Invest only what you can afford to lose.
The message above should be seen as the guiding principle of crypto. You will encounter it frequently, especially after some sudden price correction in the market. Crypto is still a highly speculative market, which no one will ever be able to predict. I can only strongly advise you NOT to take out any loans to increase your investment. You won’t have the needed patience or serenity to succeed in the markets. You will always see some horrible stories about people who used all the money they had and even took a loan to invest it all. That might work out for some select few, but most will lose a lot of money.
One of the main goals in crypto shouldn’t be to get rich quickly and buy yourself a Rolex or a Lambo. Your first priority should be to pay back your debt. Therefore, it would be senseless to take out loans to invest in crypto or anything in general.
It always hurts to lose money, but that is part of the game, especially if you are new. Many successful crypto traders either worked on Wall Street or invested years of hard work before becoming successful. As with everything in life, you may be talented, but you still need practice. Don’t be overconfident in what you do. That won’t work out in the long run. As with everything new, it will take you years of trial and error, even if you are very dedicated. So please invest only the money that you really can afford to lose. See it as some sort of gambling money and don’t be too afraid to lose it. Everyone, even the most experienced traders, still lose money—maybe not as often. Many start saying, “If I had only….” Please, never do that. It will only make you depressed and will never benefit you. You may even have noticed media headlines of the following type: “If you had invested $1000 in Bitcoin in the year XXX, it would have been worth YYY today.” It can be interesting to know, but it’s still in the past. The market dictates the price. There is a high probability that you may sell a coin, which may be worth multiple times more a few months or even weeks later. However, it is your decision at the time of selling, and it really doesn’t help live in the past in trading. You should learn your lesson from every mistake and improve for further trades. That is the way to get better, and it will take some time.
In this chapter, I will try to give you as much helpful information as I can so that you could be prepared to do your own research. Giving you a bunch of coins that I would invest in at the time of writing doesn’t make any sense, since you still wouldn’t know why I picked them. (These coins may even no longer be a good investment at the time of your reading this book.) I really hope that after this chapter, you’ll be capable of choosing your own coins worth of investing.
4.1 Important websites
For me, the best source of information is the Bitcointalk.org forum (BCT). In my opinion, there is no real way around it if you want to find good investment opportunities very early. I may be a little biased, but at the time of my joining crypto, all the magic was happening there. I still visit it every day and can tell you that no one could ever absorb all the information that is available there. If you dig deep enough, you will even find some posts by Satoshi himself.101
Many famous projects were officially announced here, and it is still the number one source for new projects. It is also the central point if you would like to participate in bounties as a way to earn coins, which I’ll elaborate on later.
First, you should join the forum (i.e., sign up) to be able to start threads and to post. As in many other forums, there is a ranking system, and you will start as a brand new member.103 As such, your frequency of posts and number of personal messages will be limited. This will decrease during you process of posting and leveling up and was initially introduced to prevent spamming.
|Rank||Required activity||Required merit|
|Legendary||Random in the range 775–1030||1000|
As you can see in the table above, there are different ranks corresponding to some activity and merit. Your activity will increase with your posts, but it will still be limited to fourteen activity points every two weeks. One activity, therefore, represents one active day on the forum. The activity number is determined in the following way:102
time = number of two-week periods in which you’ve posted since your registration
activity = min (time * 14, posts)
Activity is updated every hour.
You will notice that reaching the highest rank needs a lot of active work and participation. That might be frustrating for new users but is definitely very valuable. This can help you in different ways. High rank accounts are there for a longer time period and have mostly lived through different stages of the market and especially the crashes. They may be a good source of information, and since many of them care about their reputation, they can be viewed as somewhat trustworthy. However, to make myself 100 percent clear, I strongly advise you to be cautious even with legendary accounts. Some of them are bought to acquire the reputation that comes with a higher rank, just to scam new users. On the other hand, there are many low rank accounts that don’t post frequently but are very knowledgeable and are definitely more than trustworthy. Therefore, every account has a trust rating.104 It can be seen if you click on the profile, or it will appear in some sections of the forum at posting.
This was mainly implemented for the marketplace sections and can give you an idea whether the user might be trusted or not. It is used after trades between users to comment whether everything went well or not. Once again, it can help you to get a sense about a user, but do not rely on it. For example, the screenshot above pictures theymos—the global administrator and moderator of the forum. You will notice his high level of activity representing more than eight years of participation. The other score you may already have noticed in the screenshot or the first table above, is the so-called Merit. This score was introduced in early 2018 and is now additionally required to rank further up. It was developed to increase the quality of posts, and a detailed explanation of the system can be found below:
You get merit points when someone sends you some for one of your posts. Additionally, when someone sends you merit points, half of those points can be sent by you to other people.
Certain users are designated as “merit sources.” They can create new merit out of nothing, up to a limited number per month (which differs per source). I will not be posting a definitive list of merit sources (so that people don’t bug them too much), though you’ll soon figure out who they are if you pay attention.103
After the introduction of the ranking system, it definitely gets harder to rank up, but it is still possible to reach new ranks by regularly posting in a higher quality. If you don’t rank up or receive any merit, it isn’t much of an issue in the end. It is something nice to have, as it enables you to join signature bounties and receive coins for your participation, but there are many other ways. You can find unlimited information on Bitcoin and nearly every other altcoin in various sections on the forum. There is an extra section for alternate cryptocurrencies, which is your way to go if you are going to do research on a specific coin. You can ask every question in the forum, but try using the search function first. Also, you are encouraged to read the opening post, which contains the project summary, and maybe one or two pages prior to most recent one, before asking your question.
Many questions are posted literally every day, and you may find the answer immediately by reading a few pages of thread. Most other crypto-related websites will also link the announcement thread (ANN) as a source of information. If you start a new topic or post to an existing one, the thread gets bookmarked, and you can easily find the repective threads by clicking on “show replies to your posts” in the upper left corner. You always have the possibility to follow threads without having to post within. Those will appear in your watchlist on the right. You can follow whole sections too if you like to do so. There is a possibility to send private messages as well, and you will get notified via mail about new messages. This was a very common way to communicate a few years back. I personally check the announcements in the alternate cryptocurrency section nearly every day to read about new projects.
The forum can be very overwhelming depending on your experience. It may be hard for you to actually find decent projects at first. But this is just a matter of time. You will recognize threads as they are sorted by the latest posting date. After some time, you will be able to easily spot new projects, without any or with just some pages written. You will also be able to memorize some basic information regarding nearly every project out there as you search further. You will also find a marketplace section where you can buy nearly everything for crypto. This is the place to head to if you plan to buy some coins before they are listed on any exchange. Those OTC (over the counter) trades are mostly organizes in WTB/WTS (want to buy/ sell) threads. This can be a chance to buy some coins very early, which doesn’t necessarily mean that you will buy for a good price though. The price is solely dictated through supply and demand. Sometimes you will end up paying a higher price than the one you could have paid after an exchange listing. But on the other hand, you may be able to make some decent gains even at the first exchange listing too. Still, I would encourage you to do any OTC trading only after gaining some market experience.
Many will ask you to send your funds first, what I would never do. Always search for some user offering some escrow service in the forum. He will confirm your trade with the other user, which is definitely a safer way to go. But always use a well-trusted escrow of the forum and be suspicious if your trading partner offers you an escrow without some trust rating, rank, or reputation, since they might just be working together.
