In Web3, not everyone is friendly. But hey, that's not all bad -- you have endless resources at your fingertips to do your own research. Most cryptocurrency projects have their own whitepapers, Discord channels, and of course, detailed descriptions of their underlying smart contracts on blockchain explorers like Etherscan.
Web3 can be an appealing environment for scammers -- but it also empowers you to look beyond the hype and verify things for yourself. In this article, we explain the key resources at your disposal to do just that.
How to Use Etherscan to Analyze a Smart Contract
Let's start with the basics of the blockchain. Every cryptocurrency project, token, or platform has a smart contract as its foundation. Since smart contracts are blockchain-based tools, all their key data is recorded and available for you to check.
You may be wondering how you can access this data -- that's where blockchain explorers like Etherscan come in. Blockchain explorers are somewhat like search engines specifically built for the blockchain; they can parse a vast amount of on-chain data from specific blockchains and show you different query results about the project you're researching.
What Can You Learn from a Smart Contract?
By looking at some key metrics on a blockchain explorer like Etherscan, you can form a fairly clear impression of a project. These metrics include:
- Contract Creation Date: This allows you to see when the underlying smart contract for the project was created, so you can understand how long the project has been running. This is useful for spotting potential rug pulls, as you would expect such projects to have a short lifespan.
- Total Token Supply: Checking a project's total token supply gives you a broader view and indicates how much of the token can be purchased by everyone in the project. Buying a thousand tokens may seem like a lot, but if the total supply is 50 million, you may quickly gain perspective on your influence in the project.
- Token Distribution: Similarly, looking at how the tokens are distributed can provide important insights. A supply of 50 million tokens may seem standard -- but if you notice that 10 million of them are in the same wallet, it may indicate an unstable project or even a rug pull, since just one person has such a large influence.
- Wallet Transaction History: Looking at a project's smart contract data will also show you the history of all transactions that project has ever made, along with which wallet IDs interacted with it. If a lot of transactions are just tokens circulating among the same few wallets, it may indicate wash trading to boost the project's price and image, for example. Likewise, if you check a token you wish to purchase from a large collection and its smart contract transaction history shows only a few recent contract interactions, it could signify a fake smart contract. In either case, taking a look at Etherscan can help you understand the inner workings of the project you are interested in.
How to Find a Smart Contract
Before you can parse any of this data, you need to find the smart contract ID for the project you are dealing with. This will appear on the project's official website, the project's OpenSea page, its whitepaper, or even its GitHub page. It may also be listed on related CoinMarketCap or CoinGecko pages.
Once you have copied this ID, you can go to a blockchain explorer compatible with the project's underlying blockchain and input the smart contract address you copied. You will then be able to access all the above metrics and more to help you build a picture of your potential investment.
How to Use Discord to Research a Project
Discord started as a social hub for gamers and developers, but it has risen to become one of the core communication platforms in Web3. Nearly every cryptocurrency project has its own Discord server, serving as a hub for the community to ask questions, collaborate, and share alpha.
What Can You Learn on Discord?
But from a more fundamental perspective, Discord is a hive of information where you can get a feel for a project's community -- and even dig into its founders.
- Assessing the Team Behind the Project
For instance, if you have some questions about the project's prospects or technologies, this is a great place to ask. A responsive team willing to address your questions and concerns is what you would expect from a legitimate project and diligent founders. On the other hand, unanswered questions or a completely unresponsive core team may indicate a project without vision or, worse, a scam.
- Measuring Community Sentiment
Browsing through community comments can also reveal a lot about a project. If most comments appear to be pushing the project or urging you to buy quickly, you might find that the project is not as it seems. Discord is about real communities, not about showboating.
Similarly, you can gauge how the community feels about the project -- whether they are engaged, disappointed, or sharing key alpha on upcoming drops.
In any case, checking the activity on Discord is another great way to gather information on your potential projects and should definitely be a part of your research.
Read the Project Whitepaper
The third key resource for doing your own research is the whitepaper. In Web3, most projects have their own whitepapers, which serve to provide insights into the project's underlying technology, specific use cases (if any), future roadmap, and the founding team. All of this will help you assess whether the project has a bright, realistic future.
Is the Technology Useful?
The first thing you should look for is the project's use case -- does it have applications in existing businesses or industries? Who are the competitors -- and does the project need to be blockchain-based? If these answers are unclear, you may want to consider whether the project's utility will withstand the hype.
Who Are the Founders?
Typically, a whitepaper will list its founding team, which can be valuable information. If a founding team has an established track record in the DeFi or NFT space, then the project may appear more attractive. On the other hand, if the founders are not named or lack a solid record involving cryptocurrency, business, or the project's core use case, you may want to consider a deeper investigation before making a commitment.
Is There a Realistic Roadmap?
Finally, each whitepaper should present a roadmap outlining how the founders intend to develop the project in the future. This is your opportunity to understand their intentions and decide whether you believe the plan is realistic before you get involved.