Every day there are new cryptocurrencies being minted and mined, but how do you know which ones are safe?
The short answer to this question is that all digital currencies have inherent risks, but there are signs to look for when checking out the latest craze.
The first place to look when exploring a new currency should be through a site like Coingecko, which lists as many digital currencies as it can. Public information is added later to show support or give credence to the project.
- Explore the people involved. If you can’t find articles or profiles for the people who worked on the project then it’s best to avoid it altogether.
- Do your research. Take the time to find out the function of the coin you’re interested in. Some coins like Bitcoin are mainly used as a store of value whereas Ethereum, the current #2 coin by market cap, is also used as a network of smart contracts automating payments like loans and other processes.
- Liquidity (The amount of the currency staked for exchange) is important if you want to eventually sell the coins you have. People can buy up the price of a coin, but if someone sold/traded theirs for all of the USD that was staked against it on a decentralized exchange then you have nothing to sell/trade it for.
- Look at the distribution of tokens if you can. If the max number of coins is 100 and 90 of those are held by the creator, then it isn’t a well-distributed or “decentralized” currency.
- Many cryptocurrency scams are known. A quick Google search for your coin of choice is never a bad idea and can help you avoid losing your investment.
Conclusion:
Any investment requires research and cryptocurrency is no different. With so many new currencies being created every day, it helps to have input from someone with experience using, saving, and staking on many platforms. What are your goals with this investment? Short term, or long-term.