You may come across some new projects that don’t have any fancy graphics or don’t contain a lot of information. That is not necessarily a bad thing at all. You will notice very soon that the “scammiest” projects are the ones that shine the brightest. Many projects are started by only one developer or a small team without any graphic designer or writer. Some people skip the best projects just because they don’t see any pretty pictures in the opening post. Those are sometimes the true gems to look for. Always take your time to go through any information given. Ask questions if you need some further clarification. Try to read the whitepaper if there is one. It may be hard to understand everything because it can get very technical, but at least try to get an idea what the project is all about and whether it’s possible to achieve the proposed features.
It is always a good sign if the developer is present in the thread and replies in detail, especially to some critical questions. You will notice very soon whether the developer has the required skills and knowledge to work on the project. Don’t hesitate to ask critical questions that the developer or the team may not like. It is part of the game, and you can learn a lot from how they react to such questions. Try to avoid projects with an unfair launch or a high percentage of premine (specific amount of coins reserved for the founders/team; not available for distribution). Most very successful projects were developed without millions of funds, which aren’t needed in most cases. Take your time in the forum and try to read as much as possible. It will be getting a little easier with each passing day, and there is nothing better than finding a true gem and being involved from the very beginning.
Another very important website, that accompanied my journey myself since the beginning, is coinmarketcap.com. (CMC)
Coinmarketcap.com early august 2017
You will find a lot of useful information on this website. Many use it to check the total market capitalization of the crypto market or the latest price for a coin. Many coins get added nearly every day as they reach a certain trading volume on exchanges. For every listed asset, you can check the course of the price action valuated either in USD or Satoshi, which can help you in getting your first impression about a coin or a token. You can search for the asset of interest and the links to some related information, using the search bar on the right. For example, you may find the link to the announcement thread on bitcointalk, the official website, source code, and the block explorer. Especially helpful is the “markets” tab where you can see any exchange the coin is listed on.
Please note that I may be using the term coins as a substitute for any crypto asset in the course of the book. This is actually wrong per definition, since there is a major difference between a coin and a token:107
- Coins run on their own blockchain.
- Tokens are created and run on an existing platform. (Ethereum is a common example.)
Many new coins will be listed on some smaller and most probably unknown exchanges. Since there are many different exchanges out there, it is very useful to see which ones the coin of your choice is listed on. During your research you will very often find projects that aren’t listed on exchanges yet or are trading without any relevant volume. Those coins are therefore not to be found on Coinmarketcap.com (CMC) yet. (Even though the volume criteria were removed just recently, it appears that assets without exchange listing are added quite slowly to CMC.) As many people search for new projects on CMC for further research, a listing leads to broader awareness of a project. Hence, being involved in a project before a CMC listing occurs, can be a good chance for some profits. You should keep in mind that all those new projects always involve a high risk of failure and loss of funds. That is why, many people choose to invest only in some well-known projects that are found mostly on the first page of CMC. The popularity of the top 20 coins is high, and the risk of losing all your invested money is significantly lower. But as a higher risk often goes hand in hand with some possible higher rewards, projects with a very small market cap can lead to some unimaginable gains.
4.2 Picking the right coins
The search for projects with a small market cap and solid fundamentals is a very common practice of many experienced traders. Accumulating a decent bag of coins with a very cheap entry can lead to unimaginable gains of sometimes more than multiple thousand percent. The explanations and guidelines you will read on this topic will therefore vary slightly, depending on personal preferences. You can use this guide as a starting point and further improve your expertise with personal experiences. There is no secret formula that can guarantee you profits, but there are some major points that will definitely help increase the chances.
First, it is important to be patient. The required time for a project to start gaining in value is always different in each case and can’t be foreseen. It’s not unlikely that a coin may even need up to a year for some serious gains to materialize (I’m not talking about some 10–20 percent gains here). This should not lead to uncertainty. You should make yourself comfortable with the possibility of holding your coins for a very long time. Hence, being patient is crucial. I would advise you to set up some alarms on certain price targets/levels to be notified, without the need of checking the price every minute. A lot of websites or different apps give you a very easy and convenient way to track the prices of your favorite portfolio assets.
To start, head over to CMC and use the View All function on the right. The page may take a little time to load, and you should eventually see something like this:105
Use the following settings:
Market cap: $1 Million – $10 Million
Volume (24h): $100k+
You can use the BTC nomination for the market cap instead of the USD if you like. This time, I actually prefer keeping it in USD, because I think it’s easier for comparison. Search for the coins with a market cap between one and five million dollars. This is based on my experience in the past. This can vary greatly, as some traders will choose coins with a ten times lower cap to look for. I normally adjust the setting to the overall market cap at the time of doing my research. Right now, the market cap of the whole market is at around $300 billion, and I would look up to max five million dollars on the coins. If the market cap doubles, I would even look for coins valued at ten million dollars and below. This is a ratio that has a good risk/reward in my eyes. You may not have the best entry possible if you pick the coins at that stage, but the gains can still be very high. Again, you can always adjust the market cap, volume, or number of coins easily, based on your own experience.
Second, take a look at the volume. I prefer coins that have a daily 24-hour volume of about 5–10 percent of their total capitalization. That indicates that the project is alive and well and also has some interest from traders. You might adjust that level further down, but I would advise you to stay above 1 percent at least. Start an Excel sheet or a new list for the coins that meet the criteria and write them down. Now look at the supply of the remaining coins. Cross out every coin with less than one million coins. I made my best return with coins of about 100 million and around 10 billion coins. To me, that is more of a psychological thing. The $1 mark is a very psychological level of valuation. For experienced traders, the USD valuation of an asset might not mean much, as most will focus on the price in Satoshi. Hence, the price doesn’t mean much without the supply. Many coins can be massively undervalued, even though they might have an high USD valuation at the same time. But the USD valuation of an asset still plays a crucial role if you want to make some serious profits, as many new investors and traders are primarily focusing on it. It sometimes leads to some interesting momentum. In the last bull run, quite a few people that joined the space ended up buying a different coin they actually wanted to. The reason for it was somehow quite unimaginable for experienced traders. As “newbies” joined an exchange like Coinbase, for example, they saw the price for only one whole bitcoin, which was indeed pretty high. As they did not know that BTC is divisible, they ended up buying ETH or some other coin, just because it was cheaper. As always, there is a lot psychology behind it. There are many people out there always preferring to buy 10,000 coins instead of just one. That is why, some large cap coin has some psychological advantages. As long as the price is below $1, new ones will always think it is cheap and are more likely to buy, even if the price has already gone up several hundred percent. As you can see, understanding the human factor is essential in trading, and knowing the psychology behind it is very useful. Some basic explanation on the calculation of the market cap and supply at CMC can be found below:107
What is Market Capitalization, and how is it calculated?
Market Capitalization is one way to rank the relative size of a cryptocurrency. It’s calculated by multiplying the Price by the Circulating Supply.
Market Cap = Price X Circulating Supply.
How are prices calculated for various cryptocurrencies?
Price is calculated by taking the volume weighted average of all prices reported at each market.
What is the difference between Circulating Supply, Total Supply, and Max Supply?
Circulating Supply is the best approximation of the number of coins that are circulating in the market and in the general public’s hands.
Total Supply is the total number of coins in existence right now (minus any coins that have been verifiably burned).
