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Coin-firmation Bias: A Beginner’s Guide to Picking the Right Cryptocurrency

Opinion

Ever since the exponential rise of blockchain and cryptocurrencies in recent years, there have been more and more cryptocurrencies emerging in the market. As of today, there are over 1000 currencies that are listed on CoinMarketCap – with more to come, considering the multitude of ICOs that are ongoing, concluded or in its pre-sale period.

Therefore, it is virtually impossible for us to keep track of all these different projects and know which one will give us the best return on our investment. Since ICOs allow companies to skip the conventional VC funding process and opt for a more widespread crowdfunding method instead, smaller investors are now given the huge responsibility of picking the right company to put their funds in.

In other words, we are the VCs looking for that one company that will become the next Facebook/Amazon/Paypal. A lot of coins will falter over the years and disappear eventually, so it is crucial for us to invest in the right coin so that our investment will increase in value in the future.

Confirmation Bias When Researching About Cryptocurrencies

Contrary to popular belief, investment is not gambling when you do the necessary research into the cryptocurrency that you are investing in. However, it is also important to avoid confirmation bias by also looking for disconfirming evidence – what are the possible pitfalls of the coin and if those flaws outweigh the strengths or not?

Imagine this: You have a group of friends who are actively investing in cryptocurrencies. When you ask them which coin do they think has the most potential, they all recommend the same coin – Coin XYZ. Thus, as a ‘smart investor’, you start researching about this mysterious currency that is said to have the potential to make you millions.

After sieving through various analysis videos and countless pages of the digital currency’s whitepaper, you eventually end up on the Coin XYZ’s Reddit page, where everyone is incredibly bullish about the coin, predicting that it will go ‘to the moon’ by the end of 2018.

If you are lucky and everything goes as planned, your investment pays off and you become the next Winklevoss twins.

Unfortunately, there are a lot of coins out there that are mere vaporware – they either have no feasible products or are perpetually in their alpha stage. There are certain red flags when it comes to assessing newly-minted coins – if the whitepaper is poorly written, or if there are unprofessional commits on the Github page, for instance.

In a YouTube video posted by Ivan On Tech, he used Tron as an example to explain how important it is to examine the cryptocurrency’s Github repositories when we are assessing whether the coin is worth investing in or not.

Important Factors to Consider When Researching A Currency

There are also several other factors that we have to scrutinize before we invest our life savings in a digital currency:

  • The charts: This is the most basic way of examining the potential of a coin – by basing it on the coin’s past performance.
  • The team behind the coin: This is perhaps the most important aspect – without an experienced team researching and constantly improving the coin, the currency is doomed to fail in the long run.
  • The community: Forums like Reddit allow you to understand the community that is backing the coin itself – are they invested in the currency because they think it’s the next ‘lambo coin’ or do they actually believe in the technology of the coin?
  • Real Life Application/Use Cases: Speaking of technology, here is another important aspect to consider – you have to make sure that the coin that you are investing in can be used in a real situation and has a wide target market.
  • The Roadmap: Before you invest in a coin, you have to understand what the team behind it is striving to accomplish in the current year or the next year.

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