Follow the Money to check the lgitimacy of projects on Hive
In the crypto world, I always hear the same words being spoken: „before you invest, make sure to do your due diligence“. These are nice words but how do you technically do that?
I always try to start with the information provided in a white paper or a post. These are however only promises and how can you check whether these promises are actually kept?
One way of checking out the legitimacy of a project, especially on hive, is to follow the money. What happens with my investment? Where does the money go?
Before I invest somewhere, I have learned to follow the money by going step by step, transaction by transaction until the money is staked somewhere or it disapears. Also, I try to do the same on the other side. I try to track the money that is given to me and figure out where it came from. Has the token I receive been bought on the market or has it been issued from thin air?
On Hive, we are pretty lucky to have all the necessary tools to figure that out. I use my peakd.com wallet for that. I can check all transaction for hive, hbd and also all transactions for hive-engine tokens. For more details regarding HE tokens, I use the Hive-Engine Explorer that allows me to look at all transactions by an account for a certain currency.
Following the money often allowed me to find things that didn't match or that raised some red flags. It's a good exercise and it can be time consuming but it's definitely worth doing it.
How do you do your due diligence when checking a project or a token?
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Ok. That's great. While investing money, keep these steps in mind.
It's always good to not only look at the packaging but at what is really inside :-)
Due diligence is important! Great video. Will share with our Curators.
Upvoted because of the #PIMP hashtag! Nice to see @tokenpimp getting mentioned in this video.
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Thanks a lot! We have great tools on hive to look at what is happening with tokens and hive. In my opinion, it's important to understand how funds are moved within a project to realize whether things are sustainable and how value is created.
Definitely. Public wallets mean it's easier to spot fraudsters and Tribes using the accounts as their own personal banks! We happily invite anyone to check the @thgaming Wallet to verify transactions. It's a bit trickier to verify Liquidity Pool positions though.
Great reminder and example that we should be doing more DD on projects and different tokens. Simply minting new tokens doesn't create wealth in and of itself.
Of course tokens have to be minted once but then I believe it's important to realize how they are minted and to see if value is created in the process.Thanks for your comment!
This is what I did my first year at Hive and now practice all the time. It's how I get into all my second-layer tokens. I also sometimes ask questions in the official chats).
Thanks for the review!
!CTP
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I like to do it sometimes just to understand the tokenomics of a project. Following the money can also reveal the structure of a project and how it creates value. I failed to do it in the past but now I do it regularly and it's often an eye opener :-)
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I have a friend who sends me stuff that I later check out and stress how people can be greedy and steal money from others... 😂
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A lot of rug pull happen because investors look at the shinny outside than following the transactions to see what goes on behind the scenes. Thank you for sharing how you do your crypto due diligence, this is very useful and I received value.
I'm happy you found value in it. Thanks for stopping by!
Well due diligence to me can be very detailed and specific so it may not be worthwhile when looking at some crypto tokens.
The typical steps I follow when evaluating a token are;
Step 1 - Get to know the owner.
Step 2 - Learn as much as possible as per the purpose of the token.
Step 3 - Chart the token and get to know the players trading and holding the token.
Keep repeating the 3 steps until you get bored !lol or your confidence level is high in making the decision to keep or remove the token from your portfolio objective.
Side note: Hey Rob, @threesteps see how I applied your 3 step game plan. !fun
Never forget that BBB may mean Bullshit Baffles Brains
That means you need good filters. I would not spend too much time on details of the money flow unless my goal was to do some forenic accounting exercise. I apply chunking techniques to help me focus on the more valuable parts and avoid going down a road of diminishing returns.
I have read the following definition from a google search;
I have looked at a few White papers for tokens and I will be looking at many more as I progress with my own #PEPT token. I agree with the value in following the money and I think it has to be done in context to your own purpose. Sometimes you can see a short term trading opportunity that will generate a cash flow to feed your own long term project. A lot of variables and possibilities. I see value in being more allowing to try new tokens and wise enough to part from old tokens.
Have a great day.
