Using Objective Measures to Evaluate Tokens

Then and Now

2015 was a good year to begin learning about cryptocurrency. Ethereum basically fell into my lap as I read about it and thought it looked like a good idea. I won't say "I knew" it would be great; I just thought it was a cool idea, and there wasn't a lot of competition to read about. I was also free of the preconceptions that bitcoin maximalists hold. Cryptocurrency is not a religion; it is a technological breakthrough first realized in the bitcoin blockchain then expanded in other projects.

I digress.

Evaluating new tokens in 2017 is a full time job. It's incredibly difficult to keep up with even 10% of the great projects coming out this year and next. I'm going to try to flesh out some of the objective measures I use to best judge these tokens, because it's easy to let FOMO take over when looking at all these projects.

1. Ethics

This is the first pass for me-does the token support objectionable behavior? If so, I pass. Know your values and this decision is an easy one.

2. Team

Is the team publicly known? If not, I pass.
If so, do they have LinkedIn profiles or other social media profiles? If not, I pass.
Do the team members have a history of working in MLM businesses such as Herbalife, Amway, and other such businesses? If so, I pass.
Does the team have a good mix of people from different disciplines? Different tokens require different expertise. Hard caps should reflect the team's experience-an established brand can ask for a premium for an ICO. If an untested team asks for an unlimited amount of money, I pass.
If the team is rude to potential investors, on multiple occasions, I pass.
Does the crowdsale continue on for months? If so, I pass.

3. Token Economics

Is the token necessary, or does it add an unnecessary layer of complexity to the startup? I've seen some whitepapers that insert a token into a well enough functioning system, and it makes no sense. If I see that, I pass.
Is the token a copy/paste of another token, without meaningful differences? A good way to judge this is when you see one of those tables that show a few tokens side by side, with check marks in columns that denote which features a particular token has (showing the token in question as the one with the most check boxes). If you see that, start asking how important the features are that are missing from the incumbents. Those features may be only marginally useful, and completely unimportant to the possible value of a new token. Burger King may have marginally better hamburgers than McDonalds, but McDonalds sells far more burgers! If this new token is Burger King, I pass.
Do I understand the way the token works? If I spend a few hours reading about it and still don't get it, I pass[1].

4. Other items for consideration

Does the token do something new and novel? Does it solve a problem like scalability? Will the token ecosystem result in a number of groups motivated to work together to add value to the project?

These are a few of the objective measures I look at when evaluating a token[2]. Am I completely objective in buying tokens? No. I'm a bit impulsive at times, which has generally not turned out well. Having objective targets like the above, with known red lines that you will not cross, will help you remained disciplined and avoid the Fear Of Missing Out.

What are your objective measures you use to determine whether to buy into a coin? Let me know in the comments below!

-Jeff

[1] I don't think a person needs to read and understand the technical components of the bitcoin whitepaper to buy bitcoin, but one should be able to explain it in broad terms that a ten year old can understand. I can't read solidity but I get the gist of ethereum.

[2] I am not an investing adviser, and you must do your due diligence!