Max Supply is the best approximation of the maximum number of coins that will ever exist in the lifetime of the cryptocurrency.
Now, keeping that in mind, cross out the coins with a big difference between the Max Supply and the Circulating Supply. That is sometimes not that meaningful though, because it depends on which coins are calculated into the circulating supply. Sometimes, the coins locked for running masternodes (in some cases, even more than 50 percent of the total supply) are excluded from the circulating supply. Even though they are not really circulating at the moment, they could still be unlocked at any time. The same difficulty emerges with coins with a large distribution period. You should get suspicious if the circulating supply is less than half of the max supply. Mark those coins on your list and keep on going with the unmarked ones. You can still come back to the marked projects later on if you like, but as it might indicate a lot of premine or founder’s reward, they shouldn’t be your first priority. Now that you should have a decent number of coins on your list, it’s time to start looking into them in detail.
4.3 Researching projects
To start your research, head back to the first project of your list and try to collect as much information as possible. Have a look at the homepage, the most recent posts on social media, and the bitcointalk thread. I always start with the bitcointalk announcement thread if one is available. Write down the total number of posts and how many posts are written each day. Search for the latest posts of the team and read them carefully. Many projects won’t have any activity and are mostly without active development. Taking a look at GitHub can help getting an impression of the actual development activity. If you aren’t a coder or aren’t used to GitHub, it can be very confusing and very hard to find some useful information. Many features are developed in private directions and are later merged with the main project. Some teams even add some useless files or add and then delete them to give the impression of activity. There are a few websites trying to sum up the GitHub activity for every project. They can help give you an idea, although they aren’t really reliable. Although I try to keep track of the GitHub activity during my own research, it is far from being crucial for your research. If you have some spare time, try to watch some explanation videos and maybe create an account to get used to it. If you use it, cross out the projects without active development of activity from your list.
Now, it is time to start comparing the projects to some potential competitors that are already out there. You will most likely find some copycat projects with just some minor changes. Cross them out too. Your list should now be down to a few projects. You will most probably end up with only a few coins on your list, which are worth investing. One important question to ask yourself is: Do you think that the project will still be around in a year?
That is actually a very hard question, to be honest, because most of the projects you see on CMC might die even in half of the time. But there is not much sense investing in coins that you think won’t be successful for a long period. It might take quite a while before you see any major price moves, so you should have at least some confidence in the project. This step is quite hard in the beginning. Something you should generally avoid is falling in love with a specific project. You will start making better trades if you just let go off your feelings and pick coins following your research or the charts study.
Anyway, your objective impression of the project should still be good before you invest. Head over to the exchanges where the coins are traded on and start accumulating. This process can take weeks or months, depending on the amount you want to buy and the market sentiment. Make yourself familiar with the chart and the market price, and set your buy orders accordingly. Always have a look on the orderbook and set buys on different price levels. This is essential for many reasons. Setting up a huge buy order can lead to the formation on a so-called buywall. This indicates some increased interest in the coin and can lead to some price increase, as many people won’t sell you their coins on discount. Another good reason to have some low buy orders set is to catch some daily swings and especially dumps on the market. A very low buy order combined with some heavy dump on the market can sometimes lead to some instantaneous profit if the buy orders “compensate” the whole number of coins sold easily. If you are done accumulating, there is only one thing left to do—waiting for some major price action. This might take weeks, months, or even a year. Just be patient and stay up to date.
In case the project blasts off, follow the project very closely. Depending on what the volume and price was before, some major announcement or exchange listing can easily double the price. That is the point where you start evaluating. A common rule is selling half on a double. As soon as your entry price increases by 100 percent, half of your bag would be enough to cover the cost of your initial investment. You can lock in some gains and be safe whatever happens next.
With increasing experience and better entries, you will most probably start selling only a lower percentage of your bag at a double. But that requires a good understanding of the market, a very good entry, and a high level of experience. Always try to sell 50 percent of your bag on every 100 percent till you reach 10 percent of your initial number of coins. This is your “moonshot” bag, and you will keep it in case the price really explodes. This bag can get extremely valuable over time and prevents you from missing out some really amazing gains. As you already should have made some decent gains by selling all the way up, you can basically lean back and enjoy the show.
There is no general rule when you should sell the rest of your bag, as no one will be able to predict the top with certainty. I know some traders who actually never sell their whole bag and keep those 10 percent as a year-long gamble. Even though it might turn out to be worth only a few cents in the future, you might hit the jackpot as well if you’re lucky. Try to find a way that suits you best and act accordingly.
Many will tell you how to trade or act in the market. But when it comes to trading and profit taking, you should develop a feel and stand by your decision, no matter good or bad. One especially important principle of investing involves finding the right entry. Many people will tell you to buy the fucking dip (BTFD). But how can they be sure that it’s just a dip, and what is the right thing to do if the price keeps decreasing?
4.4 Averaging down
Buying the exact bottom is literally impossible for most traders. Especially without years of experience and trial and error, you won’t be able to hit the perfect entry. That is the reason why you should always aim to average down your entry price. A quick example:
You bought one coin for 0.1 BTC
You think this was a great entry, but the price decreases further and your coin is now only worth 0.05.
You now buy two coins for again 0.1 BTC.
This decreases your overall entry to 0.066 BTC.
This calculation can be extended further, depending on your buying possibilities and your confidence in the coin. Before further increasing your bag, you should always make sure that the fundamentals of the coin haven’t changed and your personal target for the coin is still intact. This is an excellent method if you want to increase your Bitcoin holding, for example. You could keep adding to your position upon every further drop in price. But always make sure that you start buying only if you think you are somewhere near the actual bottom. That should work out pretty well with some time and experience and can be used for any given asset out there.
4.5 Break even
In crypto, many people will always tell you to be patient and basically hold in every situation. As it is very hard to successfully predict the top of an uptrend, you won’t find many people letting you know what the good point is to actually start selling your holdings. Every experienced trader has some targets for their coins before they begin to sell. They try to catch the pump before the coin starts declining again. This depends on the overall market sentiment and especially on the stages of the market cycles. Many, especially new traders, don’t have enough experience and confidence to sell their bag. They will just hold through every cycle, which might turn out to be a huge gain, but most of the time you would have made more money following the basic market cycles. Here is why holding your position regardless of the current price and market sentiment is sometimes a bad idea:
If you have never seen this calculation, that will most probably surprise you. This table should always be on your mind. Really. We will go through this in detail in the Risk Management chapter. But if you have a look at a loss of 50 percent, for example, the coin will need to double from this point, to actually break even from the start. Sure, a double is nothing unrealistic in crypto, but it still requires some major price movement. You do not necessarily need to take your personal entry as reference point for the table above. If you set the last ATH as a new starting point for the asset you are interested in, you will notice that selling at some certain point can be much more profitable than just holding through all the stages of the market cycle. Nevertheless, to hold or HODL as you will very often read in the community is still very crucial to be successful in crypto. The origin of the term HODL is actually very funny and is somehow a milestone in the crypto history. It was adapted from a spelling mistake in a post on the bitcointalk.org forum in the year 2013.109 The post is pretty hilarious as you can see below:
I type d that tyitle twice because I knew it was wrong the first time. Still wrong. w/e. GF’s out at a lesbian bar, BTC crashing WHY AM I HOLDING? I’LL TELL YOU WHY. It’s because I’m a bad trader and I KNOW I’M A BAD TRADER. Yeah you good traders can spot the highs and the lows pit pat piffy wing wong wang just like that and make a millino bucks sure no problem bro. Likewise the weak hands are like OH NO IT’S GOING DOWN I’M GONNA SELL he he he and then they’re like OH GOD MY ASSHOLE when the SMART traders who KNOW WHAT THE FUCK THEY’RE DOING buy back in but you know what? I’m not part of that group. When the traders buy back in I’m already part of the market capital so GUESS WHO YOU’RE CHEATING day traders NOT ME~! Those taunt threads saying “OHH YOU SHOULD HAVE SOLD” YEAH NO SHIT. NO SHIT I SHOULD HAVE SOLD. I SHOULD HAVE SOLD MOMENTS BEFORE EVERY SELL AND BOUGHT MOMENTS BEFORE EVERY BUY BUT YOU KNOW WHAT NOT EVERYBODY IS AS COOL AS YOU. You only sell in a bear market if you are a good day trader or an illusioned noob. The people inbetween hold. In a zero-sum game such as this, traders can only take your money if you sell.
