Mark Cuban Says You Need to Do This Before Investing in Crypto

Are you following his smart advice?

Billionaire investor Mark Cuban has made clear that he's in favor of cryptocurrency as an investment, and he's put plenty of his own money into various coins. As someone who has a portfolio made up of Bitcoin, Ether, and altcoins, he's got some important advice for others who are thinking of investing -- especially when it comes to altcoins.

Here's what Cuban said that you need to do before you invest in altcoins.

Cuban's advice for anyone investing in altcoins

Before investing in altcoins, Cuban warned investors to "do your own research."

He issued this advice on CNBC's Make It, explaining that it's crucial for investors to avoid blindly copying the investments that others make. He urged investors to "always do the work" themselves before putting their money on the line.

While Cuban said that this is generally good advice to follow when investing in any assets, whether it's altcoins, stocks, or bonds, he made clear it is especially important to do careful research before buying altcoins because they are a more volatile investment and thus come with a higher risk.

How to follow Cuban's advice and research altcoins

Before buying any cryptocurrency investment, heed Cuban's words and do careful research into the investment yourself. Cryptocurrencies, and altcoins in particular, tend to see sudden and substantial changes in their value because a lot of investors are driven to purchase them due to celebrity endorsements or social media hype. This makes it difficult to determine their underlying value.

Here are a few key features you should look for when trying to decide if an altcoin is worth putting your money into:

• The credibility of the coin: Look into when and how it was founded and what its reputation is. Some altcoins were created by more knowledgeable developers while others have copied and pasted code that could be vulnerable to weaknesses.
• How accessible the coin is: What is the circulation supply (how many coins are there), and how many coins will become available. Is it easy to buy and sell? Is it widely available from brokerage firms that offer cryptocurrency investments?
• How are transactions verified? Is it proof of stake (PoS), -- meaning coins can be mined or validated based on the amount of coins held, -- or proof of work (PoW), which is more common and uses a consensus algorithm? And what is the distribution model if it is PoS?
• What is the purpose of the coin and what alternatives are there? Is the coin solving a real problem, and are there other coins out there that aim to serve the same purpose?

If you aren't sure how to independently research different cryptocurrencies, then you probably shouldn't dabble in investing in altcoins. If cryptocurrency investing still appeals to you, follow Cuban's advice first. Find the necessary research to understand how to choose investments wisely and then jump into making your purchase once you're confident you understand the risks and potential rewards.