Far too often, I see people rate the relative merits of a crypto based on the idea / concept. To give an analogy; I could say "self-driving cars are a great idea" but you wouldn't give me, a random dude from England, a single penny of your money just because I said I was going to build one.
And yet in crypto land, people throw their money at projects because they "like the idea of this one".
A lot of nay-sayers are sure crypto is in a bubble. It's not a bubble as a concept or in terms of a total market cap but the way a lot of people throw their money willy-nilly at projects or "diversifying their portfolio" as they'd put it, is a great way to back a lot of losing projects.
Whilst most people (myself included) spend their time thinking "I think xcoin could go up x times by next year", in reality very few coins / tokens are worth anything near their current market caps and never will be worth their current market caps.
Some key concepts when assessing whether something is actually a good investment are:
1. Barriers to entry.
2. Good team.
3. First mover advantage.
4. Reaching critical mass.
5. Does the project even need to be in crypto?
Barriers to entry
How hard would it be for someone else to release a product that does the exact same thing but better?
I've put this as #1 because so many people like the idea of something and it might even be progressing relatively well as a project but any successful idea will have plenty of imitators, especially if it's easy to copy.
Barriers to entry would generally be if something is highly specialised (requiring very specific skills that not many people possess), or if there are very high setup costs for the project.
In reality, I suppose (I'm thinking out loud here), numbers 2, 3 and 4 are actually all part of number 1.... They are the constituent parts of number 1.
Good team
This point is not particulary related to the quality of programmers, it's more to do with having a team which understands business. Let's be honest, there are a lot of business-noobs in the crypto space. I would be much more keen to invest in a team who have already brought a product to market and made it successful, whether that's in crypto or outside of crypto. A good product is maybe 20% of the success of a project; getting people to use it is by far the most important part and by far the most difficult part.
Understanding mass market adoption and marketing is not generally in the skillset of a coding wizard. I'm gunna throw Siacoin under the bus a little bit here by using them as an example.
When I first got into crypto I was all over Siacoin because of the concept... Exactly what I'm warning against in this blog. However, unfortunately, the more I see of the company the more I don't think they know how to run a business.
They have a first mover advantage by maybe a year tops before Filecoin comes out and tries to squash them, but they're doing absolutely nothing to try and get a decent sized market share (which is essential if they're not going to become an after-thought). Obviously there's an element of not running before you can walk, however, IMO the absolute key to their business model would be allowing people to pay for storage in FIAT. The process of buying SIA is incredibly convoluted for anyone who isn't already in crypto, so they're massively limiting their market. Unless I've missed it, there is absolutely no mention of buying with FIAT anywhere in their roadmap (which lists their goals for the next 18 months).
This next point applies to pretty much all of Crypto but they're advertising to Crypto nerds, not the actual people who will be using it. Most people who use decentralised storage, if and when it becomes mainstream, will not give a flying *bleep* whether their files are stored centrally or decentralised. What they will care about is the price and whether it is reliable. Yet the sales pitch on Sia is "Your decentralized private cloud". It should be "The cheapest cloud storage on the internet." OR really, that section should be split into two (horizontally) with buying and selling storage space on each side. Siacoin is far from the worst offender when it comes to advertising to fellow geeks... Pretty much every crypto website is currently doing it. Bancor's website is practically incomprehensible, for what I do believe is a good idea, because it's completely written in jargon. If you can't clearly express what your product is and why people should use it, they won't use it.
People who don't care about crypto will ultimately be the ones who make crypto viable and the projects which realised that soonest will be the most likely to succeed.
Check out this article on Siacoin and the following extremely telling quote;
"Sia counts 690 hosts on its platform offering 3.4 petabytes of storage. About 2 percent is in use. As the company seeks to grow those numbers, it is developing ways to deal with the trepidation users might feel when agreeing to deals involving coins that can shift rapidly in value."
TWO PERCENT. That tells me very clearly that they're not focussing enough on filling sales and as I've said already, you do that by getting non-crypto users to buy the storage space. Hell, do it via Paypal. As a company, buy a load of SC off the exchange and let people buy that on your website via Paypal... They don't even need to know they own any Siacoin - just get them to buy hosting packages in dollars. They wouldn't even need to get a single more hosting user - just fill that existing space and they'd increase their turnover FIFTYFOLD.
That basic business sense above crypto martyrdom is what, I think, will ultimately sort the success stories from the could-have-beens.
If you've read any of my previous blogs you'll know I'm all in on BAT and this one of the main reasons why. The people who support BAT (the advertisers) don't need to know a single thing about crypto to pour money into it. They will be buying BAT using FIAT directly in the Brave browser console and everything will feel as familiar and mainstream as possible, whilst still using the infrastructure of a blockchain.