so i’ve had some whiskey
actually on the bottle it’s spelled whisky
(but only if it’s payable in BTC)
4.6 Blogs, YouTube, and social media
The cryptocurrency space is one of the most rapidly changing and fast-living places I know. Even though keeping track of all the information is literally impossible, I would strongly advise you to stay up to date as well as possible. One way to do so are blogs like Steemit or Medium. Something crucial to know is the fact that quite a lot of people are actually paid to post some content about a project or an ICO on there. Therefore, you really have to differentiate between the posts. Some are really true gems and will provide a lot of help, others will might just try to sell some projects they didn’t even invest in by themselves.
YouTube has become a great source for crypto-related content as well. There are some really successful crypto channels that you could benefit from. As with the blog posts, you will find an unbelievable amount of paid content on there. ICOs pay sometimes quite a lot in their content-creation bounties, and you will find some videos that feel more like a teleshopping channel than an actual coin analysis. Therefore, try to be objective and not get overhyped if possible. Slack and Discord are two great sources for information about a project. They are mostly well organized in different channels, and it gets easier to follow the latest announcements. I would strongly advise you to join those channels during your research because it might help greatly to track the past announcements of a project as well. See how frequent the announcements are and whether they document some actual achievements rather than hot air. Look for some proof of actual development, exchange listings, a most viable product (MVP), or other important milestones.
Social media like Twitter, Telegram, and to a lesser extent Facebook are a crucial part of crypto. Nearly every project has at least one Telegram channel right now. Most well-adapted projects will have some country/language specifications room too. Price talks or trolling is mostly separated from the announcement channels as well. If you follow a few projects, you will end up with a vast amount of different channels.
You will rapidly notice a huge difference in member count in different project channels. Some might not even reach one thousand members, and others will have far more than fifty thousand. It is very important not to equate the number of members to the level of interest or potential of the project. There are many projects out there promoting their channel with an airdrop or require any bounty campaign member to join their channel. They want you to think that there is an increased level of interest, even though most people are just paid to join without any interest in the project at all. There are even some services selling Telegram members just to push the channel and trick new investors into the project. It will require some time of active following the channel before you really know the true status of the project. A general advice is to strongly avoid the pump groups that are often promoted in Telegram. These opportunities may sound very lucrative, but I can assure you that you will almost certainly lose money.
The idea behind it is really simple and can lead to a high level of profits, just not on your side. The starter of the group will try to invite as many people as possible and have some sort of recruitment program. The more people you invite the more heads-up you will have on knowing which coin is going to get pumped. The group owner will pick some coin with low liquidity and will need only a few BTC to make huge gains for themselves. It should be obvious that the group leader will chose coins that they’d accumulated very cheap before the pump. Everyone is joining the pump, hoping they can make an easy 100 percent gain or more. The ones with the largest bags (the group owners) will simply dump their coins on their own followers, with some decent profit. Some might really make a few gains, but the majority of the group members will lose more than they thought. Beforehand, you will hear that people outside of the group will join the pump, leading to rewards for everyone. But that is mostly not true. In most cases, it won’t even be noticed by anyone outside of the group. Even if you generate multiple hundreds of accounts that you can invite yourself, to receive the information a few seconds earlier, you won’t be able to accumulate a decent number of coins for some relevant gains. I would really not advise to join those groups. Paid groups, which are often promoted on various social media channels, are something I want to focus on next.
Some experienced and well-known (mostly crypto-Twitter celebrities) are running paid groups where you are required to pay a monthly fee to have access to their knowledge. There are a few things you need to know about those channels. Some are run by actually good guys, and you can really improve your game. You will have access to their thoughts about the Bitcoin price or which coins might be a solid pick for long term. The fee might therefore be reasonable because they are providing a high level of experience and hindsight. But always keep in mind, that no one is able to predict the market with certainty. Hence, no one will ever be able to guarantee you profits. This is important to remember, as it is crucial that you never follow their calls blindly. It is certain, that you will profit the most if you analyze the market yourself and make your own mistakes as well. Therefore, I would strongly advice to have some solid understanding on TA and some experience before joining a paid channel, if you really would like to. None of those traders are some magical geniuses. They all started somewhere and put a lot of work and especially time in the learning process. Sure, you may be impatient and think it’s too late to learn the required skills, but it’s definitely not. It is never too late to start. NEVER. Something you always have to keep in mind is that they do not run those groups for charity. If so, they would just open those groups for free. The main reason to run those groups is nearly always the same: making money. But you have to ask yourself: Why would someone with those skills even need to run a paid group? If they really are as successful as they claim, they would be better off just by keeping their tips to themselves by quietly accumulating some funds before sharing a bit with their followers.
On the other hand, can anyone ever have enough money? They may be really great traders and just use the channels to increase their profit to the maximum level. I am not saying that everything is a scam and you might never make any money or learn anything from those groups. You just really need to analyze all the possibilities before you joining one of those groups. I would personally advise you to learn it the hard way. That will benefit you in a lot of ways even outside of the crypto world. Take your time and try to learn as much as possible by yourself. It will be worth it. If you decide that you want try out some groups and use them to improve your skills, you need to make sure that you don’t get scammed.
Someone’s follower count on Twitter might not actually be related to their skills. And not every Twitter celeb is running a paid group. Often, there is a waiting list to join some paid Telegram or Discord channel. You really need to be careful, as a lot of people are trying to scam you with fake channels. They will impersonate some famous Twitter poster and will try to trick you. Always look for some official post from the Twitter member before you even consider joining.
Twitter has actually developed something like a crypto-community hotspot over the years. As joining Twitter might not be the first thing for many crypto enthusiasts, it is interesting to see how the amount of new people joining actually matches the market sentiment. You will notice a lot of people buying the hype and getting involved with every new pump. Mostly the same people will sell their coins at a huge loss to “buy them free” from crypto and quit. Many Twitter celebs are really veterans of the space, and it is really cool how Twitter sometimes helps to form bonds within the community. I would advise you not to just follow anyone blindly, especially not just based on their follower count. You will find the good and helpful accounts over time very easily. Just begin with a few, and it will naturally increase as you find some of the retweeted posts interesting or helpful. There is no unique or right set of people to follow, since everyone will have some different priorities.
However, always follow the projects you’ve invested in. Twitter emerged to be a great platform to share news instantly. You might be able to react faster on some good/bad news and sometimes use that information to your advantage.
