Many have heard about the Do Your Own Research (DYOR) concept in cryptocurrency but aren’t sure what it means. The DYOR meaning is simple: before investing in any crypto, one must do thorough research on the project.
While the idea is simple, the process takes time and effort. But where and how do you begin? And how much research is enough to trust a project and make an investment? You will find answers to these questions in this article.
What is DYOR in cryptocurrency?
Do Your Own Research (DYOR) encourages uninformed investors to avoid following the word of others blindly and conduct research on the project. Simply put, the DYOR concept requires people to think logically and use reliable sources of information before investing or trading.
Instead of jumping on the bandwagon of media hysteria about a “new and promising cryptocurrency,” all investors should check if the crypto in question has the potential to bring profit.
Elon Musk’s tweet about Dogecoin is the most famous example of believing the hype rather than doing your own research. Even though he didn’t recommend investing in Dogecoin, people invested in Dogecoin.
As a result, Dogecoin’s price rose more than 36,000% over two years, then crashed. People experienced huge losses, and today, a $258 billion lawsuit against Elon Musk accuses him and a few other defendants of running a pyramid scheme.
The entire point of the DYOR concept is to use logic and facts when investing in cryptocurrency. People are still new to the cryptocurrency industry, yet they want to invest and gain profit. Unfortunately, lack of knowledge and experience leads to huge losses.
DYOR suggests that investors should consider various essential areas when researching cryptocurrency projects. Here are a few factors to consider when researching the project:
- the project roadmap;
- team members;
- the team’s track record and background;
- the team’s successes and failures;
- community engagement;
- the whitepaper;
- the project’s real-world use potential.
All these factors comprise a valuable initial area to explore. Moreover, DYOR suggests cross-referencing relevant information from different reputable sources.
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It’s essential for investors not to invest blindly and differentiate between a shill and the true project’s momentum. Shilling is when people invest in cryptocurrency and advertise the coin they’ve invested in.
It’s a type of scam since they bought coins for a lower price, and now they want to create hype by advertising. Then they will sell their coins for a higher price. When so many investors start selling cryptocurrency, this action affects the market and leads to a price crash.
Quite often, it can be hard to tell the difference between a shill or an unbiased post of a person who genuinely wants to help. When purchasing any coin, experts recommend deciding on their own before investing for this reason. You don’t want to help a scammer gain profit.
DYOR encourages a thinking process. Investors educate themselves on factors that influence cryptocurrency prices. They understand how to determine whether the coin has value or its price increases artificially. For instance, a valid factor that increases the value of a cryptocurrency is its increased utility in the real world.
An example is when companies adopt the coin as a payment method. Another example is switching from PoW to PoS consensus algorithm since the latter is more sustainable and causes less harm to the environment.
How to do your own research?
If you want to be a successful investor or trader, task #1 is to put more time and effort into understanding a chosen cryptocurrency. Here’s a simple guide that should help you out with the research process.
Pick the right project
Once you identify a few promising potential investments, verifying whether these projects are worthy is critical. Consider visiting CoinMarketCap (CMC) to find more details about each cryptocurrency. Here’s what you should learn about each chosen cryptocurrency:
- its utility and use-case;
- the community;
- project’s team (founders, developers, advisors, partners, etc.);
- market capitalization;
- project’s competition (the project in question may have a more successful competitor);
- project’s road map and team’s vision of its future;
- current trading volume and liquidity;
- circulating supply and total supply.
It takes time to gather and analyze such huge volumes of data, but it’s worth it. Pay close attention to liquidity, which means how easy one can sell a specific coin. Check whether reliable exchanges offer exchange pairs that include the coin in question.
Choose the trustworthy sources of information
Today, everyone seems to have an opinion on different cryptocurrencies. But how to determine reliable sources? Here’s what you should consider when choosing a source of information:
- Does the source have a reputation in the crypto industry? Check the source’s track record. For instance, CoinMarketCap or Coingecko are the most referenced sources when it comes to cryptocurrency.
- What is the source’s following? It’s not 100% proof that the source is reliable (check the example with Elon Musk), but the chances are higher that the source isn’t spreading false information.
- Is the website you are using legit and established? The most popular tech news platforms often verify the information they spread before publishing.
- Is the person you’re following a paid content creator? Today, followers get paid to post ads for their audiences. If the content creator gets to profit from sponsors, they might be unreliable.
Whether you’re reading someone’s posts and articles or watching videos of content creators, always verify the information they offer. Check already mentioned websites CoinMarketCap or Coingecko since they post such data as market capitalization, charts, coin’s circulating supply, total supply, etc.
Look at the charts. How has the coin been performing recently? What’s the market cap? If the market cap is below $10B, most investors consider it a speculative investment.
Check the white paper
Don’t skip checking the white paper and the official website. It’s fairly easy to create a website nowadays, but a reliable team should put more effort into creating a well-designed website. The project’s official website should include the people behind the project.
Pay attention to the content presented on the website. Any spelling errors should get you on alert. Red flags include the website’s lack of transparency, not including team members’ names, promises with no logical backup, etc.
The white paper should include a clear explanation of the project’s goals. A decent white paper includes an outline of the project’s purpose, utility, plans, the technology behind the coin, etc.
Reading the white paper is the most challenging and important step since it often includes technical aspects and terms. However, you should have around 4-5 projects once you filter through all potential investments. So, take your time and read the white paper.