If you have been following our Crypto Academy Educational articles, I believe the next question on your mind would be – how do I invest in crypto? Investing in crypto is a very important topic. In the Financial world there has to be a motive behind investing in either a company stock or share, this is also applicable in crypto there has to be a motive behind investing in a particular coin/token you choose to invest in.
My first experience buying bitcoin was because I wanted to invest in a Ponzi scheme I barely knew anything about crypto then, all I knew was I needed bitcoin and its pegged to the US Dollar, so I could use it to invest in the Ponzi scheme. In simple terms the motive behind my investing in bitcoin then was because I needed it to secure an investment in a Ponzi Scheme. Now here’s the deal, in this article we will provide answers to the following fundamental questions:
- How do I invest in Cryptocurrency?
- How do I select a cryptocurrency to invest in?
How to Invest in Cryptocurrency?
Buying a Coin/Token from an Exchange
This simply involves buying a coin/token you have researched on or have been recommended to buy from an Exchange. Buying cryptocurrencies on an exchange can either be for trading or for investment purposes. Its common practice amongst crypto enthusiasts to buy crypto on exchanges, as this involves opening an account on the exchange where the crypto of your choice is being traded and then depositing funds to buy it. When searching for a coin/token on an analytical website you can find the exchanges it’s currently trading and its trading pairs directly from the analytical website such as coinmarketcap, coingecko, coinpaprika, etc.
Initial Coin Offering (ICO)
An Initial Coin Offering, also commonly known as ICO, is a fund raising mechanism organized by cryptocurrency projects to raise funds, where investors get the coin or token of the project in return for investing in the ICO. Initial Coin Offering (ICO) is similar in concept to Initial Public Offering (IPO).
Initial Exchange Offering (IEO)
An Initial Exchange Offering is simply a token or coin sale supervised by a Cryptocurrency Exchange. Initial Exchange Offering (IEO) is variant of an Initial Coin Offering (IEO). An IEO is still technically a form of ICO, but the main difference lies in where the coin or token is offered. As you might be able to guess from its name, an IEO offers tokens through a partnering exchange, rather than directly to investors. In a public ICO, just about anyone can participate, but in an IEO only members of that given exchange can purchase the tokens. That said, there’s little stopping you from joining an exchange if you’re interested in a specific coin due to be released, so there aren’t really creating any hurdles for the average retail investor.
Security Token Offering (STO)
A security token offering is similar to an initial coin offering here an investor is issued with a cryptocurrency which represents their investment. But unlike investing in ICO, a Security Token represents an investment contract into an underlying investment asset, such as stocks, bonds, funds and real estate investment trusts (REIT).
Cryptocurrency Mining includes two functions, namely: adding transactions to the blockchain (securing and verifying) and also releasing new currency. Individual blocks added by miners should contain a proof-of-work, or Pow. Mining needs a computer and a special program, which helps miners compete with their peers in solving complicated mathematical problems. This would need huge computer resources. In regular intervals, miners would attempt to solve a block having the transaction data using cryptographic hash functions. Hash value is a numeric value of fixed length that uniquely identifies data. Miners use their computer to zero in on a hash value less than the target and whoever is the first to crack it would be considered as the one who mined the block and is eligible to get a rewarded.
HOW DO I CHOOSE A CRYPTOCURRENCY TO INVEST IN?
Before investing in any coin or token either through any of the ways we have listed above, you need to take the following things into consideration
Does the Project have a credible Team?
In the crypto industry the credibility and quality of the team is directly related to the success of a project. As a matter of fact before investing in any project do well to search the names of the team members on Google. Have they been involved in any successful ICO venture before? Have they been involved in a well-reputed company (Google, Deloitte, etc.)? Have they been recommended or endorsed by well-known people? You must put in much effort so that you don’t end up wasting your time and resources later. Most of the team members should have a LinkedIn profile do well to search them over there. Secondly you should search for the images of team members on Google.
Avoid any ICO, IEO and STO that promises guaranteed returns on investing.
Does the project have an active Github Repository
Github is a social media platform where developers share codes and algorithms. Majority of Cryptocurrency projects have a Github account where they share codes in relation with the project they are developing. This helps to show progress and success recorded thus far while developing, but due to the sensitivity of some cryptocurrency projects their codes may not be made public as such they don’t post their codes on Github or do not own a Github account. If a cryptocurrency project does not post their codes on Github or do not own a Github Repository account, it’s actually not a red flag but where you need to worry is when a particular project that is on Github and used to update codes on their Github Repository stops suddenly, this is where as an investor or potential investor you need to worry. Here’s the deal, before investing in a Cryptocurrency project you need to check if they own a Github Repository and if they own one, how often do they post updates on Github? When last did they post on Github.
Does the project have a Whitepaper?
A whitepaper is an authoritative report or guide that informs readers concisely about a complex issue and presents the issuing body’s p
hilosophy on the matter. It is meant to help readers understand an issue, solve a problem, or make a decision. In simpler terms, a white paper can tell potential investors everything they need to know about the project. This is the reason you shouldn’t invest any ICO without a well written and detailed whitepaper. However, after you read a decently written whitepaper, there are a couple of questions you will need to ask before investing
What problems will the project solve?
Firstly, check the project to see whether the coin is bringing in any real utility into the ecosystem. The perfect example of this is Ethereum. There is a reason why it took of so fast, think of the sheer value that it was bringing in. For the first time, developers around the world had a platform that they could use to build their own dapps on a blockchain. Along with that, keep in mind the issues that crypto world is desperately looking to solve, mainly: privacy, scalability, and interoperability. A good way to go about your investment is to find the projects which are specifically working on solving the aforementioned problems.
Does the Project Need Tokens?
So, how do you make sure that you are getting good quality tokens? You inspect the project and ask yourself the following questions: Does this project need to be on the blockchain? Does this project need to have tokens? If the answer to any of these questions happens to be “No”, then those projects don’t need a token and those projects are doing an ICO simply to raise money.
Does the project have a Roadmap?
A roadmap is a strategic plan that defines a goal or desired outcome and includes the major steps or milestones needed to reach it. It also serves as a communication tool, a high-level document that helps articulate strategic thinking—the why—behind both the goal and the plan for getting there. The deal is, do not invest in any cryptocurrency ICO without a well detailed roadmap in the whitepaper or website. Any Cryptocurrency project without a roadmap is a major redline that shouldn’t be ignored.
How active is the Project on social media
Important questions you need to ask before investing in a coin/token; does the crypto project have a social media presence? how active are the social media channels? how often do they post updates, articles and information on social media? A Cryptocurrency project with inactive social media channels can easily pass for an abandoned project. Social media platforms are channels of passing information, active cryptocurrency projects utilises social media judiciously as it has immense effect in the success and growth of the project. The different social media channels Cryptocurrency projects use include Telegram, Twitter, Github, Facebook, Medium, Reddit, Bitcointalk, 4Chain, etc
The good news is, if you read the article from start to finish you would have known the following:
- know how to invest in cryptocurrency 2
- Know what an ICO, IEO, STO are.
- Know how to choose a coin/token to invest in.
Let us hear from you, was the article helpful? do you have any suggestions? do you have questions? drop a comment, thanks.