One of the first things we do when we look into investing in a crypto project is check the crypto's legitimacy. This can take a while and a lot of digging but it really is worth it, by doing this you won't get stung by rug pullers or other potential threats to your investment.
1. Lifespan. A project's lifespan, that is, how long a project has been active, can tell you a lot about what you're investing in. Some cryptos are created by companies that have existed long before adding blockchain tech, so be sure to dig deep. A long standing project not only means it's very likely legitimate, but it also means their blockchain is longer which ultimately means it's more secure. A short lifespan doesn't necessarily mean it's not legit though, look at some other factors.
2. Use. What is the project trying to accomplish? Are they a company with a product? Are they support for existing tech? Are they bringing in new ideas? Look at all of these factors and ask yourself if what they're working towards seems viable. You should find this information in their Whitepaper.
3. Accomplishments. When you've found their use, look at what steps they've taken to progress in accomplishing their goal, a project can say they're going to end world hunger but are they actively pursuing that goal with relevant partnerships and sponsorships, hiring knowledgeable staff, actually contributing to their targets, etc.
4. Transparency. The entire point of the blockchain was for transactions to be fair and transparent, and so too should any project using the tech. What you want to look at is the project's staff, CEO's, founders and holdings, if any of these are kept anonymous, this is a red flag.
5. Staff. Who are the CEO's and staff? What experience do they have with the goal they have set for themselves? Are they notable in any other fields (particularly tech)? We're not saying that people with no experience aren't legitimate, rather that people with experience should help set your mind at ease. You should be cautious of those without experience but factor in the other steps to determine their legitimacy.
6. Links. They might have links to prove their legitimacy, whether they're articles about the CEOs or staff, official websites, wiki pages, whatever it may be, make sure you can find that page again without using their link. The way you would do this is by searching for keywords in the articles, the tittle, names, etc. I once thought I was was getting onto a potentially massive project super early but discovered all of their links lead to copied and fake pages, I was seconds off of investing $5,000 because all the other steps had checked out. Double check....EVERYTHING!!
7. Holdings. This is a big one, you need to look at their blockchain and look at the early transactions, if you see upwards of 40-50% of the total supply to a single address or multiple addresses in a short amount of time, they may be planning a 'Rug Pull', I explain what these are and how they operate in my previous blog, so make sure you check that out HERE. They may say it was sent to a burn wallet so check and verify that the wallet it was sent to was in fact a burn wallet....and it needs to be a burn wallet, we all know what happened to Shiba Inu when Vitalik Buterin sent a substancial amount of the token to a Covid 19 relief fund in India, the reason he was able to do this is because it's custom for meme coins to send their birn amounts to Vitalk's wallet as an homage for creating Ethereum with the assumption that he would never spend it, but that was never an agreement or contract, just an assumption and he is free to do whatever he likes with whatever is in his wallet. For those that don't know what a burn wallet is, it's a wallet to which NO ONE has any possible access to and therefore it's contents can NEVER be transferred from it.
These are the 7 most important steps to ensure the project that you are looking to invest your money into is legitimate and won't try to run away with everyone's funding. A lot of new cryptos won't fit these criteria so if they don't wait until they do, yes you may miss out on some huge initial gains but you also won't lose your money to scammers, investing is all about knowing the company. This is also a game of averages, if they tick most of the boxes but not all, they're on the safer side, if they tick less boxes than not, use caution and either wait for them to tick those boxes OR do some more digging and see what else you can find to set your mind at ease.
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