When it comes to cryptocurrencies, one of the biggest challenges for some investors is not getting caught up in the hype. Digital currencies have quickly risen to a place of prominence in many portfolios, even as analysts have cautioned investors about their volatile nature and unpredictability.

If you're going to enter into a cryptocurrency investment, as with any other investment, it's important to do your research before you hand over any money. Below, we'll explore the things you should know before you invest.

Ask Why

Perhaps the most fundamental question you should ask yourself before making a cryptocurrency investment is why you're doing it. There are myriad investment vehicles available at this point, many of which offer a great deal more stability and less risk than digital currencies. Are you interested because of the trendiness of the crypto craze? Or is there a more compelling reason for an investment in one or more specific digital tokens? Of course, different investors have various personal investment goals, and exploring the cryptocurrency space may make more sense for some individuals than for others.

Get a Feel for the Industry

Particularly for those investors who are new to digital currencies, it's essential that one develop a sense for how the digital currency world works before investing. Take time to learn about the different currencies on offer. With hundreds of different coins and tokens available, it's crucial to look beyond the biggest names like bitcoin, ether and litecoin. Also, explore blockchain technology to get a sense for how this aspect of the cryptocurrency world works.

If you don't have a computer science or coding background, it's likely that some aspects of blockchain technology will be a challenge to parse out. Look to Investopedia's primer on blockchain technology for a general overview. More importantly, once you've identified potential cryptocurrencies for investment, look into how those tokens make use of blockchain and what they provide that is different from the rest of the field. By better understanding cryptocurrencies as a group and blockchain broadly, you'll be more fully equipped to determine whether a potential investment opportunity is worthwhile.

White Paper and Word of Mouth

Because the digital currency space is such a trendy area, things tend to develop very quickly. Part of the reason for this is that there is a robust and very active community of digital currency investors and enthusiasts in communication with one another around the clock. Get plugged into this community to learn about the buzz going on in the cryptocurrency world. Reddit has become a central hub for digital currency enthusiasts, but there are also many other communities online with active discussions going at all times.

More important than word of mouth, though, is the specifics of a digital currency (or related project) itself. When you're considering an investment, take the time to find the project's white paper. Every cryptoproject should have one, and it should be easily accessible (if it's not, consider that a red flag). Read the white paper carefully; it should tell you everything about what the developers of the project intend in their work, including a timeframe, a general overview of the project and specifics. If the white paper does not contain data and specific details about the project, that is generally seen as a negative. The white paper is a development team's chance to lay out the who, what, when and why of their project. If something in the white paper feels incomplete or misleading, that might speak to fundamental issues with the project itself.

Timing Is Key

Once you've developed a feel for the cryptocurrency industry and have determined one or more projects in which to invest thanks to diligent research, the next step is to time your investment. The digital currency world moves quickly and is known for being highly volatile. On one hand, buying into a hot new currency before it explodes in popularity and value may prompt investors to move equally quickly. In actuality, though, you're more likely to see success if you monitor the industry before making a move. Cryptocurrencies tend to follow particular price patterns. Bitcoin often leads the way among digital currencies, which tend to follow its general trajectory. News of an exchange hack, fraud or price manipulation can of course send shockwaves through the cryptocurrency sphere, so it's important to watch out for what's going on in the space more broadly.

Finally, remember that digital currencies are a highly speculative area. For every overnight bitcoin millionaire, there are many other investors who have poured money into the virtual token realm only to see that money disappear. Investing in this space means taking a risk. By doing your homework before making an investment, you help to give yourself the best chances of success.

Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.