At the same time, it might be a good move to follow the big and established accounts in the space. They are useful in many different ways. First, you will be able to directly profit from their knowledge through posted charts or helpful information. Second, you will benefit from their follower reach. It can be enormously helpful to have some of the big names shilling the coins you hold. Many followers will see those tweets, and if you managed to buy in before, it is a great way to make some profit. A few well-known Twitter users share some true gems that they find. They provide very valuable information for free, and following them really increases your chances to earn some money. Many of them, if not all, will surely have entered the market before posting the information. But even if so, the information is sometimes still very profitable and helpful, although the price might have already increased. If you want to use the information on charts or coins in the most profitable way, you must be very quick. Sometimes only minutes following the tweet, the price is much higher than its original entry. Many small coins and really solid picks will have a small trading volume, and some hype by a famous Twitter celeb can be enough to start a pump.
If you don’t want to check Twitter every few seconds and react on those tweets instantaneously, you can write down the mentioned coins. If you have some spare time, do your own research on those coins and set your buy orders. The coins will mostly dump in the following days or weeks, and you will always make more money with a better entry. This assures that you are involved in the coin before the “train is leaving.” This term is often used to describe the start of a pump on crypto-Twitter. Something you have to keep in mind is that the big accounts aim to make money themselves. You will notice some sharing of some referral links from exchanges, ICOs or other projects quite regularly. You should always keep in mind that only because the links for some ICO are shared, for example, doesn’t mean the project is generally worth investing. If some project is generally shared very often in your Twitter feed, it might just grant some good benefits for the ones referring. As many of the big names won’t invest themselves either, you should always DYOR before investing. But referral links are not generally a bad thing either, as some will be the ones signing up some benefits as well. You will learn very quickly which referral links are beneficial and worth signing up with.
A lot of ICOs offer huge amounts of money and a high amount of their tokens for some tweets from the well-known individuals. Especially with the ban of ICO/crypto ads on their platform, this sort of advertisement increases further interest.110 As some of the well-known Twitter accounts are really honest, they might even share some of the offers they receive for advertising. This is interesting because you can clearly see how the projects sometimes pay horrendous sums for some official endorsement. Sometimes it’s absolutely stunning how much money is actually offered. You might be pretty surprised how crazy sometimes crypto-Twitter can be. You will literally encounter quite a lot of “shitposting,” which sums up memes, crazy stories, and personal posts. Even though it might not teach you anything and sometimes even be inappropriate, but it’s fun and entertaining. There is simply no need to post something unique or special about crypto every hour of the day. You can follow some news pages and receive the important announcement every now and then. If you are open for some fun, sarcastic comments and memes, Twitter is the right place for you.
Nevertheless, Twitter can be a pretty powerful tool either for some deeper research or for evaluating the whole market sentiment. There will be some polls by major accounts where the result can be quite helpful, since the amount of people participating is quite high. At the same time, a lot of so-called salty (angry, jealous, unhappy) comments from investors can be found on Twitter. The best ones might even go viral in the community. This can be helpful if you understand the part about the market cycle and the psychology of the masses. If the majority is in a euphoric mood, the top might soon be in. On the other hand, a lot of people quitting might be a good sign that it’s time to buy again and the next rally might be just around the corner.
If you try to use as much of the available media as possible, you will see that everything fits in very well together. You might find a missing piece of the puzzle on Twitter, Discord, or Bitcointalk. Staying up to date everywhere definitely requires a lot of time and effort. But as it will definitely pay off in some way in the future, I would strongly recommend saving your time for it. Just try to always look behind the curtains, and never blindly believe everything that you read regardless of the source.
Another great resource you might be already using is Reddit. Many projects will maintain their own specific subreddit, and you might be able to find some very valuable information on the platform. Reddit can be especially useful, since many Ask Me Anything (AMA) sessions are hosted there. Those sessions can be best compared to a live interview where you are able to ask any of your questions. It became very famous over the years, and even a lot of celebrities found their way to Reddit. This peaked with the appearance of President Obama for his very own AMA session on Reddit.111 The session happened during his re-election campaign and even managed to crash the servers.112 Reddit can really be a great source of information about the crypto space, and if one of the projects you are following is hosting an AMA session, really try to participate. If you are not able to, which might happen very often due to some time differences, it is worth looking or asking for a summary after the event. The chances are not too bad that you will find your own questions asked and answered.
There are some general rules applying to every media channel, which you should try to remember. Especially on Twitter and Reddit, it is crucial to make sure that you are following the channels you actually want to follows. As an example, you should have a look at the following two subreddits:
r/bitcoin: It links to the website bitcoin.org and the bitcointalk.org forum.
r/btc: links the homepage bitcoin.com.
You might ask yourself why this is important at all if you are quite new to the space. To be able to build your own opinion, you will need some background information. There was an ongoing debate about censorship in the r/bitcoin channel where the moderators were accused of deleting posts not fitting their own opinion. That got especially relevant around the event of the hard fork and the chain split leading to Bitcoin and Bitcoin Cash (BCH) in mid-2017. The dispute about Satoshi´s original vision and the best approach to scale the network is still ongoing. The community is therefore still divided, but the vast majority accepts Bitcoin (BTC) as the original chain. The subreddit r/Bitcoin therefore got accepted as the official one, which led to most of the BCH supporters switch to r/btc. Such development can be highly misleading for new users, since BCH is often promoted under the BTC shortcut. BTC is often referred to as Bitcoin Core from BCH supporter, which makes the whole situation even more confusing. Especially, since the website bitcoin.com is not promoting BTC but is promoting BCH. That’s why you should really be aware of which channels you are following. Since Bitcoin has no central authority or governance, there is no control over the related websites or forums. This can be especially misleading with regard to Bitcoin, but it can still be a problem with every coin you follow.
It is mostly the same problem on Twitter. There are accusations that the Twitter handle @bitcoin was probably bought in 2017.114 Despite some concrete proof that the Twitter handle was bought by BCH supporter, it´s highly likely as the account is actively supporting bitcoin.com and BCH after quite low initial activity. Twitter users were reporting the account, which even resulted in a suspension.113 The account went live again a few days later, and it is still closely related to BCH.
I just want to attract your attention to this topic and to help you understand that nearly every news outlet, website, or channel could be misleading at some point. Whether you want to support BTC or BCH is your choice. But making that choice can be really confusing and may need some deep understanding of the fundamentals. That’s why every new user should really educate themselves as well as possible. If the decision to support one of the coins is made consciously, there is nothing to argue about. But some might end up buying the wrong coins and losing money due to some misleading information or lack of knowledge. Look at the sources and measure how reliable they are. Don’t ever follow blindly in crypto.
Here, I’ve tried to sum up the most common sources of information. They will be very helpful if you want to dig deeper and do your own research. But this list is not meant to be complete. Numerous other resources are available to provide you with even more information (e.g., podcasts). You need to find the strategy that works best for you. Some very early adopters started their journey in some bodybuilding forums, for example.115 It always helps to broaden your mind and build up your own routine in crypto. That’s why you shouldn’t be afraid to get lost in the pure overload of information. Try to absorb as much information as possible, and I really hope that the different sources above can help establish a broad base to start from.
