Don’t invest in crypto if you don’t understand it.

And of course, I am going to start my piece with a classic — Warren Buffet has famously said ‘Never invest in a business you cannot understand’. And that’s a very good piece of advice — if you don’t understand the blockchain and don’t grasp the opportunities it brings to the world, just drop the idea of investing in crypto. And it’s not only about understanding the technology itself but the whole ecosystem. If you don’t know where to look for reliable information or what causes crypto to drop 30% in one day — how will you be able to react to such dramatic (or rather normal in crypto terms) fluctuations?

‘Crypto.’ ‘Money.’ ‘Hype.’ ‘10000% return.’

That’s what people understand when I say I am a co-founder of a blockchain-based startup. Well, there is so much more about the blockchain than that. But today I’m gonna talk about what people really want to know when I talk about crypto: investing. They want to gain all the knowledge during a 15-minutes-coffee-break: how to invest, where, how much, when, in what exactly, who should they follow on twitter, should they read reddit or discord, and is 4chan really for teenagers?

What I want to show you is where to start with researching crypto, which signals to look for. On one hand, critics say it’s just a bubble and people just want to make 10000% returns. On the other, some people actually put money in the space without even looking into the projects they invest in. I want to show that there are signals to look for to find good projects. And those signals are way different from the signals that you’d look at if you invested in the regular stock market.

So here’s the list.

1)TEAM

Check whether they exist.

I know it might sound ridiculous or harsh but with so many scams in the crypto world you need to start your analysis from the very basics: the people. Look for their social media profiles — especially LinkedIn — are they part of the organisation there? What are their roles? Check whether they talk about their project online — do they post about the project’s development, are they hiring, are they bragging about something that they achieved? They might not do that because it’s not their style but even if the founders don’t talk about the project at all — there must be something wrong here. When was the last time you met a startup founder and they didn’t want to tell you all about what the startup does and how excited they are to be working on it?

Oh, and if that’s the information provided on the project’s website, you know you should press ‘x’ and forget about it:

‘… was set up by a group of digitally savvy business leaders who saw a way to bring cryptocurrency and all its benefits to the general population’.

2)ADVISORS

If there are any people that are said to be investors/ advisors on the project’s website, go back to the very first rule — check whether they exist.

If they do, check their expertise and assess how helpful they could be for the project. Second, check whether the people themselves mention their involvement anywhere. Because, again, as ridiculous as it may sound, some crypto projects listed certain people as advisors without them knowing about it (with an example here). And you should be even more suspicious if Vitalik Buterin (the co-founder of Ethereum) is listed as one of the advisors as after so many scams he decided not to support other projects. He recently tweeted‘This is exactly the correct way to react to an ICO claiming my involvement.’ praising a reddit post stating ‘WARNING! SCAM!! Othor.org list Vitalik as a team member.’

3)DOCUMENTATION

When you think of a blockchain startup — you think: whitepaper. Read it to understand what they are building, what will be the use. Look for a roadmap/ business plan — however you call the bits and pieces that show the vision of the team and how they get there — could be in the whitepaper, but also on the website or in a Medium article.

Check their GitHub and their technical documentation. Great if you could understand it (if not, ask a friend to look through it), but even if you don’t you can still look for other signals — is the repository updated regularly? If not, why is it so? Are they working on a big update? Or have they abandoned the project?

4)COMPANY DETAILS

It doesn’t really matter where they are based most of the time but the mere fact that it’s easy to find the company’s location, registration number, TAX number — makes it easier for you to check if the company exists.

5)RESPONSIVENESS

Of course, if a startup is working hard on delivering their product their responsiveness could be slower, but nevertheless, they are building the product for their community so if they are not responding, what’s the point?

How to check it? Could be via email — asking for a detail that you are missing and couldn’t find on their website (then not only responsiveness matters but also the answer itself), but Twitter, Telegram or any other social media they use is also a good testing ground. Or if you don’t have any question, check whether they engage with other users. If they don’t — dig in why.

6)PRESS COVERAGE

Press coverage is something that new projects dream of. And of course, they might not get it straight away but if they do it’s good to check whether they are actual articles written by journalists who checked the company themselves or are they press releases. Small difference, big impact.

7)BUDGET TRANSPARENCY

That’s an important issue when it comes to the ICO. You give your money and want to know how it will be used, right? Well, not all projects are transparent about it so be warned. Check whether team members are getting money from the ICO — if so, how much? (is it 1% or 50% of the amount) will they be able to sell the tokens right away or are they vested? (meaning is there a possibility of flooding the market resulting in an instant price dip) will you be able to trade the tokens straight after the ICO period is finished?

