Blockchain, Cryptocurrency, and ICOs: We’re Doing it Wrong

Let’s be frank about ICOs, can we? There are some bad things happening.

I read recently that blockchain/cryptocurrency technology is currently where web tech was in 1993 (wish I could credit but don’t recall…sorry). I don’t think that’s too far off for a number of reasons.

  1. Most people don’t understand it.
  2. Even if we do understand it, the infrastructure isn’t even there to really take advantage of it yet.
  3. There will be a lot of changes but it will change everything.
  4. Many of the companies/tech that are born today will never be seen to fruition or will be ousted by competitors in the future. But the Yahoo!s and Googles and Amazons are being born today.

The main exception is that the web market was completely closed to anyone but the richest and most dialed-in of us to invest in (VCs, accredited investors who were very tech savvy). However, blockchain and crypto technology is open to anyone thanks to ICOs (initial coin offerings), aka token sales. So while the web boom was ripe with fakers, shysters and garden-variety amateurs; crypto is downright infested with them.

So the question comes down to what of the current companies have any merit? There are a lot of great ideas, but fewer great teams, and even fewer with a path to market. So where does that leave someone who wants to try out, be aware, or even invest in this tech.

Answer: it’s hard.

The “Experts”: Doing it Wrong

Currently, the field is littered with “experts” who have access to video cameras, google sheets and Telegram. They talk about market caps and fill in the squares in their spreadsheets to complete their “due diligence”. Presumably these “experts” have made some money in previous ICOs or Bitcoin, but there’s no way of really knowing.

The problem is that they are analyzing this tech based on one criterion: if they buy coins in the pre-sale or ICO, will the value of the coins become greater when they reach the public markets? The problem with this general question is that it really only involves analyzing whether there is hype and whether it is baseline justified enough so that the coin will make it to markets and that it won’t drop precipitously in value as all the speculators dump their coins to reap the rewards.

This process invariably ignores the actual underlying technology. If you are a technologist looking for viable platforms, or someone who is looking to gauge, for whatever reason, what to stake your time or money on it is hard to really analyze.

So What Now?

The problem is that there are very few people actually evaluating these technologies for the technology itself. So we really need a new set of criteria through which to analyze these technologies (if indeed anyone cares beyond speculation). Here is the rub: this has already been thought of — by the VCs and angels who made their billions since 1993. There are simple things to check:

  1. Is the technology something that is usable or something that will need other layers before it can be effectively used? For example, are we waiting until there is a mass of people who are using Bitcoin payment processing for this to work?
  2. Of course the core team is relevant. But also: who are the other investors and advisors? Are they experienced and do they bring valuable expertise and relationships to the table?
  3. What is the go-to-market strategy? Do they even have one? I have read a number of ICO whitepapers that don’t even discuss how they are going to address the market. If you build it, they won’t necessarily come, as many discovered in Web 1.0.
  4. What are market trends and competition? Is there a true need for this that requires crypto or decentralization or are they trying to simply address a need that is addressable using current technologies. Are there other crypto startups that have done or will do the same or similar things (or worse, something underlying and larger that will render this model irrelevant). This is one of the most overlooked (and difficult) aspects of the due diligence process.
  5. Is there value? A lot of the “experts” are looking at market capitalization, so this is generally addressed, but I would add: what is the long-term value? Not just out of the gate, but down the road.
  6. How is their API, technical documentation and community? Many of the successful crypto models will be based on platform models. These platforms will only be adopted if they have an active community (github, slack, gitter), good APIs and documentation and are making it easy to utilize their tech. In addition, are they incentivizing people to build in their environment (many have funds or give tokens to early implementers of their technology). So many are rushing and simply aren’t prepared.
  7. If you have concerns, stay away. If something doesn’t feel right, it probably isn’t. Maybe it’s a dearth of documentation. Maybe it’s a weird response in Telegram. There is no rush…

Slow Down

The bottom line advice I would give is this: slow down. Whether you are valuing an ICO for personal or technological gains the bottom line is that we are in the infancy stage of this new journey — spend the time and make sure that you aren’t getting involved in something that is just fluff. The bottom line: this tech is going to be around for a while. And most likely the biggest winners are yet to come.

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