Blockchain is one of the newest technologies around when it comes to investments. It is open to the wider public, meaning that it is also more accessible to less sophisticated and unaccredited investors. Some projects are simply scams, whilst others offer misleading or even false information. So, what do you need to know before deciding on whether or not to invest? Here are five key questions to ask yourself when you do your research into a potential blockchain project investment.
What is the project and does it solve a real-world issue?
Firstly, you need to ask yourself whether the project itself is offering a service or a product which is unique. Does the project/service actually lend itself to blockchain technology? What is its sales history and forecast?
Research by The China Academy of Information and Communications Technology (CAICT) in 2018 claimed that blockchain projects only average a rough lifespan of 1.22 years. The same research also claimed that 92% of over 80,000 blockchain projects launched failed.
You need to ask yourself what real-world problems does blockchain aim to solve. Is the project you are considering investing in actually offering to solve a solution to this problem in the real world? If the specific project can solve a problem that was previously unsolvable, using distributed ledger technology, then chances are it will be in high demand. In this case, it is an attractive investment.
Is there an existing working product?
With many blockchain projects, an actual working product or service is still in development. It may be months or even years away from being up and running. Unfortunately, a lot can happen during that time. That means that there is a lot of uncertainty and ultimately risk, until the working product/service is complete.
“Blockchain projects which have already completed the alpha and/or beta stages of development, or which have a working product, tend to provide more certainty. By having reached this phase, a project offers more reassurance of its legitimacy and of future success,” explains Adam Eli, a tech writer at UKWritings and Essayroo.
What investment platform is being used?
Blockchain can lend itself to additional risks, due to its decentralised and mostly unregulated nature. It is the company’s responsibility to ensure the exchange platform they are using is safe for investors, but doing your own research can help too. If the company is holding an IEO, do some research on the exchange platform it will use. OKEx, Binance and Bitfinex are considered some of the best exchange platforms, according to ROI data by CoinMarketCap.
Who is involved in the project/company?
You need to consider whether the personnel involved in the project are made up of competent and experienced technology professionals. Do they have any proven blockchain development experience? Do they have any banking experience? What are their marketing credentials? Do they have demonstrable prior experience related to the project? Are they well-known in their respective industries?
“It is important for a team to have a solid online and social media presence. Check whether the team is providing regular updates about the project’s development, including any partnerships being formed,” says Phil Hutchinson, a journalist at Boomessays and Revieweal.
A serious project will have sought to form working partnerships with more established companies This helps to emphasise the project’s transparency and helps to boost the company’s professionalism and reputation.
Is the company offering asset-backed or utility-based tokens?
By investing in the company/project, you are being offered tokens for use within the business. Utility-based tokens offer you a service/product which is tied to the company. The value of these tokens fluctuates as they are based on the company’s performance, reputation and the general public perception. They tend to be more volatile and do not entitle you to company shares.
Asset-based tokens are backed by real-world assets. They are known as security tokens and are regulated in countries like the US. By buying a token, you can be entitled to an asset owned by the company. In this way, they are a hybrid; they bring together the free-form, decentralized nature of blockchain (and crypto) with the moderately regulated, centralised security tokens. The increased regulation of these tokens means they are less likely to be a scam.