001: DYOR (Do your own research)
Where do you start when it comes to researching cryptocurrency?
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Episode Transcription – Do your own research (DYOR)
Welcome to Candid Crypto. We made the show to provide a casual, well rounded view into cool topics in the cryptocurrency space.
I’m your host, Liam Stojanovic.
And I’m also your host, Michael Edelheit. We’re so thrilled to have you join us today. Please enjoy another episode of Candid Crypto.
Doing research on cryptocurrency can be daunting and overwhelming. With so much money entering the space, there’s more noise and information than seems humanly possible to read. As someone curious about cryptocurrency, potentially willing to invest, where do you start?
Whenever I’m learning anything new, I focus on the fundamentals. My crypto journey started by understanding all the terminology my crypto friends are throwing around in conversation terms like Blockchain, Alt coin and Smart Contracts. My motivation for learning the vocabulary was to speak intelligently on various topics and to be able to understand more abstract concepts in the future.
So Michael, is it fair to say that we can draw a line in the sand between Bitcoin and all other cryptocurrencies?
For the most part? Yes, Bitcoin is the OG Cryptocurrency and the concept of cryptocurrency didn’t exist prior to January 2009.
Bitcoin established the first Blockchain. All other cryptocurrencies have come after, also known as Alt Coins, also leverage Blockchain technology in some shape or form.
Liam, where do you start when it comes to understanding Bitcoin, as well as any alternative coins, aka Alt coins?
The established wisdom is to read the white paper. To quote Wikipedia;
“A white paper informs readers concisely about a complex issue and presents the issuing bodies philosophy on the matter.”
Almost every cryptocurrency project has published one. White Papers have traditionally been found in an academic setting, the inventors of Bitcoin settled on using it to communicate the key value offering of that crypto. I’ll be honest, the paper is full of technical jargon, and it may feel inaccessible to a beginner. I felt the same way reading about it at first. And ultimately, you have to try to try. Google what you don’t know and see if you can explain parts of it to a friend. It’s all a part of the process of learning. The white paper is a great place to start. But it is by no means the only source you should reference. Referencing multiple sources will allow you to objectively evaluate your cryptocurrency.
Liam, I absolutely agree. Triple check everything. There are many appealing talking heads for almost any cryptocurrency project, your favorite celebrity endorsement of a coin does not validate its real world use or adoption. You know you have to ask yourself, does your favorite coin have a tangible use case 10 years down the road? If it appears to be an interim or copycat technology this likely isn’t the case.
Liam, what are some of the primary considerations people should ask themselves? When figuring out a tangible use case?
I like to ask the following questions:
What is the primary use case for this coin or token? Will people actually use this thing? Or is it just another thing to speculate on?
For example, with Basic Attention Token, Basic Attention Token can easily illustrate its utility. You download the brave browser and you’re rewarded in BAT for viewing privacy conscious advertising. You can then use that BAT to contribute to your favorite content creator.
The second question I like to ask is what is the supply?
Bitcoin is deflationary. There’s 21 million Bitcoin that will ever exist according to the protocol and Bitcoin supplies unique to itself. Other cryptocurrencies distribute coins in different quantities.
Yeah, I think that’s really important to hone in on. You know, I reference the website the @coinperspective.com often when researching because it really helps me understand the economics of a given coin. The coin perspective lets you compare the cryptocurrencies you’re researching to the market cap of Bitcoin or Ethereum.
Here’s an example: As of April 11, 2021, Ripple also known as XRP, is worth $1.34. In order for Ripple to be worth a little over $5 a coin, it would have to have a market cap of 229 billion. It currently sits at 60 billion.
So no one knows for certain how these assets will be valued in the future. In order for your Ripple, so five times your investment, it will have to quadruple its market cap. Bear this in mind as you make investment decisions. Other coins are capable of 5xing with a much less dramatic influx in total market value.
Don’t ignore the math!!
So to wrap things up, be wary of hysterical social media content related to buying a given coin. It sounds kind of obvious, but many of us live in a social media bubble. Your favorite Tik Toker or YouTuber endorsing a coin does not validate its actual use case. Coordinated buying and selling activity is referred to as a pump and dump. We saw this occur with GameStop, which became an international meme to buy and hold that stock. In an unregulated global cryptocurrency market. There are large incentives for whales, aka people who own very large amounts of a given crypto, simulate the market price.
Be wary of projects whose battle cries are to simply HODL. To HODL is to buy and hold crypto for a long period of time. This activity in itself isn’t indicative of a weak project. However, if it’s the only thing uniting that community, there may not be a long term vision for the coin.
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