According to recent polling by the Pew Research Center, a staggering 16% of Americans say they have invested in, traded or used cryptocurrencies at some point in their lives. Although this might sound like a relatively small percentage of the population, this figure is up from 1% of the American population when the Pew Research Center asked similar questions in 2015.
With this figure in mind, it is clear that public awareness of and investment in cryptocurrencies has never been higher. This shift has helped cryptocurrencies evolve from being a niche, if not esoteric, project that was interesting to a few techies in the know, to a much bigger project that has attracted billions of dollars in investment funds!
As cryptocurrencies have surged in popularity, there has been a massive proliferation in the number of cryptocurrency projects being launched at the same time. According to recent estimates, there are around 20,268 cryptocurrencies in existence as of July 2022.
This is a truly staggering figure. At a minimum it gives us a sense of why a narrow focus on Luna crypto price, for example, does not tell us much about the state of the crypto world.
Unfortunately, however, not all cryptocurrency projects were created equally.
While on the one hand you have excellent projects such as Luna coming online and offering investors excellent return on their investment, some are ill-fated. In fact, according to analysts from a number of prominent crypto firms, thousands of these digital currencies will collapse in the coming months.
In this short article, we will give you some tips to keep in mind which should help you to discern a good crypto project from a bad one. While these tips will not necessarily guarantee you a return on your investment, they should give you a basic idea of what the characteristics of a good crypto are!
Use case and potential applicability
An important characteristic to look out for is what uses the developers have in mind for the currency once the development lifecycle is relatively complete.
There is a risk here, however, as some cryptos will often have highly novel functions which aren’t really that practical or useful in the real world. With that said, look out for whether the cryptocurrency in question solves a problem, makes a process more efficient or fills some existing demand. This is a good sign that people will want to acquire the crypto when it is launched.
Supply and demand
Another indication of a crypto project that has life in it relates to the simple matter of supply and demand. When you are assessing what chances a cryptocurrency has to be successful in the long run, ask yourself: is there demand for the currency and will supply far outstrip this?
If there is a much greater supply than demand, this will obviously impact the price long term! On the contrary, if there is increased demand, this will send the price upwards. Supply might also be moderated by the currency itself, with many cryptos now having technology that ‘burns’ a certain amount of coins to stabilize the supply and keep the coin’s price steady, such as the Luna price.
With that said, if a crypto project receives a decent amount of industry coverage, this indicates that that it is likely to have good long-term prospects.
Whether or not a particular crypto project can ‘scale’ also reveals a lot about its future prospects. Scalability refers to the number of transactions that can be processed or confirmed by the network in a given period of time.
Different cryptocurrencies will have different methods of processing transactions. For example, the difference between XRP and Ethereum. This will impact how the network functions as a whole. Scaling the network to be able to process an increasing number of transactions is a key challenge for cryptocurrencies. Bitcoin is a notable example of just how challenging this can be!
Examine the plans the developers have in place for how the network will be “scaled” and developed to handle more transactions.
Arguably one of the most important aspects of any cryptocurrency project are the security protocols they have in place. Given that when processing transactions, cryptocurrencies deal with highly sensitive financial data, it goes without saying that security should be at the top of the list of things to look out for!
The ideal crypto will have security built into it from the ground up. This could mean two-factor authentication, passwords and various other safety features. While you won’t necessarily need a full understanding of all the different technical aspects at play, you should nevertheless do some basic research into what security features the project offers.