Cryptocurrencies With Potential: How to Find Them?

Investing in new cryptocurrenies and ICOs is not a straightforward process. It takes a lot of technical knowledge to be able to decipher a whitepaper, a lot of business intuition to be able to sniff a good performer ahead of time, and a lot of courage to back a project you know may fail even if it has all the necessary prerequisites to win. But if you want to diversify your portfolio with a socially significant ICO – keep on reading to learn how to do your research and find good projects to become a part of!

First of all – what is an ICO whitepaper?

Each Initial Coin Offering (or ICO) needs a technical document describing its purpose, architecture and ways to interact with users – its whitepaper. This document should be made available as early as possible and should contain a detailed explanation of the problem the ICO is looking to solve, the solution and the technical details of the ICOs mechanism, serving as a sort of business plan potential investors can use as reference.

This document is a starting point when doing your research and will provide you with valuable information not only regarding the technicalities, but also about the team behind the project. What do they value most, what is their attitude to details, what is the ultimate goal of the project – all these answers can be inferred from the way the whitepaper is written if you’re willing to read between the lines.

Let’s get to the details!

How to read a white paper and find winners

The barriers to reading an ICO whitepaper are no different than the barriers to the average person attempting to read a scientific journal relating to neuropharmacology with no prior experience or education in science. Whitepapers are technical documents designed to display the most advanced description of a project that can possibly be given. This should be a benchmark to keep in mind for looking at any whitepaper associated with blockchain technology. The best whitepapers will mix a technical description with a simplified overview to help the uninitiated gain a fundamental understanding of the idea.

If the entire whitepaper is oversimplified, and if you wouldn't associate the word "technical" with it, then this should raise your first red flag. Keep in mind that most projects are seeking millions, hundreds of millions, and at times billions of dollars of initial funding. Look to the project and see how much they are seeking to raise in their ICO/cryptocurrency, then read the whitepaper. Let's say it's $200 million -- does the whitepaper show the level of aptitude and professionalism required to justify that amount? If not, look somewhere else.

How is the whitepaper written?

If a white paper is poorly written and doesn't adequately explain the technical aspects of how the project works, this is another red flag. If the white paper is well written and explains the technical aspects, that doesn't mean it is automatically a good option, though.

If you have the technical knowledge required to understand it, test the hypothesis in thought experiments, if applicable. If the logic seems incorrect, seek a second opinion from other people with technical knowledge.

If you don't have the technical knowledge required to read it, but still want to try to understand it, put aside some time to do the necessary research.

If you are not a good reader, don't have the ability to digest the technical knowledge, or for any other uncertainties, look to forum discussions for clarity. There will usually be a relevant discussion on Bitcointalk or similar boards between people who are familiar with the concept. They will be able to help you demystify the whitepaper.

What people are on the development team?

Can you find the people working on the project easily? If the whitepaper doesn't list any names, this is also a red flag. If it lists the project members but they all have pseudonyms - this could be a red flag, but not necessarily, as sometimes it depends on the sensitivity of the project (i.e. it may conflict with corporate or government interests).

Ideally, a project should have photos of the project members with links to active LinkedIn profiles. Always check the LinkedIn links because scammers often use fake accounts to create a false appearance. Always DYOR and look closely at the background of the people on the team.

Look for reputable developers on the team

A whitepaper written by a renowned or well respected innovator with strong ties to the industry, or a whitepaper at least associated with a team of developers who have recognisable credibility, is almost certainly going to be reliable. Vitalik Buterin, co-founder of Ethereum, isn't popular simply because he created a revolutionary technology, he is popular because he is well respected within the industry and recognised for his talent, passion, competence and drive.

It is important to back projects that are well respected within the industry because they are the most likely to get long-term investment from highly successful firms, and partner with fortune 500 companies who can provide long-term stability. Whitepapers written by competent and experienced professionals may not be flashy or have colourful diagrams, they might make absolutely no sense to the uninitiated, but to the astute reader they are a work of art. This highlights the limitations of attempting to analyse whitepapers and judge the merit of a project by them.

Consider the social impact of their creation

How important is the project? How does it benefit the world? Has it been done before? Is it a clone of another project? These are all important factors that need to be taken into consideration. Occasionally, when an ICO is successful at raising a large amount of funding, other ICOs will appear offering exactly the same solution with slight modifications.

Most ICOs fail and fail fast – a study suggests that more than half of ICOs fail within the first four months, so don't be sucked into a good looking project just because it has a genuinely revolutionary idea.

A lot of people riding the wave of ICO/cryptocurrency success are just looking to make money from ideas that are logical future applications of blockchain technology. A lot of these people have no or little prior business experience and aren't capable of successfully taking the project to the next step after the initial funding comes though. Some cut and run. Some always had plans to run.

Look for long-term stability

Unlike traditional businesses which are launched on solid foundations, and sink or swim based on their merit, ICOs and cryptocurrencies are basically thrown into the air in the hope they will sprout wings and fly, with many of them failing and hitting the ground hard.

If a project has a solid white paper, a great team, an innovative concept with a realistic road map, these factors could be used to determine if it will have long term stability. However, if no one invests, the team turns out to be incompetent or a better project launch makes it obsolete, then it won't have long-term stability (and could even evaporate entirely as many do).

What are the tell-tale signs that something is wrong?

If an ICO project looks too good to be true… It probably is. Apart from the whitepaper details listed above you need to research the overall feasibility of the project – an achievable set of goals which are not dependent on initial interest.

Another really important part of every ICO is the token sale. Monitor closely the sale itself and beware if it’s hidden – whatever the reason stated by the founders. Look for the token on several reputable exchanges and compare the listings looking for obvious discrepancies. If founders don’t put a cap on the sale or demand an unrealistic funding, another red flag should be raised. Every reputable ICO will have a rough estimate how much money they need to get.

It’s not a surprise that most social media platforms and Google put bans on advertising ICOs. The “get rich fast” ICO scams found the perfect breeding ground there, making it difficult to tell apart what is real and what is a scam until it was too late, especially for people who don’t have the technical knowledge or time to dig deep. Any unnecessary hype on these platforms should raise a red flag , as a trust-worthy project wouldn’t need this type of buzz.

Final thoughts

It looks like the entire project is run by good-looking women or involves celebrities? You’re probably looking at a scam. It looks like the team is actually one person? You’re probably looking at a scam. Maybe the best approach to any ICO would be to look at i as a scamnd try to convince yourself it isn’t by taking into consideration all available information. Question everything!

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. The author may have holdings in the cryptocurrencies discussed.