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Very interesting comment! Thanks a lot for sharing your due diligence process. What I learned in the crypto world is that you can't always take at face value what is being promised by projects. That's where following the money can be pretty useful. To see if what they do is actually matching what they promise...
All true. Some people oversell and some undersell. Always necessary to match the presented content with measurable activities. I like to build a long lasting and trusting relationship with people. We are all imperfect and thus learn from not only our own mistakes but from mistakes made by others. Now, I am assuming one is able to learn something new or willing to make a change in their online activities. That is easier said than done. I had to drop several daily activities to get to here on Hive. In my own personal development process I learned how to remove unintentional filters and apply necessary filters.
Thank you for the great exchange. Looking forward to your future shares.
There are a lot of benefits on the hive and a lot of earning opportunities 😊.
That's true :-)
Practice makes perfect I think. It's hard to come up with a scientific method. Sometimes it's a gut feeling too. Be it the white paper, be it the creators/founders of the project and tokens.
Personally, I feel that the people aspect is the most important. Whether the team behind is trustworthy, responsible, knowledgeable, passionate, etc - you get what I mean. Or if you ask questions, are they responsive, etc.
Sometimes there's no harm putting in a small amount at the start, see how it goes, you can reduce if you decide it was a wrong move... Or add more if you think you are more comfortable..
I also like to do that. Invest only as much as I can easily lose without regretting it. Like that you can check things out and if you want in the long term, it's always possible to increase your position.
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This chain is transparent, it is quite easy to see how the funds move. That also serves to learn how the most successful users invest.
It's indeed interesting to check out the wallets of big fishes :-)
Looks like you need more !PIMP in your wallet. Give us a look and see what we are doing. Appreciate the shout out!
You must be killin' it out here!
@enginewitty just slapped you with 5.000 PIMP, @achim03.
You earned 5.000 PIMP for the strong hand.
They're getting a workout and slapped 2/3 possible people today.
Read about some PIMP Shit or Look for the PIMP District
Thanks for the Pimp :-). Accumulating it slowly but surely ;-)
I often feel lost in trying to evaluate if a project is good or not... As a newbie in crypto as I am there are a lot of difficult words that I don't know what they mean or how it works.
Your way of following the money seems a bit simpler, I'll try it out next time! 😁😊
I'm happy to hear that. It's not easy to find your way around on the blockchain :-)
I'll definitely try this method. Just reading the whitepaper isn't enough, they're just words. But getting into the nitty of where the money comes from or goes will reveal insightful details.
Exactly. The whitepaper are important but you never know how much is actually true about them :-)
Even following the money isn't a foolproof method. A great deal of luck is needed in order for a project to succeed too.
Of course it's not. In my opinion it just shows what the project leaders are doing with the money. If it all goes to a CEX it certainly doesn't increase trust into the team :-)
These are the steps we all should follow to keep our money safe.
It's one of many step that we should take but it's a good place to start with.
I also made the biggest mistake of my life a year ago today and I didn't know anything about it and I invested a lot of money today it's completely gone as you say. Yes, I will definitely read about it. Your post will benefit people and save them from people who come here only to scam people.
I'm sorry to hear that. Unfortunately there are many scams out there, especially in the crypto world. I also learned the hard way...
Great emphasis for newbies to track transactions on the Hive blockchain. We need more such materials in order to ensure a low entry for non technical people.
When new people join crypto, they tend to believe what is told to them (at least I did back then). It opens many dors for scammers to disgust them from the get go...
Hive is transparent itself and that is why a lot of people see other people's activities here and investments
I think it is very cool...
If you are patient enough and you know where to look, you can find plenty of information on the blockchain :-)
I haven't really bothered to do so much about it but I haven't really invested much into HE projects. Lately, what I do invest in is solid projects like Splinterlands or dividend tokens (INDEX, CTPSB, INCOME). I should probably do that though.
Unfortunately, there are many examples on hive where the tokens don't go where they should go. It's not always easy to find out and sometimes it's just because there are so many accounts involved that it's difficult to follow the track. I've seen quite a few projects that didn't pass the test when I followed the money...