First mover advantage
This is a mixed one really. Myspace had first mover advantage. So did Google. One succeeded, one failed. I think perhaps it comes down to whether you do the job properly. If you're a first mover in a simple concept like web searches; if you do the job then you're probably going to be hard to shift from that top spot. I mean, if you search for something, you want it to come up. If it comes up on Google, why bother using a different search engine.
Whereas in a more complicated product like social media, there is more room for differentiation. Ultimately I don't think first mover advantage is as important as actually getting a critical mass. One follows the other but there's no point being a first mover unless you smash it in terms of market share, to the point where any subsequent copy-cat company just doesn't see the point trying to out-do you.
On the flip side of things, it's also very important to note that simply being first does not mean you've done a good job of things. More often than not the first mover does a rubbish job and is quickly replaced, so one of the most important things I can advise is to not invest in a crypto just because it's the first to try and do something. I saw a YouTube video the other day where the broadcaster said he thinks NoLimitCoin is the #1 most undervalued crypto.
This coin is basically for online fantasy sports gambling, i.e. what Draft Kings does. Absolutely 100% this is a massive market. However, to get a foothold in that market you have to do a really good job with your product. I make my living in online sports games and online gambling. SOMEONE will make good money by setting up a crypto for this space but there is absolutely no reason that it should be the first people, if those first movers don't do a really good job. It's not like file storage where it's a simple product
"I want to buy storage space."
"OK, here's your storage space, that's $5 please."
"Thank you."
This is a complicated interface, which ultimately lives or dies based on how satisfying the user experience is.
NoLimitCoin has a market cap of $32 million and let's be honest, you probably never heard of it before.
Let me show you their website. Is that the website of a company worth 32 million dollars? Is it hell. That looks like a 1990's website, built by someone in their spare time.
Reaching critical mass
There are a few main benefits to gaining a critical mass.
1. As mentioned, the competition will see it as too much of a challenge to over-throw you.
2. You make a shit load of money because you have a massive user base and that means you can spend more money than your competition, making it more difficult for them to over-throw you.
3. Even if your competition does a better job, you will get business through the sheer laziness of the market. If you become ubiquitous, that supercedes quality (see e.g. Betamax and VHS).
When first mover and critical mass become less important are when it's an enormous market. You could argue that cloud storage fits that bill. Advertising (BAT) fits that bill. But with something like blockchains, it's certainly an advantage to be in Ethereum's spot, getting that first mover advantage.
Does the project need to be in crypto at all?
Just because you care about crypto doesn't mean most people care about crypto. Most people don't know what it is yet. When they do learn about it, they probably won't care. They certainly won't use an inferior product just because it's in crypto, if that same thing already exists on the wider web.
"It's the crypto Facebook" is not a reason something will succeed. You need to offer something more than that. I'm not going to use a crypto Facebook because I already use Facebook. I'm not going to use a crypto Twitter because I already use Twitter. I realise the irony of that statement in that I'm writing it on Steemit but I will be brutally honest and say I am a long way from being convinced about this place. I put in a hell of a lot more time into my blogs than the couple of dollars I make from them and I think there needs to be serious improvements in how the money is handed out to new users offering good content, if this place is going to succeed long term. I mean, I posted a 2 minute article saying "Bancor is breaking resistance!" when it turned out it wasn't and that made $0.40. I've spent about 3 hours on this blog and it might make $1.50. It shouldn't work like that, and that tells me the algorithms need improving.
Anyway, the point stands one way or another. Most project are simply trying to copy something that already exists in the real world and you need to decide whether it being in crypto is actually BETTER than what exists already, conceptually. If it isn't, don't invest in it.
Conclusion.....
When looking at any crypto, does it fulfill the above criteria and / or is it neccessary for it to fulfill them in this instance?
Run through a checklist.
1. Have this team made a successful, large scale business already?
2. Does this team have skills that are not easily replicated?
3. Does this coin need to get critical mass and could someone easily copy and supercede it?
4. Is the project needed at all?
5. Ultimately, why will this team succeed where nobody else can?
The point of this article is to remind people not to waste their money, by being brutally honest and reminding you that nearly all the current batch of cryptos will fail.
Look at the current market cap of a coin. It's probably going to be absolutely enormous for what is ultimately just a pipe dream. Rather than asking what it might be worth in a year, ask whether the current state of the project does anything to justify the existing market cap. Very few will.
That doesn't mean you can't day drade the hell out of stuff based on hype but do so in the knowledge that sooner or later most of these projects will go up in flames (or more accurately just fizzle into absolutely nothing).
Quick plug: I have created a new crypto tool in the last week or so, which allows you to set a target price for a crypto currency. It will then tell you what that price would mean in terms of a market cap and where that market cap compares to currency cryptos like bitcoin and also the GDPs of countries (because that's the sort of numbers we're talking about, a lot of the time).
Please check out the site here: Cryptocurrency Prices.