4.7 Bounty campaigns
A really great and sometimes underestimated way to earn some crypto without spending money is taking part in bounty campaigns. The idea behind is pretty simple. You complete some tasks/work for the project and receive a payment in form of tokens or coins. The different tasks can be highly rewarding, and you might even be able to earn the equivalent of more than ten thousand dollars from one campaign. One of the most profitable ways is to participate in the signature bounty on bitcointalk. You can add a signature as well as an avatar (full member rank and up) in your profile, which is visible with every post you make. A higher forum rank will grant you access to more complex signatures, including colour, links, or different sizes. That’s why you will notice that the payment is strongly dependent on your rank. Ranking up in the forum by posting regularly is therefore not only helpful in your research, it can be quite profitable too. Ranking up to Hero member, which enables the highest tier of signatures requires 480 activity. That equals roughly one and a half years of activity in the forum. Therefore, you should see the ranking process as something going hand in hand with your crypto journey. But there are various other tasks with which you can reserve your “stake” in the bounty pool. Mostly, you will get according to your work during the campaign. The stakes can be seen as your share on the bounty pool. The more stakes you receive in comparison to other participants, the bigger is your share on the overall bounty pool. Since this is crucial part in all bounty campaigns, let us have a look at a basic example:
The ICO is allocating a pool of 400,000 tokens for the bounty campaign.
The share of the specific part of the campaign you are participating in is 25 percent.
The total pool of tokens for, let’s say the signature campaign, is therefore one hundred thousand.
You will receive one stake per week for your participation over a duration of five weeks, resulting in a total of five stakes.
The total amount of given stakes for the whole campaign is five hundred.
The total number of tokens is now divided by the number of stakes: 100,000 / 500 = 200. The amount of tokens per stake is 200 and you will receive 5 x 200 = 1,000 tokens for your work from the campaign.
You might as well calculate it the following way: The number of your tokens divided with the total number of tokens (5/500 = 0.01) multiplicated with the total number of tokens (0.01 x 100,000 = 1000).
Both ways of calculation are equal, and you are free to choose the one that suits you best. As the example above indicates pretty clearly, there are certain points to focus on, choosing the right campaign. Always try to increase your stake count in regard to the overall pool. This can be achieved by a lower number of participants or a higher stake allocation for your task, for example. As a real-life example, I randomly picked the Multiversum bounty campaign, which would have been a well-rewarding choice. I will highlight the important steps to look for before choosing the campaign. This is especially important if you plan to participate in the signature campaign, since you are able to join only one at a time. Many people will join different Facebook, Twitter, or other promotional campaigns at the same time to maximize the profit. Since your time is presumably still limited, the procedure to decide which ones you focus on is still the same in every campaign.
First, you should look at the amount of allocated tokens for the bounty campaign. Do not get distracted by some high USD amounts. Just because the ICO plans, for example, to raise $500 million total and is allocating 3 percent of all tokens to the bounty pool, doesn’t necessarily mean the tokens are actually worth $15 million. Many ICOs plan to raise multiple millions in funding and aim for total unrealistic and astronomic market caps. The price of those tokens is heavily overvalued even at the start, and you might end up with only some virtual dust if the projects fails. Look out for projects allocating around 0.5–2 percent of all tokens created to the bounty campaign. Note: There is a huge difference between allocation of a few percent of the total number of coins and a few percent of all coins sold during the ICO. This might not be very easy to differentiate at first but will actually make a huge difference. I always prefer projects allocating a certain percentage of the overall tokens over those issuing a fixed number of tokens for your work. Let’s have a look at the example I mentioned earlier. The example I chose is the Multiversum (MTV) bounty campaign.116
The initial number of the issued tokens was 1,000,000 MTV for four weeks allocated as such:
Signature Campaign: 25%
The bounty campaign later got extended for two more weeks, leading to an increase of the bounty pool by 250,000 additional tokens.
Since there was no fixed percentage allocated to the bounty, it was necessary to head over to the Multiversum homepage for more information. There, all the needed information about the total number of tokens and the price for one token could be found quite easily.
In this particular example, the following is important:
Total amount of tokens: 141,000,000
Token value: 1 USD
The highest bonus for buying early was about 20 percent, decreasing to 10 percent in the last week. This sets the real token value to somewhat between 0.8–0.9 USD. If you recap the total number of the issued tokens for the bounty pool, you will end up with a realistic amount in tokens and USD (Around 0.7 percent of the total number of tokens were reserved for the bounty before the extension). If you haven’t done so already, now would be a good time to start one of our well-loved Excel lists once again.
Now, it is time to have a look at the project itself. As already mentioned, the highest bounty pool will still end up being worth 0 if the project is a scam or a total fail. That’s why you should do some research about the project. Those would be mainly the same steps if you wanted to invest in the project (discussed in detail later in this chapter). You should always look at the funding of the project. It is preferred that the soft cap (the minimum amount of funding the ICO requires to start their work) is already reached or at least some solid amount of money is already collected. Since many ICOs offer some bonus for investing right at the start and some ICOs are sold out only seconds after launch, the first few days should collect a decent amount of money. It does not make a good impression if the project is already running a few weeks and the total invested amount is like 10 BTC. As some projects won’t have some detailed information about the soft cap or the collected amount on their website, we will need to head over to their social media channels. You can really trust me when I tell you that every minute spent in research here can safe you lots of work and disappointment later on. Crypto can be considered as the Wild West of the modern world. There are projects that turn out to be a total scam, decreasing the bounty pool after the end of the ICO or even cancelling the whole ICO after months of work.
Luckily, all the information needed for our example ICO was easily accessible. The ICO collected around 22 million USD in total, which was far away from their soft cap of 5 million USD. This project would have been particularly interesting, since they planned to airdrop the unsold tokens to the wallets that still hold their ICO/Bounty number of tokens. This can be considered as some incentive to not directly dump their tokens after launch and may turn out a as a nice source for passive income. As already mentioned, most bounty campaigns feature more than just one way to participate. In our example, the signature campaign was rewarded according to the following scheme:
Member: 1 stake/week
Full member: 3 stakes/week
Senior member: 4 stakes/week
Hero/Legendary member: 5 stakes/week
Twitter, for example:
200 to 999 Followers: 1 Stake
1000 to 5000+ Followers: 3 Stakes
Mostly, the Telegram bounties require you just to join the main channel and stay there till the ICO is over. That is rewarded with one stake, as it is literally one minute of work. If you do not have a high bitcointalk rank, a lot of followers, or something like that, you might have a look at the content/blog bounties. There are certain requirements for your work, but a detailed infographic, video, or just some kind of analysis of the project can be rewarded with some decent stakes. A good entry to start with and mostly well rewarded is translational work. The projects mostly need a translation of their announcement thread, whitepaper, website, or bounty post. You will mostly be required to post your translation in the specific subforum on bitcointalk and moderate the thread. This will be rewarded with some extra stakes later on. If you are comfortable with the project and the technical background, you can sometimes apply for a community manager job in the Telegram or Discord channel. There are quite a lot of possibilities to start with, which can be very profitable in some cases.
