Dec. 4, 2017 (The Ferowich Report) — With the prevalence of fraudulent initial cryptoasset offerings (ICOs), veteran traders encourage doing your homework before pouring money into a nascent project—but reading a white paper may not be as important as its frequently marketed.
“I think it is mostly irrelevant,” said Rob May in a new Coindesk column. May is an angel investor and founder of Talla.com and Botchain, ‘the blockchain platform for managing intelligent agents.’
Looking at a white paper assumes that a project can be valued by where it ends up instead of where it starts. This might be misguided given the rapid speed at which the tech industry changes in general and crypto in particular.
May encourages new entrants into the cryptoasset space to think about where crypto deals “are starting and where they are likely to be in a decade, and the path to get there,” that is, “evaluate a blockchain the way you evaluate a startup.”
May’s four areas to look at in crypto deals
1. Who are the entrepreneurial spirits behind the project, what partners do they have, do they have a propensity to be more than “just a bunch of super techie blockchain dudes” who have a grasp on business operations more broadly? In other words, do you have a reason to believe the team is capable of executing a roadmap?
2. Does the team have a vision for a larger set of use cases beyond the initial use case? Like conventional project and start up valuations, “the more a network can do in the long term, the more valuable it will be,” May writes.
3. How well-defined are the use cases? If the use case is described too broadly, “the messaging and positioning get diluted,” while defining the use case excessively narrowly limits the tool to filling a small niche “and never grows out of it,” he said.
4. Does the project seek to make change in existing markets or create new ones?
Why does it matter? Just this morning the U.S. Securities and Exchange Commission clamped down on PlexCorp for fraudulent behavior and failure to register securities, freezing $15 million in the process. But there’s many more scammers out there. Experienced crypto traders say you should do your homework and own research before contributing to a project, but there are different ways to do your homework.
Nick Spanos, founder and chief executive of Blockchain Technologies Corp., endorsed reading white papers as a starting point for thinking about whether it’s smart to buy particular cryptoassets. Still, May’s counterintuitive approach might help better inform buy decisions.