Picking the Right Coins

Much like picking stocks, picking the right coins takes a bit of research, a bit of luck, and a bit of stupidity. If you come up with a way to do it that works for you, then do that and stick to it. This is my advice for how I choose things.

Much like everything you invest in, diversification is important. A good crypto portfolio has a healthy mix of Big-Name Coins (Bitcoin, Ethereum, Cardano, etc), Smaller Targeted Coins, Tokens, even things like NFT’s and Stablecoins.

I’m gonna talk about all of them here, the different types, and then the ones I like the most.

Coins

Big-Name Coins

These are the heavyweights of the Crypto World right now. I say that because they offer the most utility. They are typically the native blockchain coins that enable smart contracts on plastforms like Ethereum, Cardano, Solana, Polkadot, etc. That also means they have a lot of growth potential, and are much broader in scope.

Targeted Coins

These are coins, typically in their own blockchain, but who’s use case is much smaller and meant to achieve a specific goal. Monero, for example, is a smaller coin whose main selling point is privacy. Polkadot is meant to facilitate inter-chain communication. Nano is about energy efficiency, etc. You would pick the chain based on the context of your transaction. Need privacy? Pick Monero. Want to move funds between blockchains without exchanges? Use Polkadot, and so on and so forth. This is not to say that these coins have any less growth potential, but they’re focused on doing certain things very well. A diversified portfolio uses many of these, because the odds are that if Crypto truly changes everything, it won’t be a one coin world. Just like how different credit cards offer different rewards, based on your purchases and situation, the future of Cryptocurrency is multi-chain, with people using different ones based on their needs in the moment.

Tokens

I talked about these earlier but I want to clarify that they fall into three categories: Utility, Governance, and NFT.

Utility Tokens

Anything who’s ownership and spending empowers the use of a service. Chain Link Token for example, allows you to utilize its Oracle services in exchange for spending Chain Link. This means its growth will occur alongside the rest of the Ethereum platform. This effect is similar to how when everyone uses AWS, Amazon stock grows with them.

Governance Tokens

Also covered above, A token that allows you to vote in a DAO on a platform. The more you hold, the more voting power you have. It is a token just like all others, with its own dollar value and transfer properties, except its value is derived from the value in voting for something. Governance tokens for Decentralized Lending protocols, like Compound, allow you to vote for things such as what interest rates charged and earned should be. The importance and ubiquity of the platform affects its cost. The governance token Maker, for example, allows you to vote on changes to Dai, the largest stablecoin in circulation. Its importance to the DeFi ecosystem makes the ability to vote on its worth a lot.

NFT’s

You have probably heard about this on the news, in the form of a clickbait-y article about how someone paid 60 Million dollars for a GIF. It stands for a Non-Fungible-Token, a completely unique and non-reproducible token on the blockchain. This can be used to represent a unique asset, that has value assigned to the holder.

The most common example of this right now is images and gifs. This is where a person will digitize something like a GIF , into a token, and then send it to the highest bidder. This token is linked to your address, and allows you to prove that you are the owner. If you’ve ever played a card game, like Pokemon or Magic the Gathering, imagine digitizing those cards and then selling them on the internet. There’s already a company doing this, Gods-Unchained, where all cards are represented as NFT’s, that can be easily created and resold or used to play the game.

The one you’ve probably heard about is artwork. This operates kind of like regular paintings. The Mona Lisa is a beautiful painting, and anybody can take a picture of it and reproduce it. However, at the end of the day someone owns it, and proving you are the owner means you can do things like reselling it and lending it to museums. There are art galleries right now finding ways to display these NFT’s to the viewing public, while crediting their owner and creator.

There are also many non-art related applications too. Because NFT’s can be used to represent any real world asset, that is unique and non-reproducible, you could:

  1. Digitize a land ownership registry for your city and all the Deeds to property. When you sell your house you simply send the NFT to the new owner and it allows them to prove they are the owner of the property, cutting out the middleman.

  2. Create a system for concert tickets, where when you buy one on Ticketmaster it’s an NFT sent to your phone and easily-sellable from anywhere with proof of authenticity.

  3. Digitize domain names and web addresses allowing them to be sold as NFT’s, etc.

The list goes on, but investing in these is like buying art. Some of them have value, based on what they are and who created them, and a lot of them are junk. Filtering through and finding which has value is a skill in its own right,and incurs a very high amount of risk. However, if you know what you’re doing, you can make a lot of money. Just be careful. Just because the third string wide receiver for your favorite football team is releasing one, doesn’t mean you should buy it.

ICO’s

I covered this a bit above, but I want to talk a little bit more about safe ICO investing. ICO scams and rug-pulls are an unfortunate part of the Cryptocurrency world, and identifying them is important. Just like some IPOs, they can be cheap and part of a high-risk high-reward strategy, except they’re not vetted by an exchange. Investing in these requires extra due-diligence beyond the normal coins.

  1. Read the whitepaper thoroughly. Is it laying out a long term vision for growth, innovation, and divestment for early backers?

  2. Is it incorporated, and if so, where? US and EU laws consider Crypto Securities, so if something happens can someone go after them for fraud?

  3. What are the tokenomics? Is the supply in the millions, billions or more? Is inflation a real threat, or is it deflationary?

  4. Are the core developers listed by name and identifiable in the real world?

  5. Can I buy it with a credit card or major financial service, or do I just have to send them cryptocurrency?

    1. Buying an ICO by sending them Cryptocurrency is a totally valid way of funding, but is always a way for them to leave you holding the bag if you don’t do your due-diligence.

    2. The ability to buy on things like Coinbase-Affiliate Program, or through major financial instruments like Credit Cards and ACH transfers adds to its credibility. Who else is backing this, and are major Crypto outlets taking it seriously? Do your thorough research and you won’t have problems avoiding scams.