Let’s get back to our example. The ICO and the corresponding bounty campaign has finished, and we are now going to have a look into the final calculation:117
Signature campaign: 628 stakes in total
Telegram: 571 stakes
Twitter: 18472 stakes
So, what does this mean in regard to our potential reward? We must recall the total number of tokens and the distribution. After the extension of the ICO, the total number of tokens was 1,250,000. The total number of tokens for signature, Facebook, and Twitter was therefore 333,240 each. If you had participated in the signature campaign with the rank of a member, you would have received one stake for every week of participation. Hence, every single stake would grant you 530 tokens valued around 450 USD. A participation over the whole duration of the campaign would net you about 3,180 tokens. Joining Telegram would have granted you 87 tokens, for example. The Facebook and Twitter campaigns were well funded too, but you would still receive a comparably low number of tokens, because of the high amount of stakes sharing the respective reward. In both campaigns, more than one thousand people participated.
The difference between signature and the social media campaigns is always quite huge, but you have to keep in mind that you can always join only one signature campaign at a time. What makes the social media campaign so rewarding is the possibility to join as many as you like at the same time. This can have different advantages. If the ICO fails or the project is cancelled, it is still a loss, but it won’t hurt that badly, because it’s one of many projects in your portfolio. It can sometimes be frustrating to work for more than ten weeks for a single project, which then isn’t even launched. As you miss out on a lot of potential profits, this should be avoided as much as possible. That’s why researching your projects is so important.
Bounty campaigns are only one of the few ways to earn some money in the crypto space. One of the major advantages of bounty campaigns is that you won’t need to invest your hard-earned money to receive some tokens/coins of interest. The whole topic might be a bit confusing at the beginning, but it can still provide a good source of additional income if done right.
Now that you’ve got a detailed insight on how bounty campaigns work, you will realize why such things as follower count, endorsing posts, or social media presence aren’t very reliable to evaluate the project. Some project might simply offer a huge bounty pool that attracts a lot of users to promote the project.
4.8 Initial Coin Offering (ICO)
The first time I heard about ICOs myself was during the Ethereum token sale. At that time, I did not have much experience and, to be honest, the whole concept felt a little odd. I read a lot about the project and tried to understand what the vision behind was. But my level of knowledge was far from being able to understand the whitepaper and compare it to Bitcoin, for example. To be honest, it seemed a little bit crazy to send some of my precious Bitcoin to an address, without seeing any immediate return. I did not have a lot funds at the time, and the risk seemed to surpass the potential reward by far. It took a lot of time and research to get familiar with the process of ICOs. But at some point, it literally clicked. From that point on, I’ve been always searching for new and promising crowdsales.
At that time, it was far easier to spot the promising ones than it is now. The total amount of new ICOs was pretty decent, and you had enough time for research. Many outstanding projects were born through ICOs—Lisk, Waves, Stratis, Antshares (now NEO), Iota to name only a few. You were able to make several 1000 percent gain off your initial investment.
However, the sheer mass of projects arising over the last couple of months requires a lot of research to find the ones leading to potential profits. Over the years, I developed a pattern for myself with points I focus on during my research. I will guide you through the list, and, as always, feel free to modify this list.
The first thing to do is to be up to date with as many new projects as possible. But where to find them? It sometimes is not that easy to spot every good project, since there are just so many popping up every day. I always start with bitcointalk. The announcement section in the alternate cryptocurrency subforum is a great way to dig up new ICOs. Many new projects are first announced here, and you have the possibility to directly interact with the team if you have any questions. Other ways to hear about new projects are Twitter or Telegram. Depending on which people you follow or which channel you’ve joined, you will find some like-minded people always searching for some new investment opportunities too. Many other people use the different ICO review websites. They might be useful to spot new ICOs, but please don’t get influenced by the ratings. Many projects pay for their listing, review, or advertisement on those pages. Try to create your own rating for each project, without being prejudiced by the opinion of others. If you still have some spare time, you could simply google for upcoming ICOs, and you will end up with various different blog articles.
After you’ve found some interesting ICOs, there a few things to focus on. Many ICOs nowadays have various different rounds of funding. That’s why the distribution model of the project is very important. Some will have private founding rounds where a certain high amount of buy-in is required. In addition, there is mostly a connection to the team, some kind of advisory role, or other special status required to even have the chance to join. Most ICOs will start collecting money from the public at the level of a pre-sale. That might be handled as some additional funding round with a certain minimal investment to make or as a very early opportunity to buy the tokens before the actual ICO starts. That differs from ICO to ICO, and you will need to read everything very carefully to obtain the needed information. With the rise of crypto in late 2017/early 2018, a lot of attention was drawn to ICOs in general. That’s why most ICOs work via a whitelisting procedure. This means, that there is a certain date before the beginning of the sale, when you need to sign up on their homepage. After a particular amount of sign-ups or time, the process will close and you will be able to invest in the sale only if you registered before. That’s why it’s sometimes worth trying to find the upcoming ICOs as early as possible to be able to participate. Due to regulatory reasons, nearly all ICOs will now require you to undergo the process of KYC. This means you need to make sure that you are an investor from a non-restricted country. The projects exclude any country that could cause some sort of legal problems. You will find the information whether your country is allowed for participation during the crowdsale on the corresponding homepage or in the whitepaper. During the process of KYC, you will need mostly to upload a photo of your passport or ID card. Some will require a proof of residence, in addition. That would be some gas or telephone bill, with the date and your address on it. As that is very sensitive information, you should upload the documents only if the project seems legitimate. Follow the basic rules of security described in Chapter nine and especially make sure not to sign up with any email you’ve already used before. Try to be as careful as possible during the whole process to minimize any future harm.
But before you sign up for the whitelist or the ICO itself, you should make sure that the project is actually worth it. Now would be a great time to start a list or a new Excel sheet if you haven’t already. The process of evaluating ICOs is quite similar to the research done to find some solid projects or undervalued gems. First, take detailed look at the website and the information given. Have a look at the team and the advisors. Famous advisors are far from being a guarantee for a successful ICO. Some might really help the project, and others are just brought in because of their name and reputation. The team members won’t normally tell you much, but you can at least check their linkedin.com profile or google their names. This might already be enough to reveal a scam in some cases. You can also search for some VC (venture capital) firms backing the project. Fenbushi would be one example to look out for. The team includes Vitalik Buterin, the co-founder of Ethereum.122,123 Although this does not guarantee profit either, it can definitely help you in your decision process. If you see some VC firms backing the ICO, try to investigate them and especially take a look at the team and previously funded projects.
The most important part is the whitepaper. That’s why, it should always be a red flag if there is none. Some projects have a great vision and need some time to develop a whitepaper. But they should at least provide any information about the technical part, especially if they aim for something totally new. Many ICOs just consist of vaporware and buzzwords to attract investors. Don’t fall for that. Most common are buzzwords like “4th generation blockchain,” “millions of transactions per second,” or “unlimited scalability.” All those features are great to attract attention because they give the impression that the project solves all the problems of current blockchains. I would be happy if one project could actually achieve those things. There is an important point that you should always consider. Think about all the projects already out there and people developing them. Many of them are seen as the best developers of the whole sphere. It is therefore very unlikely that a new project will be more capable of achieving those milestones than any of the ones already in existence, especially if there is no whitepaper, MVP (most viable product), or proof for their vision. There is no universal definition for the single blockchain “generations.” I’ve included commonly referred versions to give you an idea why this term appear.118-121
1st Generation Blockchain: Bitcoin
2nd Generation Blockchain: Ethereum, Neo
3rd Generation “Blockchain”*: Nano, IOTA
4th Generation Blockchain: Cross-chain projects
*Note: Often, the projects named as 3rd generation blockchains are still called like that despite not using a “typical” blockchain. They are using a different technology based on DAG (directed acyclic graph). Some will therefore refer to the projects like Cardano or Ark as 3rd generation blockchains.
