With blockchain projects literally a dime a dozen, it’s hard to filter through projects. Which ones are worth looking at? Which ones are scams? How can you tell? The best thing to do is develop a framework for evaluating each blockchain project you come across. Everyone will have different things that work for them, and I have 7 questions that have worked well for me. Answering these 7 questions help ensure that I actually have done my research and my expectations for the project I’m looking at are well-founded.
I’m going to walk through each with the example of bitcoin, since that’s the crypto most people know.
1. What does the project do?
It’s easy to get swept away in the excitement of others. But if you read through the project descriptions aren’t sure what exactly it does, that’s a red flag. Either the creators of the project are being purposely obtuse (which usually means its a scam) or they haven’t come up with a clear problem solution (probably not a good project).
Bitcoin, for example, is a digital currency set on achieving quick, easy transfer of money with low fees. Easy to explain to others and easy to understand! Perfect.
2. What’s the end goal?
There’s the mechanics of what the project does, and then there’s the larger end goal. This provides color to the larger goals of the team. What direction will they go in? What do they believe is the future? Do you agree with them?
The end goal of BTC, for instance, is to revolutionize the way money flows around the world.
3. Who is the team?
Knowing the team is a good way to get a quick sense if something is a scam. If the team is a trusted set of experts, that’s a good sign to continue looking into the project. Even if the team is a group of nobodies, it could be a sign to wait and see. However if the team looks unbalanced — say a bunch of finance folks and no developers yet but they’re ICO-ing nownownow — then it’s likely a scam or a project doomed to difficulties.
BTC’s team is a little nebulous. But thankfully, the project has been around long enough that what’s more important is the answer to #4…
4. What has the team’s progress been like?
Has the team set out a road map? How have they stacked up against that roadmap thus far? In a world of 50 million ICOs, shill marketing techniques, and scams, I consider this question crucial. In 99% cases, the team has no track record of past crypto projects, and in over 50% of cases, they don’t have experience with past tech products at all. That’s not a bad thing: of course a team with no past history can create amazing things. But if you have nothing to judge a team on, how can you be sure it’s not a scam? In my opinion, the easiest way to prevent yourself from getting scammed is to wait until there’s a project you can judge.
BTC has a plethora of people working on it. The tech hasn’t stalled and projects around it seem to be popping up all the time. There doesn’t seem to be a roadmap of any kind, but it does seem like the technology has a dedicated team and some great projects. There have been a bunch of forks and a bunch of competitors: which is something to think about. Will necessary scaling updates ever be made?
5. Does the industry need this tech?
There are two parts to this question:
- Does this industry need blockchain?
- Can the problem by solved with an existing cryptocurrency?
A good way to see the importance of both questions is to compare two tokens: BTC and Musicoin.
Does this industry need blockchain?
Everyone agrees: the currency space is going to be shaken up by blockchain. BTC is in the clear here.
Musicoin aims to remove middlemen from streaming: you can use blockchain smart contracts to fairly split revenue across all collaborators on a track based on user listening habits. Artists have been dissatisfied enough with Spotify, etc. that I think the music streaming industry does need blockchain.
Can the problem be solved with an existing cryptocurrency?
Notice the distinction here: this question asks if the same problem can be solved with an existing cryptocurrency, not an existing blockchain project.This question doesn’t quite apply to BTC. BTC is fighting to remain the most widely used cryptocurrency project.
This question does, however, apply strongly to Musicoin. Why use musicoin? Why not use an Ethereum smart contract to distribute ether to the right artists? Why do we need to create a niche cryptocurrency for this blockchain project when one of the main ones will do just fine?
6. Will this result in a huge change in the industry?
This is a good way to gauge how well this project will do. What’s the market for this? What’s the user base? How big is its impact?
BTC is in the same sphere as other big cryptocurrencies like Monero, LTC, and BCH. It has the ability to completely reshape the way we think about money. That’s a big market.
7. Does the success of the project guarantee the increased value of the token?
This is an important distinction to make. Tokens are not stock. They are not always designed to go up in value if the project behind it is doing well.
A good example of this is the Brave project. Brave is a browser that by default blocks ads and 3rd party trackers. Brave’s aim is to create an ecosystem where publishers are fairly rewarded for user attention on their site. User data is encrypted locally by the browser, and browsing history can be by the browser to display personalized ads to the user without sending that data elsewhere. By cutting out the plethora of ad-related middlemen, Brave can ensure that users and publishers get a fair share of ad revenue. This sharing of revenue is done through the distribution of a cryptocurrency called BAT.
The value of blockchain here is clear. And so is the potential to completely rethink the advertising industry. However, there is no benefit to the network for the monetary value of BAT to rise exponentially. The success of the project is dependent on users finding value in privacy-focused web browsing and publishers receiving a larger and fairer portion of ad revenue. It’s less likely the BAT team will be making product decisions in order to increase the fiat value of BAT. By comparison, BCH is literally designed to become a scarce resource with higher and higher fiat value depending on how many people use it.
This doesn’t mean that a project like BAT isn’t a fantastic project. Knowing the answer to this question simply allows you to more realistically set expectations for different blockchain projects.
Conclusion
These 7 questions are a great way to set up a “report card” of sorts for crypto-projects you might want to invest in. They give you a great insight into the robustness of certain projects. There are definitely some limitations to this framework. Projects at a very early stage might be disqualified from the get go. Particularly if it’s an unknown team that’s ICO-ing before releasing a product. But that’s by design: this framework is meant to evaluate the value of projects, it’s not a hype predictor. Have fun with this! Let me know what you think! If you’d like me to write about any specific projects, feel free to comment below.
In case you want a summary, here are the 7 questions in all their glory:
CryptoKanye’s Crypto-Report Card:
- What does the project do?
- What’s the end goal?
- Who is the team?
- What has the team’s progress been like?
- Does the industry need this tech?
- Will this result in a huge change in the industry?
- Does the success of the project guarantee the increased value of the token?
Donate
BTC: 1NqAA7g92pwFzQ7SpvgQ9aWx9H49uutUTF
BCH: 1H2w3CEruHpM1BVfFA8b5DYtRdYybWJVJh
LTC: LiSfCK1bcgX7MpDgBiZYJkscADes4QoHbU
ZEC: t1RjbTPqG399fuPogxn7kPKFXbd4M9Y9nSH
