Crypto Review Series — Introduction
“But I don’t want to go among mad people,” Alice remarked.
“Oh, you can’t help that,” said the Cat: “we’re all mad here. I’m mad. You’re mad.”
“How do you know I’m mad?” said Alice.
“You must be,” said the Cat, “or you wouldn’t have come here.”
― Lewis Carroll, Alice in Wonderland
Apologies if your interest is piqued enough that you follow me down the rabbit hole. If you are new to cryptocurrencies, please check out my introduction:
List of reviewed coins at the end.
Altcoins
In this series I will be offering research on non-bitcoin cryptocurrencies (altcoins). I will be coming from a very high level, hopefully making the points reasonably accessible to the uninitiated, glossing over numerous details and nuances, getting some of the technical bits incorrect, and hopefully in the end providing a decent jumping off point to find what speaks to you and prime your own research. Facts and figures on altcoins can be quite distributed, disputed, and fluid — if anything is dead wrong please provide a source and I will gladly update if it serves the content. None of this is investment advice — all suggestions from my intro to bitcoin on how to handle your money still hold. I may do an article on my trading strategy down the line; this series is mainly a way for me to organize my thoughts, its a plus if other folks find it interesting or helpful. I dont believe in absolutes so if I say something is the “most” or “only” take it in context of getting a point across. I will also take liberties with the use of “crypto”, “blockchain”, “altcoin”, “ICO”, etc — the industry hasnt settled on terminology so take it for what it is. The sheer number of GIFs should make it clear this isn’t particularly serious journalism.
Why should you care?
My confidence that we are at an inflection point in how the world economy works and how humans interact continues to be validated by the meteoric rise we have seen in the marketcap of cryptocurrencies over the past couple months. Yes that is a move from <$10 Billion to over $80 Billion in one year. The nature of the “marketcap” cannot be compared 1:1 to traditional companies, but thats a whole can of worms that can be addressed another day. the growth is what matters.
And it is not all Bitcoin. In fact, while the USD price of Bitcoin has increased over 100%YTD, it has actually lost its previously firm grip as the majority of the cryptocurrency market.
How did we get here?
Up until the beginning of 2017 Bitcoin had the distinction of being the only cryptocurrency that had a proven, practical application. Over the past decade or so though there have been hundreds of people, many of them very smart, working on ways to solve myriad problems using the protocol bestowed upon us by Satoshi. You take the rise of early adopter “Bitcoin Millionaires” with money to invest, add some promising betas with slick websites, then sprinkle on some institutional & corporate interest and backing, top with a liberal serving of FOMO, and you end up with enough assets to fund a large number of projects across all kinds of applications and industries.
Below are the top 14 coins as of May 20th 2017, this chart will likely be different on May 21st. For example — Bytecoin was at $80m on May 16th and has seen 6x growth in 4 days. That is not a typo.
Is that Good? Is that Bad? Does it matter? I dont think so. I look at the current landscape as being similar to where we were in the mid 90s as internet focused companies were first starting up - No one knew how to value them, everything was going up, and it was tough to pick the eventual winners. The difference between now and then? Access
Anyone that tries to apply traditional valuation to companies that issue altcoins is fooling themselves, much like in the late 90s when few knew how we were going to use the internet, it is unclear at the moment how blockchain will end up working its way into our lives.
Philosophical Aside
It has taken me months to really start to grasp just HOW different these projects are from even the most modern internet company. There are dozens of “cloud” protocols, storage solutions, networks, etc. that have made it easier than ever to take an idea and build into a functional company from anywhere in the world. Its a little misleading though; you still need to sign contracts with service providers, and this isn’t The Cloud:
This is The Cloud:
The game changer introduced by Satoshi is the “cryptographically secured distributed ledger”. It, as a protocol, allows for any carefully designed set of incentives to reap benefit from true network affects. Why do we use banks? Why do we rely on Google? Trust. Trust that they wont steal our money, Trust that they will keep the networks up and running, and Trust they will protect us from bad actors. What if you could take the functions of running a network, distribute them indiscriminately, and remove the need to trust the participants? You dont need a central provider and the participants in the network can vote for changes that benefit them directly. How is that done? I will try to break it down.
