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Having gone through more than a good part of the white books and reading more ICO than I wanted to admit, some patterns begin to appear in the language. And these patterns are usually truthful, but deceptive at a higher level.
Part of this is the kind of language in which the writer has clearly turned away using unsupported statements, but sometimes the wording is simply put in a deceptive way that not all investors know how to see.
Make extensive assertions
The number of times I have competing white papers in which both companies claim to bring the blockchain to a space where it has never been used before (when both of these companies operate clearly in the same space) is a little bit amazing. Yes, it is possible (and likely) that both companies were conceived without knowing the other, but adding a small competitive analysis on the sheet would not hurt.
And this is ignoring all the white papers that fundamentally manage to explain Bitcoin, make it a small turning point and then define themselves as revolutionaries. If I had never heard of blockchain or Bitcoin technology, I probably would have fallen in love with it. I know it's very unlikely that anyone will read a white paper without knowing Bitcoin, but there's something to be said about companies that are willing to make unclear statements once … they'll probably do it again.
Where things really get confused
Some metrics are used over and over again to help technologists claim a kind of supremacy for their protocol. There are two that stand out: transactions per second and market capitalization.
Transactions per second are a simple idea that plays the concerns of many blockchain niggers. The ability to scale cryptocurrencies is constantly in question, and the best way to measure their ability to handle a higher capacity is to observe how many transactions can be processed by a particular cryptocurrency. The problem arises when it becomes clear that this is a marketing stunt rather than an effective tool for assessing the long-term potential of a currency.
When Bitcoin implemented SegWit, all the current problems with unconfirmed transactions have disappeared and for the moment there are no more problems with it. Some of the best questions to ask investors are: what is the current system demand, the protocol that meets these demands, and what are the plans to increase capacity in the future?
The other misleading metric is market capitalization, as it often uses the total number of existing currencies rather than the total amount in circulation. This difference is fundamental, otherwise a massive inflation of market capitalization could occur.
For example, this inflation can occur if only half of the coins are circulating. The company holds the other half of the currencies and the current dealing price is applied to the non-circulated currencies regardless of whether they have ever been bought or sold.
A better way to assess companies' market capitalization is to evaluate the amount of real capital invested in it. This would provide an accurate picture of the aggregate and bankable interest that the world has in that protocol and remove the financial assessments that may occur when companies count coins not distributed in their market capitalization.
The Takeaway
These are very simple tips and ideas to see the claims without limits and look for the right metrics to evaluate cryptocurrencies, but they are extremely important to help prevent overestimating coins and the huge losses that may occur in a market correction.
However, this advice only applies if you invest in the long term and do not just make a quick profit trade. In the short term, it is unlikely that this type of fundamental information will influence your profits.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. It holds investment positions in the currencies, but does not carry out trading activities in the short term or daily.
Featured image courtesy of Shutterstock.
