All investments in cryptocurrency market players involve a high degree of risk. Correspondingly, there is also a high probability of making sizable profits.
For example, the price of
already cost $8, which means a 26-fold increase in price in just 72 hours. However, such excellent performance also has its downside.
For example, the price of the BCC token dropped from $256 to just $19 in less than 24 hours. Essentially, the token
showed a 50-fold drop in value in just one day. Sponsored Sponsored
Unfortunately, the overwhelming majority of cryptocurrencies from the 2017-2018 era that were massively issued and funded by ICOs have fallen to the abysmal BCC token in terms of profitability or investment credibility.
Investors who managed to survive these turbulent times and not go bankrupt have since gained invaluable experience. Meanwhile, newcomers to the market are cautious and prefer not to repeat the mistakes of their predecessors.
Factors to Consider
What factors should be considered to avoid making costly mistakes when investing in cryptocurrencies?
When conducting a fundamental analysis, investors should evaluate the visual appeal of the project’s website, its applications, social networks, which should be designed without glaring errors. Availability of contact information is also important.
In addition, licenses and registrations as well as official addresses of the project should be checked. The team members must be public figures or at least experts with relevant education.
An important factor to consider is the project team. A project does not necessarily have to be a financial pyramid scheme for it to fail. An unqualified team or insufficiently experienced employees is enough.
This is why investors should always use social network verification. Besides, they should also rely on search engines when analyzing the experience of people involved in projects.
Importance of security audits
However, if a project inspires confidence with its outward appearance and nothing stands out in its composition, it does not mean that it is inherently secure and you can invest
in it. This is because the cause of financial losses is often vulnerabilities in the smart contracts that underpin the project.
For example, the Popsicle Finance project lost $20 million in August 2021 alone. ApeRocket was stripped of $1.26 million, and the giant Poly Network protocol <a href=”https://beincrypto.pl/z-po
Basically, a project can have all the licenses and registrations, a professional team, a great idea, and even a working MVP, but lose all its funding due to a minor bug in the underlying code.
This single vulnerability can also jeopardize the investment already made. Therefore, the security of the project is the first thing investors should evaluate. Dmitry Mishustin, CEO of HashEx, a blockchain security consulting firm says:
Many cryptocurrency investors think that if a project is popular, then by default it is safe and proven. Unfortunately, this is not always the case.
Catching security vulnerabilities
In May, HashEx found serious vulnerabilities in the code of the popular SafeMoon project. This happened in the wake of the growing popularity of meme-coins.
The problems identified by the company could have potentially led to multi-million dollar losses. According to the SafeMoon developers, they knew about the problems. However, they had no way to fix them. In the meantime, they reassured members of their community that the issues could be overcome.
At the time of this writing, the identified vulnerabilities have not yet been exploited by any hackers. However, after the project’s audit was completed, its capitalization growth stopped.
Since the audit results were published on May 25, the project’s token price has fallen by more than 50%.
Audits conducted by experienced companies should be the starting point for making an investment decision on the security of a project.
How do security audits work?
Each audit takes into account several key factors that are the basis for determining the security level of a project’s code.
The first of these is the analysis of the code in either automated or manual mode for penetration testing. This involves checking how easy it is to break into a smart contract. Such tests load the smart contract with various attacks like Reentrancy, Replay, Short Address etc.
This is followed by performance validation of the code to see if it is slowed down by any factors. This is followed by optimization through gas analysis and identification of vulnerabilities or bugs. This is a long and meticulous process that involves checking every line of smart contract code.
The results of all audits are publicly available on the websites of the auditing firms that perform themThey have been working on it. This way everyone can read them and draw their own conclusions.
It is recommended that investors start their fundamental analysis by reading blogs concerning the projects in which they want to invest. Such materials can provide invaluable insight into the actual state of affairs in a project. They allow the investor to identify points of interest related to the sale and purchase of project tokens.
The number of audit firms is very small. As a result, keeping track of the reports and updates they post is both a relatively simple and very informative activity. It also pays off in the long run.
All information contained on our website is published in good faith and for general information purposes only. Any action taken by the reader in relation to the information on our website is entirely at the reader’s own risk.