- Identify participants of a network (ex. for bitcoin — users & miners)
- Align incentive structures such that there are rewards for acting honestly, but acting dishonestly either ==> 1. Penalizes you disproportionately or 2. Provides less reward potential than acting honestly assuming other actors remain honest
- Tweak until everyone is incentivized appropriate (if you are interested in this bit check out the game theory book I recommended in my first post) and let network effects take over.
It seems simple but the secret sauce is the crypto part. To remain distributed numerous participants need to process the transaction, but the network needs to remain secure, so the details must be obfuscated. There are better sources than this post to understand the nitty gritty of why this works but what matters is that it is fast and efficient to cryptographically encrypt a piece of information but it is prohibitively difficult to back your way into the source. Bitcoin has 30 billion dollars that says it works so you can take that as ample evidence to hold you over until you can do the proper research.
Now What?
How much is a Bitcoin worth? How much does love weigh? Its not about the answers, its about the questions.
I dont have formal experience valuing companies or financial instruments, but I have been in fintech working directly with hedge funds and asset managers for over 10 years. I witnessed the causes and effects of the ’08 financial crisis firsthand, spending a large portion of 2007–2010 onsite. I saw enough to understand how broken and ripe for change the current system is. Most importantly I have world class bullshit detector and a high enough percentage of my net worth invested in cryptocurrencies at the moment to feel compelled to do some real research. So, please keep your arms and legs inside the car at all times and HODL on tight.
Criteria
When looking a project to invest in, this is what I am look for. Just because I am reviewing a project does not mean I am investing in it, all it means is that I did some research — I am not going to be the guy giving investment advice out on the internet.
- People — Who is/are the founder(s)? Who is on the dev team? Who are the initial investors? What have they done before? Can I get ears or eyes on them? Any major partnerships?
- Product — Does the problem they are solving need solving? What does the market they are looking to disrupt look like? Who are the traditional players? Any competitors in the crypto space? Is it released? What is the roadmap?
- Coin — Is there a utility for the coin or are they just doing it because cryptocurrencies are the hotness? Is there any relationship to the utility of the coin and the $ value? What is the distribution method? Is it deflationary inflationary? Can they change that method or is it locked in the code?
- Financials — Do they have funding? Do they have any revenue? How will founders/investors make money? What is the long term monetization plan? Do they have customers?
- Activity/Transparency — How often are they releasing code, updating blog posts, active on slack, etc.? Is the code open source? Are they presenting anywhere? Are they going on any podcasts (read the intro, I love podcasts)?
I reserve all rights to change this as I get some reps. All feedback and requests are welcomed. By “invest” I generally mean buying some of their token over time on one of the major exchanges (I mostly use poloniex, it has the widest coverage and highest volume but also has its warts). I also keep an eye out for Intitial Coin Offerings (ICOs) and other distributions. I recommend buying over time to average out your cost basis, maybe sell some if there’s a spike. I will do an article at some point on ways to get free/cheap coins through other methods.
Try to avoid FOMO, just because something moved 100% in 3 hours doesn’t mean it’s a good project or it will keep going up. Take a breath, find an entry if you like the coin, if you cant wait buy a little (with .15% transaction fees you can always sell without taking a big hit). Shorts say “dont try to catch a falling knife”, I just listen to TLC.
In Conclusion
For those that made it to the end, heres my high level primer. Its worth stating again — “Only use your MOST DISCRETIONARY income”
- Read my intro, setup a recurring purchase of bitcoin
- Set a recurring calendar appointment to buy some Ether every week (until Coinbase enables it for recurring purchases)
- Transfer some bitcoin to poloniex (or another exchange) and whenever you buy Ether, buy a little ripple.
- Maybe keep it 50/35/15 Bitcoin/Ether/Ripple, but don’t obsess about it. Better yet read up and invest in what speaks to you.
- Do some research, as the core goes up, invest some your gains in other coins you like.
- If you believe in the project, buy in regularly. If it was a hunch and the coin gets pumped (50–200% increase in a couple days), harvest some gains.
Above is what I would do if I were just getting in. I recommend you invest in proportion to the amount of time and energy you are willing to put in.
Reviews
- Sia (SC) ETA (5/23/17)
