There are over 21,000 cryptocurrencies trading today. Of these, there are great and noteworthy projects. How can investors identify the few good ones from the majority? This article will cover five indicators of a good cryptocurrency project to hold, use, or invest in.
Bitcoin among other cryptocurrencies
The solution presented in a cryptocurrency project is vital to understand. What problem does it solve? If there is a simple answer to this, then the reason to use it will be clear. For instance, Bitcoin BTC started as a solution for online payments. The problem was that there were largely centralized payment service providers, and if these providers froze customers’ funds, there would be little to no redress for the customers.
Ljubljana, Slovenia – may 12 Bitcoin gold cryptocurrency trading chart on smartphone close up.
In an in-depth context, the peer-to-peer payment network was launched in the wake of the 2008/9 financial crisis. Herein, ordinary people lost homes and life savings to the collapse of financial institutions that held their funds in trust. What if there were a peer-to-peer solution that relied on an autonomous network instead of centralized institutions?
There is a lot more insight to gain from the growth of Bitcoin. In this context, it provides a peer-to-peer payment network that puts financial control in the hands of people rather than centralized institutions. A good cryptocurrency needs to have a clear reason for use.
Adoption is a marker of trust. While in the early stages of a cryptocurrency, it’s likely to have a few users, over time, there’s a need to see clear growth. Bitcoin initially had a few hundred users. These were people mainly contributing to its code and development.
The first commercial transaction was by Laszlo Hanyecz, who bought two pizzas for 10,000 bitcoins on May 22, 2010. He inadvertently created the day’s commemoration around the world. The 10,000 bitcoin were worth $41. Since then, the community has grown incredibly, as each new user adds their funds to the network, whether for payment, speculation, or investment purposes.
Kyiv, Ukraine March 03, 2019. Golden bitcoin coins. Bitcoin Pizza Day 22 May. crypto community … [+]
Other cryptocurrencies have for the most part gained users based on their initial interaction or introduction to Bitcoin.
In cryptocurrency trading, most trading pairs are connected to the two largest cryptocurrencies, Bitcoin and Ethereum ETH , which are the largest by market capitalization. The two are also the proverbial backbone of subsequent projects upon which other crypto projects keep developing.
As for the numbers in real-time usage, the volumes of a cryptocurrency show its demand. In economics, the principle of demand and supply is core to understanding the value of a commodity. For a good number of cryptocurrencies, the supply is limited. The demand then determines the value of that cryptocurrency.
Building upon the importance of utility, or the key problem the cryptocurrency is solving, and how many people are using it in real-time, it’s possible to derive the basis of volumes being traded.
For context, the trading volume is the total trading of a coin or token on centralized and decentralized exchanges. This volume is measured in dollar value in a particular time frame.
Data analyzing in exchange stock market: the candle chars on display. Analytics price change … [+]
To simplify this, a high trading volume shows real demand, while a lower volume reflects low interest. A new cryptocurrency can have a fairly low volume, but as it increases in value, the trading volumes go up. More in-depth analysis can show trading volumes over time, the markers of good liquidity, and the ease of tradeability.
For a new investor considering this, The question to ask is, how easy is it to buy this cryptocurrency? The ease of conversion from cash to that crypto through legitimate channels is a good indication of its trading interest.
If that cryptocurrency is unavailable on most recommended exchanges like Binance, Coinbase, and Uniswap, it’d be better to compare alternatives.
A good cryptocurrency project leaves room for improvement. The foundation solves one problem, while the future improves upon it. For comparison, Bitcoin offered a peer-to-peer payment system. The bitcoin lightning network makes these payments fast, cost-effective, and scalable. Scalability has been a drawback of Bitcoin since its inception since it was slower than traditional payment systems.
The powerful thing about Bitcoin is that its code is open-source, which meant that anyone could use its principles to build better things. This fundamentally makes Bitcoin a building block, and we see this in projects using its code.
Crypto currency background with various of shiny silver and golden physical cryptocurrencies symbol … [+]
Ethereum also has various smart contract standards. These are the same ones used to launch decentralized applications. Solana SOL , for one, among others, carries the same principles in these two projects.
If a crypto project has ongoing and future projects supporting various initiatives, it’s good to consider investing. Some projects also have foundations, such as the Celo CELO Foundation supporting entrepreneurs in solving real-world problems and serving global communities.
This last identifier is simple but important. Bitcoin, for instance, has a market capitalization of $327.7 billion. Market capitalization is the total valuation of a stock, in dollar valuation. For a cryptocurrency, that refers to the amount in circulation based on its current market price.
Bitcoin is currently trading at $17,050 at this time of writing. With 19.2 million bitcoins in circulation, that’s what’s making up the $327.7 billion market capitalization.
While this valuation is lower for other cryptocurrencies, it’s needful to have technical and fundamental analysis to determine the ideal value of a cryptocurrency. A high market capitalization needs to complement the other indications of a good cryptocurrency.
As the downfall of FTX has shown that a high market capitalization is not a standalone indicator, the whole ecosystem in which it operates needs to function well.
The team, the whitepaper, its ongoing education efforts, and the community need to be in line. Due diligence is vital in establishing both the present and future value of a cryptocurrency. Ultimately, it must align with your needs and convictions if you’re going to interact with it in the long-term.
Author
Administraroot
Related Posts
