The following is a checklist designed to help individual investors conduct basic due diligence on cryptocurrencies. Before investing in or participating with any cryptocurrency it is important to realize that this industry is very new, and generally untested on a large scale. The chances of losing all your money are much higher than with traditional investments, and prices are currently much more volatile than most fiat currencies. There are tens of thousands of cryptocurrencies on the market, and anyone can deploy their own cryptocurrency, complete with website and generic whitepaper for under $1000. Always conduct extensive due diligence on any cryptocurrency group before deciding it is something you want to be a part of.

 

Does the cryptocurrency have a reasonable market cap in relation to the services they provide?
Does the cryptocurrency have a natural exchange trade volume that is not artificially inflated?
Is the price stable and not prone to massive spikes or large drops?
Does the cryptocurrency rely on merit and infrastructure building as opposed to hype?
Does the community have substantive discussions that are not often fixated solely on price?
Do they have a unique approach, and not just following the herd with a ‘me too’ attitude?
Does the cryptocurrency have a supportive ecosystem that enables it to frictionlessly function as money?
Does the development team have long term incentive to stay with the project?
Does the cryptocurrency have a well established track record?
Is the project in question actually a cryptocurrency, and not classified as an unregulated security?
Do any merchants accept the cryptocurrency in question?
Does the cryptocurrency have effective branding that is palatable to the masses?
Is the technology this cryptocurrency uses all necessary to their future goals?
Is the technology this cryptocurrency uses tried and tested?
Is the cryptocurrency’s code free of bugs (no major errors in their blockchains operability)?
Is the cryptocurrency’s blockchain immutable, and untamperable (no rollbacks or transaction alterations once recorded on blockchain)?
Are early adopters reinvesting realized gains back into the ecosystem?

 

If you did not answer yes to the majority of the previous questions, you may want to reconsider investing in that cryptocurrency. Even if you answered yes to all questions, it never hurts to voluntarily participate in a cryptocurrency’s ecosystem or community to get a better impression of what direction they are heading, and to further enhance your due diligence efforts.

 

You may also want to review: DNotesEDU’s Digital Currency Module – Cryptocurrency