Your Token Is Either As Hearty As Thanksgiving Dinner Or As Filling As Cotton Candy
Years ago while perusing one of his gold records, Ad-Rock of the Beastie Boys noticed something he had never before seen. While the LP had been on his wall for many years, it never occurred to him to analyze the record, for the obvious reason that he was one of the founding members who created Paul's Boutique and thus was intimately familiar with the content. However, upon inspecting it, he noticed that it had only 4 tracks on the disc instead of 8. As can be imagined, his curiosity was piqued, so he did the honorable thing of getting to the bottom of it by smashing the glass to produce the physical LP. Once out of the protected case, he put it on the turntable, and what did he hear? Piano versions of Barry Manilow, which is about as far out from the style of music produced by the Beastie Boys as you can get. There was no malice, no tort or 'ill communication' as a result of his revelation.. just bewilderment, and so he just filed it away as one of those strange occurrences, had a good laugh and moved on. It was later discovered that many gold (and platinum) records presented to artists were meant as commermorative objects only, with the actual vinyl sourced from surplus, test or in the case of the Beastie Boys, just plain unrelated music which was either spray-painted or metalized. Taking this into consideration, when you examine the contents of your crypto token, is it the Real McCoy, or is there much to be desired? A simple question to be sure, but it is not surprising to know that an overwhelming number of token holders don't know what they own, other than its name. There is no rational explanation for this, and the reasons are as numerous as fish in the sea, but for those who simply invested because of a name, or because it was recommended by an influencer without doing their own research, the circumstances of this will eventually come home to roost, and with only an incredibly small number of projects which hold real utility, the outcome for many will be heartbreak and self-pity. But it doesn't need to be so. Most Projects Are As Soft As A Lullaby In evaluating any cryptocurrency project, it should be given the same scrutiny as investing in any other asset, tangible or otherwise, so why is it that a large cache of time is spent before exchanging capital on the stock market, housing or even your next pair of shoes, but not digital assets? Is it because of the speculative nature? Could it be beacuse it's only less than 2 decades old? Perhaps, but like other avenues, in the end it's still your own money that's being invested, and like all investments is the goal of realizing a favorable return still not the objective? For those who are looking at crypto the same as other long-term pursuits, just know that not all tokens are created equal, and the overwhelming majority (99%) have little or no utility or use-cases, with many of them simply speculation or 'noise', worthy of a lottery ticket that has very high odds of losing everything you invested (large or small). Case in point, the total number of on-chain tokens that are available on major networks (memecoins included), are in the tens of millions (that's not a typo), so with high numbers like these, it behooves us to ensure we have made a wise decision based on facts. And the reason is simple... anyone with a basic understanding of blockchain can create a token (or multiples of tokens) and in the present state where clear regulation has not yet been passed to distinguish bad actors, it's no different than creating your own lottery ticket machine where anyone can participate. It is true that the crypto industry has matured much just in the last few years, but as anyone with an internet connection can invest without the traditional banking system in the middle, this opens the door to projects that are high on hype but low on value in solving real-world problems... which is where the value of blockchain lives.
Consider the background, partners, length of time in the market, leadership and of course the actual solution that the project is aiming to solve. Once you have this, continue to research more via discussion groups, online videos, social media... anything to give you the confidence you need to mark the green checkbox before parting with your money. In order words... give it the same diligence you would with any other purchase of any other size in value, and then... research some more so that in the end you're 'blown away' with the gravitas of the blockchain for what it is, not just based on the buzz or fanfare from others. Better To Be Boring Than Cute You likely have noticed the theme of this post, which boils down to "know what you hold". Taking hype, influence or popularity out of the equation, the final test of any worthwhile investment is to see clear evidence of adoption. This is the benchmark when evaluating a blockchain's true value, and while fuzzy animals and whimsical cartoons are nice, just be sure to look under the hood to confirm that the underlying core is not a 'host' such that you would find in Westworld. Others elements to look for in determining real vs. perceived value include:
Team behind the project
Partnerships (i.e. Real strategic alliances and joint ventures, not just simply a logo)
Development activity (i.e. Code commits or clear communication on upgrades well in advance of a production release)
Decentralized nature of the blockchain. This is an item which frequently is not analyzed, but should be, as it represents the cornerstone of your project's distribution model. If the majority of the validators of a network is within a single entity (or group) this should be a red flag as it means that special interests from a limited group can hold sway over decisions that may not fit with your thesis (or others). A Blockchain that has wide distribution with multiple independent participants equates to a proper decentralized model by ensuring that everyone has an equal vote.
Healthy liquidity with robust trading volume.
Transparency of the project's goals and performance. If your project is light in this area, evaluating risk is near impossible.
Regulatory compliance. If your project has not passed (or has clear evidence of meeting legal and regulated standards) the token could face securities-related examination. Also look at which countries the Blockchain operates in and if it holds licenses in these jurisdictions.
To be sure, there are other questions that can strengthen the business case for the project you are either invested in or evaluating, and while it takes time in which to conduct this research, it's not a large undertaking and is very doable. Once your inspection has been completed, the payoff will be in confidence (or perhaps a lack thereof, which is arguably more important when your own money is at stake), and guidance going forward based on sound knowledge resulting in a real, personal investment, and not one rooter in unverified claims. The crypto world in aggregate is by nature a speculative one, with thousands of opinions being pelted at us every second - all competing for your attention, and if you are among the minority who chooses to ignore the scuttlebutt and do your own research, your journey will be less elusive and more rewarding. It is, after all your money and you're either going to believe a 'trust me bro' assessment, or make your own decisions based on sound judgement.
__________________________________________________________________________________________ Title image of Paul's Boutique by Capitol Records | Maxell "Blown Away" art by Lars Anderson and Steve Steigman
