First you realize how much potential there is in blockchains and tokens.
Then you buy some Bitcoin and Ether and maybe some Ripple or Monero. Next, you follow someone you trust, or who at least looks like they know what they’re doing, into an ICO.
You’re more convinced than ever that a decentralized Internet with digital currencies and assets not only makes sense but is very likely to happen. You’re committed to the next step.
Naturally, you want to know what makes one project and token valuable over another. But how do you know?
What indicates that a token, a cryptocurrency or, more broadly, a cryptoasset has long-term value?
If you know where to look, the research and analysis for tokens, and what’s being called “cryptoeconomics” and “cryptofinance,” is starting to emerge. These emerging disciplines allow you to evaluate a particular token beyond any excitement and noise surrounding it.
And luckily, in the spirit of open source, much of this research is being freely offered so you and I can make smarter investments. For example, Smith + Crown, a research group in Portland, Oregon, is providing excellent research and analysis on “Bitcoin, blockchain technology, digital currency and cryptofinance.”
If you want in-depth research on these topics and more it’s there for you to consume. This includes a full breakdown on the what, where, and when of upcoming ICOs, token sales, and crowd offerings.
Yesterday, Smith + Crown posted a detailed report on Aigang’s fast approaching mid-November token sale. Aigang is using smart contracts to provide “fully automated insurance products.” Specifically, they want to provide insurance for internet-connected or Internet-of-Things (IoT) devices.
This research on Aigang and its ICO, written by Weston Anderson, is illuminating and gives you a much better feel for why fully automated insurance products would be useful. It’s also a great starting point to assess whether the people and technology behind it give you confidence.
Ideally, you would be able to take great research like this and plug it into some kind of overall framework, one that allows you to evaluate a token over time and, more importantly, see patterns for all available tokens.
Fortunately, these “valuation frameworks” for tokens are also being developed by people like Chris Burniske of Placeholder Capital and Spencer Bogart of Blockchain Capital, in which key questions are asked like
- Does this token actually have a reason for using a decentralized blockchain?
- How big and active is the open source developer community contributing to it?
- Does the token do a great job of giving access to, and facilitating use of, the digital asset it represents (e.g., Ether as access to smart contracts)?
- What’s the token’s ”velocity” or, in other words, the frequency it’s used within a given period of time?
See Chris Burniske and Jack Tatar’s book “CryptoAssets: The Innovative Investor’s Guide to Bitcoin and Beyond” for a deep dive into these and other framework-related questions.
I think it’s easy to see how these type of questions, and the algorithms they suggest, are exteremely powerful when unified in a reliable framework for evaluating and valuing tokens. It essentially becomes a dynamic dashboard for choosing and investing in tokens and cryptoassets (or reallocating these investments) as they mature over time.
So if you combine the rich, timely research described at the beginning of the post with the right valuation framework, you’re in business.