
Furthermore, it is also worth checking the number of followers the project has amassed on platforms such as Telegram, Reddit and Twitter.
8. What are the terms of the issuance?
Total supply, price, float and contribution limits: based on what you learned about the network’s momentum, are they structured to strike the right balance between supply and demand? Can you foresee a population of crowdsale buyers who couldn’t get into the ICO, creating demand on exchanges?
9. Who Are the Competitors?
If the project you are looking to invest in is in a market segment that has strong competitors, you may be better off investing in their competitors than this specific project. Especially, if the competitors are already in the market with their product.
10. Have partnerships been formed?
If a new project is serious about its development, it will invariably seek to form working partnerships with more established companies. Perhaps the partnership will be with a future user of the blockchain platform. Or perhaps both parties are seeking to conduct research into a specific aspect of the technology.
Either way, being able to show investors that big ticket institutional names are interested in the project undoubtedly helps to boost its future potential. Conversely, a project with zero partnerships after months/years of development is hardly going to impress.
The reason you got into this is the same reason you’re freaking out, crypto is extremely volatile. The same forces that allow us to see 1000x returns on our investments also can create a situation where you suddenly see 90% of your money disappear.
A roller coaster goes both up and down at extreme speeds.
Whenever you see an article claiming that this dip is the end for Bitcoin due to some country increasing regulations or something similar — remember that China has “banned” cryptocurrencies three times or more. Believe it or not, Bitcoin and other coins are still standing.
One of the most successful investment techniques that have shown to bring multifold returns in cryptocurrencies so far has been a long-term investment. The strategy relies on buying a cryptocurrency with a solid core use case and development and holding it for an extended period. This way, investors do not have to concern themselves with intraday movements of their cryptocurrency if they believe that the coin has long-term value. Holding on to any of the most substantial cryptocurrencies for an extended amount of time in 2017 would have brought multifold returns, and if 2018 sees similar growth in the market, holding would undoubtedly prove to be the best bet for investors.
AUTHOR: Marko Vidrih
Image via Pixabay