The list above is far from being set in stone. The idea is to give you a first overview so that you could put all the buzzwords into perspective. There are various other interpretations of this categorization out there, and all might have their logical explanation. Most people will agree with Bitcoin, Litecoin and others to be the first generation of blockchains. The introduction of smart contracts marks the 2nd generation with its corresponding projects. From the point of the 3rd generation, it gets more inconsistent about the definition. The 4th generation of blockchain is often connected to interoperability of different chains. There are different approaches like Atomic swaps or TAST (Pantos), for example. The important point here is that a first generation blockchain project is not necessarily worse than one from a later generation—especially, when it comes to Bitcoin, for example. You need to realize that many ICOs will try to attract as many funds possible from as many people as possible. That’s why, they like to use catchphrases to raise their chances. You should be especially curious if you read something like 5th or 6th generation blockchain, which I am sure will pop up in the future.
Here, I need to repeat it once again. Do your best to understand the whitepaper as well as possible. Some will have dozens of pages and might simply overwhelm you. But you will get faster with every whitepaper you read. Trust me, you will learn to analyze the important parts, and it will get less and less depressing. But it will still take a lot of time if you do it carefully. Either way, it will benefit you by increasing your level of knowledge in different ways.
After you finish the whitepaper there are a few other things to analyze. If some code is provided, try to have a look at GitHub. It might not tell you much if you’ve never worked with GitHub before, but it might be worth taking some time to understand the basics. It should always be a red flag if the project does not make the code open source. Even though it does not have to mean much, since there is a couple of huge projects that started without a single line of code, you should still be careful. If an early version, MVP, or beta is available, you should definitely try it out. If you don’t like to do it yourself, however, you can look for some walkthrough videos on YouTube, for example.
Some YouTube videos can generally get you some new viewpoint and input, even though some might be paid for their endorsement. The overall opinion or sentiment about the project is something you should focus on next. Head over to the announcement thread at bitcointalk and start reading. If there are already numerous pages, start with the first and last ten pages of the thread. If the thread does not contain a certain number of pages yet, you will be able to click “All” behind the list of pages.
This will make it much easier to go through the posts and will enable you to use the search function (command + f: if you are using a Mac; control + f: if you are using a PC).
Now go through the first posts and write down/copy the usernames of the team members. Use the search function to easily find important posts or answers from the team. At the same time, you will see the total amount of results found, which you can add to your research list if you want to. Next search for the term “scam” and take a look whether the resulting hits are valid points or rather some random accusations. It is especially helpful to see how the team and the community responds to those claims. Try to note down how many posts or even pages are added to the announcement post every day. Try to get a feeling for the overall state and opinion of the community. To expand this further, join the social media groups of the project. Try to note down the amount of follower of their Telegram channel and observe the amount of new posts for a few days. Many projects will have a high number of followers through their bounty tasks, but just a few will actually post something. That’s why a very high member count in combination with a very low activity is not a good sign. Try to spot which questions are asked and how often the team or the admins are responding. If a Discord channel or Slack is provided, definitely join there to easily spot new updates and to be able to see how frequent they are. It is especially useful to see the past updates. Try to evaluate how substantial they are and which milestones were met. Stay in those channels for a while and visit them every day to get to know the team and the project better. Try to read every official announcement available from the team. The projects will mostly have their official medium account linked, where you can see the older posts as well. Note down every question you have after all your research, and post them over at bitcointalk. If you are not satisfied with the given answer, just ask again. This is especially important if you have either the impression that the team is avoiding the question or is just unable to answer properly. If the team is competent and you have a good feelling, try to find the competitors of the project. There is rarely a project without them, and some might have been already released. Note them down and try to compare the projects with each other. It is really interesting to ask the team directly about the competitors and a comparison between them. Many projects won’t like the question and will avoid the answer. The official answer to this question can be extremely helpful, as you will learn a lot about the team and their self-perception. The comparison with the competitors can also help you to evaluate the potential future market cap of the project. If, for example, the direct competitor has a market cap of over one billion USD and your project wants to collect more than that, it’s absolutely unrealistic. But if the project plans to raise 20 million and your overall impression is good, it might be a good investment opportunity, as there is potentially a good space to grow. This is still no guarantee for any profit, but it can be seen as one more piece in the process of evaluation. After all these points, your list should now contain a lot of information on the project. There are only a few things left that can help you finalize your decision now. At this point, it can be very helpful to ask yourself whether the blockchain is really essential for the project. Not every part of our daily life needs to be tokenized. It is just unnecessary, since it could be done with some easy database handling or a normal website. Another thing that is very interesting to think of is whether every project really needs its own token. For many projects, that is just not the case. Why not just use some existing tokens for their idea or service? The answer is very simple: the project wouldn’t be able to raise potentially millions. I personally think that there is just no need for most tokens or even projects out there. There are only a few really bringing something revolutionary to the crypto sphere. That’s why, I personally prefer ICOs with new blockchains over those that just start issuing another token. But that doesn’t necessarily mean that the ones issuing a token couldn’t lead to massive profits. The behaviour of the crypto world (to be honest, the same can be applied to the whole world too) is just irrational in many ways. In this space, there are more than enough greed and hype to get some insane profits, even if the project does not substantially sustain that. On the other hand, many overhyped projects that are sold out in seconds and even collect hundreds of millions of dollars fail to deliver any profit at all. The momentum and in many cases pure luck play a crucial role. No one is really able to forecast the future of a project or the market behaviour. That’s why, even if you did your research as carefully as possible, you might not see high gains. Always remember that it might be clever to sign up for more whitelists than projects you actually would like to invest in. Missing out on an ICO you invested hours of research in just because you are too late for the whitelist is just annoying. After some time, open the list up again and go through every detail you wrote down. Are all the points still valid? How are the social media channels or the forum? Are the fundamentals the same? If you can confirm all those questions, it might be the perfect time for your investment.
As the last note here, don’t ever go all in. This is probably already clear, but it is always worth repeating. No matter how good the investment opportunity seems to be, don’t risk more than a few percent of your overall holdings. We will talk about this in every detail in Chapter five.
Key facts on how to evaluate ICOs:
- Use different sources like bitcointalk.org or social media to find new ICOs.
- Try to understand the funding structure and the terms of the crowdsale.
- Many ICOs will have a whitelisting procedure where you need to sign up very early.
- Nearly all ICOs will require KYC. Check whether you are eligible to participate.
- Have a detailed look at the team and the advisors of the project. Specifically search for potential VC firms backing the project.
- Understand the whitepaper as well as possible. This will take by far the most time.
- Do not fall for buzzwords.
- Try to have a look at the source code if possible. Search for an MVP or early version of the product.
- Join the social media channels to analyze the activity of the team and the overall sentiment for the project. Especially have a look at the announcement thread on bitcointalk.
- Do not hesitate to ask questions about the project, even if the team won’t like them. Stay as neutral as possible.
- Try to create a list with possible competitors. Take a look at their market cap and their state of development. Try to compare the proposed features.
- Ask yourself whether the blockchain really makes sense for the project. What problem is the project trying to solve? Is there any problem, which is needed to be fixed by using blockchain technology in the first place?
- Take your time before you invest.