The crypto world is expanding daily with the release of a token by a cryptocurrency project. Bitcoin and Ethereum are indeed the most popular and sought-after crypto assets. These and other crypto assets need to be studied before investing in them.
Today, there are over 17, 000 cryptocurrencies on the market in existence today, according to crypto market capitalization aggregators. Crypto beginners and investors then need to understand which token to buy for profitability.
There are many of these tokens out there that aren’t real. Scammers have seen the potential opportunities in the crypto space, and they’ve designed some tokens in order to get people’s money.
In this post, we’ll look are the things to know before buying a token. This will be of help to a crypto beginner and a seasoned trader who wants to diversify the portfolio into other altcoins. Before then, let’s know more about crypto tokens.
What are Crypto Tokens?
Crypto tokens are a type of cryptocurrency that represents an asset or specific use and reside on their own blockchain.
They are often used to fundraise for crowd sales, but they can also serve as a substitute for other things. Tokens can be used for investment purposes, to store value, or to make purchases.
These tokens are usually created, distributed, sold, and circulated through the initial coin offering process. This involves a crowdfunding exercise to fund project development.
What is the purpose of tokens?
Tokens can represent an investor’s stake in a company or they can serve an economic purpose e.g. for payment of goods and services.
Token holders can therefore use them to make purchases or they can trade tokens just like other securities to make a profit. Token holders can also be part of company’s decision maker as some project allow holders to be part of it’s governance.
7 Things You Should Know Before Getting a Token
Below are some techniques that will guide you in analyzing any token before putting your money into it. They are precautionary ways to help you analyze any crypto token. It will also guide you in making a safe choice.
1. Scrutinize the project’s whitepaper
A token’s whitepaper is where you’ll find the team’s aim for the project and the token’s use cases. You have to study and look out for what the project through its whitepaper has to offer.
Even if you find out that the project has realistic goals and are solving a problem, make sure it is not a copy of an existing project. This will safeguard you from being scammed in the long run.
2. Check out the team behind the project
They are some questions you need to ask while checking out the founding members of the project after you’ve scrutinized the whitepaper. These include, Has anyone worked on reputable projects in the past? Are they reputable members of the blockchain ecosystem? What are their qualifications?
This will boast your confidence when you see you’re investing in a token backed by people who actually know what they’re doing. However, this is not enough to confirm their credibility as images can easily be lifted off the internet.
3. Check out the project on social media
Majority of the company behind these tokens have social media platforms where they announce and give updates. Twitter, Discord, Telegram, Reddit, Facebook, and so on are being used in this regard. You’ll therefore need keep a close eye on the token’s community on these platforms.
One of the benefits here is that you’ll get to know if the project has a large community supporting its cause. On the same note, you’ll get to know what others are saying about the project and, thus, make informed decisions.
4. Confirm if the project is solving a problem
If you’ve gone through the project whitepaper, you need to analyze its problem-solving moves. Satoshi Nakamoto’s Bitcoin whitepaper solves problem involving the traditional financial system with its peer-to-peer method. Other tokens created thereafter seeks to solve a problem.
So, as a smart investor, one question you should answer before investing in a token is this: What unique problem is this token solving?
Practically, blockchain projects that uniquely solve a major problem will have more surge in demand, thereby boosting the tradable value of its token. This will be a guide in helping to secure the best token for your crypto investment.
5.Get abreast of the token’s project announcement
This is one of the advantages of following the project on social media. You’ll not want to miss out of the latest on the token you’ve put your money on. If where your treasure is, you heart lies, then you must stick to where you can know more about the token.
You can also join in the discussions about the token and ask questions which bothers you. You’ll surely get answers to questions from the founding team on platforms like GitHub, Medium, Telegram, Discord, and so on.
6. Find out if its pricing holds promise of mass adoption
If the token has already being created for a while, you have to check if it is accepted and used by the public on a large scale. If it’s pricing doesn’t hold promise of mass adoption, it is not a token for you to invest on.
Although, cryptocurrency in general in still in the process of mass adoption, some tokens have potentials to be a good asset to invest in.
Timing is very important in everything including crypto trading/investment. It is important because choosing the best time to invest can impact on your return on investment. The volatility nature of cryptocurrency requires that you know the right time to invest in tokens.
It is a fact that there are thousands of crypto tokens to invest in out of which are fake ones which can make you go bankrupt. It is therefore important to have these tips listed above to be on the safe side.
Crypto investment is the most risky form of investment. If you must invest in a crypto asset, you must put what you can afford to lose even when you have these tips at the back of your mind.
Also Read- Why Cronos Token Will Have Big Effect In 2022
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