More people are beginning to see what huge profit potential is hidden in the blockchain technology and cryptocurrency. A tale is told of how 10000 bitcoin was used to buy two large Pizza worth $25 in 2010. Today, we see a lot of people whose financial history turned around positively in a short period of time owing to a surge in the price of the coins or tokens they held. Stories like this are attracting people on a daily basis. But tales like this would not be complete without mentioning any sad aspects. Many people have lost (a greater amount than those who profited) investing in cryptocurrencies and Blockchain technology. Losses like these are because of many reasons, which are a culmination of scams, general market downturn (panic sell), etc.
Mitigating risks – Eliminating scam holes
Generally, there are very few ways to mitigate risks when seeking to invest in cryptocurrencies. Most of these ways are to mitigate against scams. Aside from this, there are no optimal methods or guidelines to be profitable in cryptocurrencies. Even in cryptocurrency trading which is quite different from investing, many traders lose because the cryptocurrency market is still in its infancy.
At Wunbit, we have highlighted a few tips to guide cryptocurrency enthusiasts in investing in cryptocurrencies with calculated or reasonable risks. There could be an inexhaustible list of tips, but we’ll try to cover the most important ones.
It can be said that most people lose funds when investing in cryptocurrency today because they did not perform thorough due diligence on the cryptocurrency they are considering.
Confirm the Identity of the team members
One of the best ways to avoid scams is to first confirm the identity of the founder or team members of the project under consideration. This is very important for new projects because it has been found that many projects whose team identity cannot be confirmed steal investor/customer’s funds and they become untraceable. Any project which is proud enough of what it is achieving should not be scared to reveal the identity of its team members. Many projects lie just to attract investors. When the team’s identities are confirmed, it makes it hard for them to steal and make away with funds.
An investor/customer should be able to follow up with the social profiles of the team members of the project they are considering. Some projects create LinkedIn accounts for team members just for the sake of the project. This can be a huge red alert that a project is a scam. Always check the date an indicated team member’s social profile was created. A genuine social profile can help customers understand the past involvement of the founder or team members. This can help to confirm if they are who they say they are or if they have the experience in the field they claim to operate in.
At Wunbit, we understand the value of transparency, that is why we will NEVER hide the identities of our team. We recently published a post for readers to meet our CEO.
For projects that indicate a physical profile, customers/investors can visit the physical offices for confirmation and ask questions if they can. It is sad, that many new cryptocurrency projects cannot be traced to a physical location because they claim their team is decentralized. Decentralization should not stop a crypto project from having a traceable physical location. Other cryptocurrency projects make up for this by attending physical cryptocurrency conferences- this helps projects prove to their community that they are real.
It is to be noted that some projects hide their team’s identity and make them anonymous, this may be for a very genuine reason known and defensible by the team members. If this is the case, the identities of the team members will in no way be revealed or shown on their website. But for a crypto project to showcase it’s team identities, it should have a way to easily confirm the identities.
There are third party KYC systems that help confirm the identities of a project’s team members, making those a valuable asset for any investor. But first, the third party system should be trusted. If not, the whole idea is questionable. There are news and rumors that many third-party identity verifiers are fake.
Check the business viability of the project/vision
When the identities of a project’s team are confirmed, it remains to be confirmed if the vision of the project is achievable or viable. Most times, cryptocurrency projects extensively explain the market opportunities for their visions in their whitepapers. Customers/investors can take their time to patiently read the whitepaper and understand the concept. Many people rely on the marketing power of a project while neglecting the real-life application or utilization of the product. Marketing may take a project far, but its products will take it farther. Many times, whitepapers may come from the huge creative work of a writer without having any coherence or real-life application or utilization. Some questions a project´s team must have answered in their whitepaper are:
- What industry problems do we want to solve?
- Are there any known competitors in the industry we chose?
- If there are, what are we doing differently? What makes us better?
- If we are the only one, why do we believe people will adopt our solution?
A project whose white paper gives readers an impression or promise to increase the token price (from a specified value to another higher value) within a period of calculated time are not always reasonable. This is because the price increase is generally unpredictable. The best way to express this should be an explanation or working model or vision to increase the number of adopters.
Apart from devoting more time to reading and understanding the white paper, customers/investors should do their own thorough research about the claims they read.
This kind of due diligence increases the chance that a customer or an investor will be patient enough to see that a project comes to fruition (though this depends on other factors). Most of the time, investors/customers sell their coins or tokens cheap because they don’t understand what the project in question is all about. They want a quick profit.
Check available repositories
Most cryptocurrency projects have GitHub repositories which investors/customers can check to confirm the works of the project. For people who are programming inclined, they can check these repositories to have a better understanding of the project. Additionally, most cryptocurrency projects have a collection of smart contracts available on the blockchain explorers. These can be checked out for consistency. These repositories can also be given to third parties to vet and check for loopholes or inconsistencies.
Many projects have made their Telegram groups available for people to interact with their team. These channels are meant for people to ask questions relating to projects, check on the team and keep themselves updated. It is rather sad that the use of channels like this has been bastardized. Many investors/customers do not ask questions, yet blame the team for errors. Some projects will never answer genuine questions asked by the community, instead, they post them and never answer them. Good projects always place an adequate premium on clearing doubts and answering questions on channels like Telegram.
Of course, there are many other points or tips to consider when making a buy or investment decision but we have presented the cores that can guide others. The points presented above doesn’t guarantee a project’s success, but they can help investors/customers take calculated or reasonable risks. Always do your research first, then you can make your move and wait patiently to see a project come to fruition.