A cryptocurrency is a virtual currency that uses cryptography for security. It is difficult to counterfeit Cryptocurrencies because of this security feature and because of the fact that they are not issued by any central authority like other fiat currencies. Due to its decentralized nature, crypocurrencies are immune to any interference or manipulation by governments.
Lately, there has been increased popularity of cryptocurrencies like Bitcoin, Ethereum, Litecoin just to mention a few. With so many cryptocurrencies in the market today, one can have difficulties in evaluating the cryptocurrency that is worth buying or investing in, bearing in mind that each has its own market price. Below are some of the factors to consider when evaluating a cryptocurrency.
Market capitalization is the total value of a company based on the total number of its current share price and outstanding stocks. Market capitalization of a cryptocurrency is equated to the total worth of all the coins in circulation .Cryptocoins with low market cap can be easily altered or manipulated by individuals planning to buy low and sell at higher prices for personal gains. An investor can lose a huge amount of hard earned money if he falls for the lies that these people push out. Manipulating a coin that has a large market capitalization is difficult since it requires a substantially larger capital base.
A coin with an active development team will be releasing updates on its progress all the time. For instance, Bitcoin has the most development team. It publishes all bitcoins development works through https://github.com/bitcoin/bitcoin and one can openly view and check whether any of the developers is dormant or inactive. It is extremely important for developers to push updates whenever an error is detected in a cryptocurrency as it will definitely affect the Altcoins since they share a similar codebase.
Liquidity and Trading volume
Checking on the liquidity and trading activity surrounding a cryptocurrency is an important aspect when it comes to evaluating a cryptocoin. If no one is trading a currency, it is pointless holding thousands of dollars’ worth of a cryptocoins as there will be low chances of exiting your current position in the market. Changes in price will be there whenever any amount is sold or bought and these fluctuations are not good for sustaining the value of your digital currency holdings.
A cryptocurrency with a huge number of people trading it will have more value. This is so because if a coin has no viable community and enthisiasts, it means no one will be using it. For instance, Bitcoin claims that it has the best and biggest community through it forums like Bitcointalk but the best way of analyzing whether a cryptocurrency is being traded is by looking at its figures. By just looking at the cryptocoins decentralized nature, it is difficult to say that coin A has B numbers. However, one can look at the number of Facebook likes, Twitter followers and Reddit activity to estimate the size of community of a certain cryptocurrency.
Lastly, one can use the general internet to gauge how popular the cryptocoin is. One can search for reviews regarding a coin on the internet and other cryptocurrency forums to gauge the public interest of a particular cryptocurrency. Search results of established coins will have millions of results to display showing the maturity of the cryptocoin, while small coins will have very little information to show.
In conclusion, it is important to note that the cryptocurrency ecosystem has scammers with intentions of scamming unsuspecting enthusiasts. It is therefore crucial to conduct more research into any cryptocurrency or blockchain project before investing.