What makes a good crypto token?
Now there’s a question to ponder. With so many on the market it’s difficult to keep up with the what, why, who, when and how of a project. It used to be that best advice was to research a token you wanted to see a good, informative website that introduced you to the core team. Ideally, you want to look at Github to see code (if you understood it of course) you at least want to check that the code was being worked on.
Then you’d want to look at whether there was a thriving community, with different channels so you could ask questions. Looking at how much they were trying to raise was also a good indicator, if they were looking for millions, well then it might, and I say only might be a sign to wait and see.
Next, you’d want to read the White Paper, this should include a road map of development, you’d then have something against which you could measure progress. It should also tell you how the ICO funds were going to be shared. This would normally be a percentage for development, marketing, rewards and sometimes to pay back founders investment.
To me, the most important thing was what the token was going to be used for. If it’s a utility token, only for use on the individual platform then what was important for me, was looking at what the platform did. There are tokens for renewable energy, for crowd sourcing computer power, gaming, gambling, property, identity, insurance, medical and so many more that it would be a long and boring list.
Some tokens are trying to replace money, they’re the bitcoin competitors, some are trying to introduce trustless contracts like Ethereum. Others try to provide privacy like Monero and Dash, all try to decentralise authority and access. Decentralised authority is to prevent the few from playing fast and loose with the token, like governments and banks do with fiat money.
Decentralised access is to try and make it almost impossible for the blockchain to be hacked. Of course, as soon as you have a centralised trading platform like the old Mt Gox then you have a weakness, not in the blockchain, but in the place you hold your tokens to trade.
There are now decentralized exchanges out there, but you still need to do your research before you buy or store tokens on them.
Wait, I mentioned White Papers, those important pages that tell you about the actual project. But, there’s a bit of a problem with them. Yes, you still want to read it but beware, because after a year or more of reading them I’ve noticed that most of them are either very technical, or they’re so filled with hype that you can’t judge the truth. Occasionally I come across one that has useful information. Technical information for those who understand but also telling me how this platform will improve my life. Notice I don’t say it tells me how I will make a lot of money because if that’s all you’re interested in and that’s what they’re selling, then something is wrong.
No one can guarantee a token will gain massively in value and if they try, you’re in a classic “pump’n’dump” situation. People will ‘pump’ up the project, often getting celebrities or ‘crypto experts’ to talk it up. Then when the price goes up quickly they ‘dump’ their holding on the market and the value plummets. Also, if you just read the White Paper and don’t check the people out to see that their claims are genuine, you could lose because sometimes people lie.
https://cointelegraph.com/news/sec-files-charges-against-startups-due-to-alleged-ico-scam
A really great token allows you to do something unique, something that requires a database to be kept but where that data is not changed at every tiff and turn. A bank account is a great example of a database that works well on blockchain, because the data is a record of transactions. So, although the data changes, you need to keep a record of those changes.
A database of car rental prices on the other hand, needs to be able to change, often minute by minute as the rental companies ensure their rates stay competitive and, take account of availability. You don’t need to keep a record of the changes, you just need to know what the price is now.
Having a land registry on a blockchain is also a good idea, it could speed up house sales because all transactions around the property would be recorded. If it wasn’t recorded, then it wouldn’t be legal. And yes, I’m aware that laws would have to change for that to be true, but the example stands.
Imagine, you want to buy a house, you go and view it, you like it, before you make an offer, you can discover if there’s a mortgage on it, whether there are any restrictions, when it was built, what it was built with (stone, brick, wood) who owned it before and as much information as was wanted to put in the land registry. This could (and in my opinion should) include any local building or zoning plans that could affect your decision to buy. No waiting for weeks and sometimes months for the legal beagles to do their ‘thing’. At it’s basis, you like the house, agree a price, check the land registry, if all is well, you transfer the money, the house is yours. Could be done in a day.
The drawback to a lot of these platforms is their reliance on ‘smart contracts’ these contracts are what is hoped will be the mechanism to remove 3rd parties from a transaction. These 3rd parties make a lot of money which means those costs are passed on to us. These ‘smart contracts’ are in use, if they go wrong the cost can be catastrophic see
https://medium.com/@pullnews/understanding-the-dao-hack-for-journalists-2312dd43e993
In Conclusion
Whether you’re launching a platform and using an ICO to raise funds, or buying into an ICO here are some things to think about.
- Does the business make sense? Regardless of the token side, does the business idea make sense to you. Is the concept itself a sound idea.
- Is there an escrow company involved to hold funds? Is the escrow company named? Is it reputable?
As a buyer have you checked out the people involved, yes it’s a tedious thing to have to do, but cheaper than losing your funds. Check out their public profiles, contact them and ask questions, do they answer? If they don’t be careful.
Thank you for those reminders. Sometimes you are just too eager to grab the opportunity forgetting sometimes the details.
Research is definitely the first task at hand, no one is going to invest into something that makes no sense. Even some stable offers fall through the cracks.
Some really excellent references in the post, sound reasoning to follow thanks @berolena
Nice post!
Thanks, its really happen to me
The most pleasure I
ve had re-steeming a post since Ive been, well, resteeming posts.Well written and very readable in a personable way. Enhorabuena.@bon-nom