As a new investor, you might be asking yourself, what are the good features I should look out for before investing in any amongst the cryptocurrency networks out there?
With the rate of cryptocurrencies increasing globally, it is of great importance you understand what features are necessary to mark a cryptocoin safe for trading.
As of April 22, 2020, according to Yahoo Finance , 5,392 cryptocurrencies are being traded with a total market capitalization of $201 billion.
Given the fact that cryptocurrencies are volatile and its price is always fluctuating, and transactions are irreversible, it will be a great deal of good for you to understand how the trade works before venturing into it.
Getting hold of factors to determine a good cryptocoin is your first and basic top to becoming a cryptocurrency investor.
In this article, I will give you nine basic features every good cryptocurrency must possess before you consider it safe for trading.
DECENTRALIZATION is a fundamental feature possessed by a cryptocurrency, which gives it the leverage of independency from any central authority and bank.
A central authority governs most, if not all, fiat currencies; the society’s governmental body or the central bank.
These bodies can determine the inflow and outflow of cash, the creation of banknotes, and strict regulation of money circulation. Centralized currencies pose a significant threat to an investor as the central authority can determine when to plunge the economy into inflation or deflation.
A good cryptocurrency “must” be decentralized. It must not be placed on constraints by any authority and must not be synonymous with any state authority or political influence.
Blockchain systems manage the feature of decentralization in cryptocurrency. This creates a fair and transparent system of transactions. This gives you as an investor the assurance that your funds or personal information cannot be spied into or seized by any governing body.
Supply refers to the number of cryptocoin that are made available for market trade and its circulation in the global market.
A good cryptocurrency should never run out of its circulating supply but can be able to reach a specific supply limit.
Reaching a supply limit places a deflationary value on the currency. Existing traders don’t need to worry about the state of their coins, of it losing its value. As when the supply limit is attained, already existing coins in circulation become more attractive, as there will be a rush to the coins available, giving you the ability to increase the cost of your coin.
According to Coin market cap different cryptocurrencies have different supply limits, and this total supply rate gives you a clue as to which to invest in.
Security is a major factor to consider trading. Nobody wants to lose his money to the wind. Cryptocurrencies are what they are because of encryptions. This strong strings of codes help give the currency an unbreakable wall.
A good cryptocurrency is secured using blockchain technology. Blockchain makes cryptocurrencies impossible to penetrate, as transactions are recorded in a ledger, which is difficult or near impossible for a hacker to infiltrate.
Some cryptocurrencies in existence are not adequately secured, as sophisticated hackers have had their way through them. Some cryptocurrency networks are entirely spammy, prying into your details, using fake ICO teams, phishing and clone sites, and even a plagiarised ICO white paper.
For a documented list of fake crypto websites, click here
Knowing how much a cryptocurrency is worth today gives you a hint as to what you are investing your money into. Some cryptocurrencies are cheap in the purchase, while some are costlier, but it is more necessary you also know their potential value in the world today and that to come.
As of May 2020, Bitcoin remains the most valued cryptocurrency with one Bitcoin equal to 8,921 US dollars. The value of a cryptocoin is directly related to the demand for the coin. The greater the demand for the coin, the higher its value.
Read also: Ethereum vs Bitcoin
Having full details on the level of demand for a cryptocoin, where this demand comes from, how the demand rises and falls, when it grows much and when it falls most, what keeps the demand steady, can tell you alot as to what to expect from a coin in the foreseeable future.
The more a currency is used and accepted in everyday transactions, the more valuable it can be.
The rate in which a cryptocurrency is used determines it’s adoption for global transactional processes.
According to a survey as of early 2018, only 8% of Americans invested in cryptocurrency.
Is this a problem?
Yes, it is.
Why will you stick so much money in an imaginary trade that is not yet yielding?
Because you believe in the new future; cryptocurrencies will soon be a global means of exchange.
But should you base your trading on this assumption?
The problem with the usability of cryptocurrency is not because the trade of these currencies is difficult for users to understand but because the platform through which these trades are made are most times confusing for beginner investors.
So far, coinbase and Robinhood remain the friendliest user interface as they are very simple to navigate even as a beginner.
Until cryptocurrencies spread their wings so wide that they are accessible to the mainstream audience and used for day to day transactions, then the future of cryptocurrency will still be a far reality.
The rate at which a coin can be easily moved between users is a determining factor. Cryptocurrencies which are more complicated and slow to transfer, or more challenging to convert to cash, will pose a challenge to investors.
Some cryptocurrencies have an attached transfer fee, which you will have to pay per transaction you want to carry out. You must make full inquiry as to these entails to avoid falling into a ditch hole.
You must note the life cycle of any cryptocurrency you desire to trade with.
The life cycle of every cryptocurrency begins from mining through halving, selling, and buying.
Some coins grow in value through time intervals, and some do not. Some crypto networks look so promising, with their coins moving so high within short intervals, only to crash within the twinkle of an eye.
Understanding the life cycle of a cryptocoin gives you an upper edge not to fall prey to a Ponzi scheme.
As an investor, you shouldn’t base your trade on speculations, but by having proper knowledge of the coin, you’re trading with.
You need to understand when they are in the markup phase, distribution phase, and when they are in full circulation. Understanding the market chart helps you know when to invest and when not to.
User interaction, community strength is another factor that you must consider as a crypto trader.
The community behind a cryptocurrency speaks volumes to its acceptance, adoption, and growth. If a cryptocoin is being advertised, marketed, and trader by a small group of individuals, possibly developers or traders, who hope that more investors will join, then you should look out well as how long it will take for this coin to gain global recognition.
But if a large team of Developers is spreading a cryptocoin, traders, investors, this quickly tells you that this coin has a loud voice on its own.
RELIABLE CUSTOMER SERVICE
The availability of a reliable and steady customer service builds trust in traders.
A reliable customer service can help your gain financial service experience, leading you through certain dos and don’ts to give you the robust profit margin you are looking out for.
Cryptocurrency platforms that have a perfect ranking customer service, such as being user friendly, accessible, and transparent.
Without these, you should beware of such trades.