So you have heard from your friends about Bitcoin and you want to start investing in it. You look at the price and see about USD$7,000 to buy one Bitcoin. You think to yourself “ I don’t have USD $7,000 to invest. Are there other tokens that I can invest in? How do I get started?”
While there are many blockchain projects that have potential to grow, there are even more projects that sell “shit coins” or are just outright scams. How do we actually find projects that are worth investing in? While there is no “one size fits all” answer, there are a few things you can look out for to differentiate between a project that has the potential to stay and a project that is just in it for the cash grab.
For this article I will be sharing with you the whitepaper aspect of evaluating a project. Here are 3 simple but effective ways to evaluate a whitepaper that you can use even without much knowledge in blockchain.
The whitepaper contains many useful information, such as the problem/issue the company is looking to solve, concept of the product/service, the utility of the tokens, go-to market strategy and the timeline for implementation.
Sounds like a lot of information to take in? I think so too.
Comparison between companies
Good news is, as you read more whitepapers, you start seeing many similarities in terms of concepts and the problems they want to solve. Doing an apple to apple comparison between two companies that are similar in their product offerings is a good start. A few common concepts that are in the market are the following:
- P2P payment solution (Think Bitcoin)
- Blockchain protocol (Think Ethereum and NEO)
- Social Media (Think Steemit)
- Advertising on blockchain (Think Basic Attention Token)
- Decentralized Exchanges (Think IDEX)
- And many more!
By comparing the concepts and applications of similar companies, you can see which are the projects that are likely to stand out or whether they are just another project that has the same solution as everyone else.
Having a good understanding of what the company does compared to their competitors will give you an edge over a great number of retail investors in this space who do not even read the company’s whitepaper.
Everything about tokens
Many people buy cryptocurrencies as a form of investment with a view that these tokens will appreciate in value. No matter how promising the technology of a company is, the economics (or tokenomics if you will) behind a token is a crucial factor in the price of a token. While I am no expert in economics, below are a few pointers you and I can take note of when it comes to tokenomics.
Is the token supply finite or infinite? Simple demand and supply logic states that if the supply of tokens is infinite, the price of the token is not going to rise by much in the long-term.
Does a huge part of token allocation go to the founding team and their advisors? How much actually goes into the business development? These questions will help to weed out companies who are only creating a token for a cash grab from those companies who are looking to develop a product for the future.
Utility of Token
How do users of the token get to use it in the ecosystem? Are their competitors using the same form of utility for their tokens? Do you see a high demand for this token based on its utility?
How many exchanges is the token listed on? Do these exchanges have a high trading volume on a daily basis? Tokens with high liquidity makes it easier for you to cash out.
Depending on how discerning you are, this can either work for or against you. It is always good to hear the opinions of others on a project, as it makes your assessment of a whitepaper more objective.
However, this space has seen many scams, where people are paid to “shill” (over-sell) projects, leaving people who have a “Fear Of Missing Out” (FOMO) licking their wounds when the project turns out to be a scam.
Always be discerning in your evaluation of the opinions of others and you should do just fine!
Call To Action
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What To Look For When Reading A Whitepaper- 3 Simple and Effective Things was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.