Originally answered this question on quora.* This is a repost.
- Short Term
- Most ICOs are poorly structured just like most startups. Power law will occur.
- Medium Term
- Humanity doesn’t know how regulatory bodies will adapt.
- Blockchains have a bloat and real-world interfacing issue, not with transaction sizes or speed, but with properly tracking death and birth of entities.
- Long Term
- Countries will do their own ICOs and countries will be connected by the demographics of their token holders across geographies.
I spend a large portion of my time talking to people in fintech, cryptocurrency, and personal finance sector
I’m going to share some of the data I compiled.
- I’ve analyzed over 200 ICOs.
- I interact with and interview top luminaries in fintech at at Equidate — a private stock market for tech companies. (you can only sign up if you’re an accredited investor)
- From my interactions with Hosho Group, I’ve learned that sometimes smartContracts are writtten with quick clones and bad gas efficiency.
- I run some of the largest online fintech and cryptocurrency groups on facebook.
- titans of fintech — 300+ fintech founders in hedge funds, fintech,
- Advanced Crypto Asset trading — trades $500M USD to 750M USD in crypto)
- Full Disclaimer: I own a few dogecoin from an event I attended in 2014 and still have the 0.5 BTC that the founder of coinbase gave me in 2012.
ICO Choke Points
- There’s about 9 different criterion that I’ve identified for relevant crypto token-sales and things I watch out for.
- Technology must solve a difficult problem that requires decentralized transaction verification. If the product can work without a token, then it should not have a token. Merely ‘’tacking on- a token to a product that does not require a blockchain is not kosher and would not fly. Token must be essential to the core function of the technology.
- Transactional verification blockchain must have potential for exponential growth. The value of a coin increases commensurately with the growth of the network size, so the network must have potential for exponential size. Coin holders purchase tokens at ICO because (1) they expect the value of the tokens to increase as the demand for consumptive use of tokens increases with network growth. and (2) they expect higher utility for personal use in consumptive value of token stemming from network growth. As such. the tokens cannot be a niche market, because it wouldn’t have exponential growth. Total Addressable Market (TAM) must have potential for 1 B+ transactions annually.
- Token must have consumptive value on platform. Token must enable an action on platform. Tokens increase in value because the demand for the performable action on platform increases (i.e. the “consumptive value” of the token increases). As the candidate blockchain network increases in volume exponentially, the demand to perform decentrally verified action — facilitated by the token issued during ICO — increases.
- Base technology is already built (and preferably running). Completion of technology and MVP is not necessary before we accept a client and start work with them. but it is necessary before we run their ICO. If the tokens don’t have consumptive value from t = 0, it could be bad.
- Company is uniquely positioned as a first-mover and has monopoly potential. We should pursue truly Zero to One technologies that have the potential to become monopolistic competitors. TokenSales are compensated largely in coin proceeds (and since they will be locked up and reasonably illiquid until the technology gets big) tokensale platforms want to pick companies that will become the hegemonic competitor in the space it stakes a claim in. Everyone likes winners and these criterion will pick winners.
- The topography of the intended market of users of tokens should match their accessibility. For example, a token sale that requires a large data plan on a cell phone or utilizes the cell phone as a key identifier is a bad example, because prepaid phones in developing countries are the norm and data plans are expensive to download heavy apps.
- Teams to be backed should have a prolific history of building and developing technologies. Technology novices with zero knowledge of an entrenched market are unacceptable. Technology novices with strong in-depth market knowledge are acceptable given that they have enough strength in their proposition to add appropriate technical fortitude to their team.
- If the founders weren’t working on this would they ever be able to make a fraction of a similar amount of money without doing the ICO?
- A new cryptocurrency should be attacking a problem that is real and easily explainable.
- Blockchain bloat
- Monero’s blockchain is ~25Gb
- From Noah Ruderman — a security analyst –
- No lightweight clients exist yet. Due to variable block sizes, ringCT, and linkable ring sig size requirements, downloading the monero blockchain download/verification gets slower as you get closer to the present. It takes so long to get the entire history and verify. Took a VPS I had days, even with SSD.
- Blockchain Limitations
- Life & Death of Entities
- A blockchain doesn’t know about the creation or deletion of entities be it corporate, group, community, or human life that are in the physical world.
- You cannot let a smart contract rely on a centralized API without a commensurate amount of risk.
- Example: If we were to bet with a smart contract on the weather which API could we rely on that is trustable?
- Dead Wallets –
- When someone dies today their cryptocurrency disappears and each cryptocurrency can only go out to a certain number of decimal points. This means over time cryptocurrency will die. (this may be editable, but I’ve yet to hear clear commentary from the markets on it)
- I imagine some sort of chain deprecating protocol change will be implemented in the future to keep bloat low and 3rd parties like Miners will be compensated for storing the old blockchain for the masses, but it’s still yet to be seen.
Cryptocurrency at Large
Here’s a list of things I’m watching.
- Decentralized Exchanges
- Decentralized Exchanges that carry Monero and Zcash are a money laundering haven as they are monstrously untraceable.
- Will ethereum ever be used for something well beyond ICOs?
- How will regulatory bodies across continents be affected by cryptocurrencies?
- Money Laundering?
- How does the common person properly interface with the government?
- How will the government embrace law-abiding citizens and vice versa?
Disclaimer: This is not investment advice. Cryptocurrency, blockchains, and ICOS are complicated technologies.