8)UPDATES

People interested and investing in the blockchain are a community. And if they give you their interest and investment, they will expect updates. And they should. Those updates won’t come in a form of a quarterly reports as in the case of publicly listed companies. They will rather be Medium or reddit posts. Good side of it is that you can interact with them — ask questions, make comments and expect an answer from the team.

In my view it’s great to have updates once a month/ once a quarter. If it’s too often it might be too much of a burden for the team & also might not be that relevant (we fixed this and that), but after a month one can definitely share more, what happened & also what’s planned for the next month and whether they are behind or ahead of schedule. Because especially if you’re behind — you need to tell the community why and what you are doing about it.

9)TOKEN HOLDERS

It’s good to check whether the team holds half of the tokens (and as stated above even if, it’s also important to check how and when they can sell them). It’s also good to see whether the tokens are distributed throughout the community or whether there are whales involved. To do so, for Ethereum tokens you can use our tool https://www.trivial.co/ (still in beta version, so please, don’t expect too much).

10)REPUTATION

That’s a difficult one. Cause what does reputation mean? In the case of a startup is all sorts of things described above: the team, how they communicate with the community, are they transparent. And it’s great to check all these aspects. But you can also check token’s reputation through various means like ICO Transparency Monitor, Etherscan, ICO Bench, ICO Watch List, TokenMarket, ICO VOTING (just examples, there are many of those). Those are great as additional tools in your research. They should not substitute it.

11)COMMUNITY

Looking at the way the project communicates with the community is already a sign. If the project doesn’t have a Facebook page I wouldn’t freak out. If it doesn’t have a subreddit, slack, telegram or twitter (don’t need to be all of them, but at least one of them is good) — it’s the very first step to assume that they know very little about the blockchain community. Because that’s where it communicates.

The other aspect to look at is the amount of users/ community members and how deeply involved they are. Is the community active on a daily basis? Are people asking questions? Are they reporting bugs?

Why is that so important? Because if people are not interested in the project, who will use it?

[January edit: Trivial team researched 610 Ethereum-based tokens, with a special focus on communities. If you are interested you can read a summary (and my frustrations) here]

12)TECHNOLOGY

First and foremost, the question is do they need the blockchain. Of course, it’s as fashionable now as the dot.com was in the 90’s, making company’s stocks skyrocket when they add Blockchain to their name (as it was the case in the 90’s with dot coms). A recent story of Long Island Ice Tea Corp stocks which went up 289% when they transformed into Long Blockchain Corp. Coming back to the real issue here — is this technology the best solution out there? Blockchain is an amazing technology that I, and many others, believe will change the world. But that doesn’t mean it needs or should be used in any case, any industry or under any circumstances.

For example, putting loyalty programs on the blockchain might sound interesting — immutable, no one will be able to manipulate your points, you’ll be able to track them, how you spend them etc. But does it actually add much to what already exists? Weighing in the development effort and benefits at the moment it seems not to be such a great idea. Just because what exists is good enough and the technology won’t add that much value.

13)NUMBERS

Yes, I put it as the very last point. And I did that on purpose. Because of course it’s important to look at the numbers but they are not the core — at least if you invest long-term. And while you look at them, look at them wisely e.g. getting too obsessed with the price of the token is pointless. — Let’s say it’s only $0.5, it doesn’t automatically mean it has the potential to go above $100, or $100 like Ethereum or Bitcoin. Check what’s the total supply and what’s the circulating supply (and more importantly if there’s a difference what’s happening with the non-circulating supply: is it in the founders’ pockets? or is it to be released day by day? is there a rationale behind it?). Next, check whether the supply has a cap — e.g. there will be only 21 million bitcoin mined by 2140, but Ethereum, one of the top 3 crypto at the moment (when it comes to the market cap, but 1st when it comes to the number of daily transactions) doesn’t have a cap. If it doesn’t it’s not necessarily bad — central banks don’t have a cap on the amount of currency they can release to the market — but try to understand how the supply grows and what effects it can have on the price. Also, if there was a recent surge in the price try to understand why — is the whole market going up or down? (just like before Christmas), or is it because there was a massive update awaited by the community?

But please, don’t obsess with the numbers, use them as one of the metrics.

This list grows and changes as the industry changes so fast. And I’m sure others have their own list, and that’s totally fine. I am happy to hear what you look at when researching a token. I am curious to hear, what did I miss?

Disclaimer: Please be informed, that this piece represents my view, and does not constitute investment advice. Independent advice should be sought where appropriate.

About me: European lawyer by degree, briefly flirted with the corporate world and moved to the startup world to discover the world of digital health and now blockchain. Co-founder & CEO of Trivial.co: Ethereum blockchain interface where you can check anyone’s tokens & transactions.