Scrap the White Paper: Phillip Nunn, The Blackmore Group
Phillip Nunn Blackmore Group How to Evaluate Crypto Tokens and Blockchains.
Phillip Nunn Blackmore shares How to Evaluate Crypto Tokens and Blockchains. Originally from Coindesk.
If you have spent any time in the cryptocurrency sector and have been looking into initial coin offerings (ICOs), you will know that the process revolves around a white paper.
This document lays out the facts about the blockchain, protocol, or decentralized application (dapp) that is being built and describes how tokens will work. Sometimes it is a deeply technical document and other times it is just marketing.
I think it is mostly irrelevant.
Crypto investors love white papers, although I’m not sure they really read them. Mostly they skim them and ask why can’t you do this with a database rather than a blockchain?
It’s a valid question. Of course, it’s also a valid question as to why you even need a database. You could use a spreadsheet, or even a comma delimited file. Or you could chisel your ledger on stone tablets too.
Asking the right questions
Crypto investors don’t tend to ask good questions. In fact, most crypto forums are filled with posts of people asking the same thing over and over and as a result issue the same three or four criticisms of blockchains that they read somewhere else.
Blockchain technology is early, and as such should be seen as a startup and focusing on the underlying technology via a white paper is akin to looking primarily at a startup’s architecture diagrams to decide if you should invest. It makes no sense. It’s one small data point out of many.
One thing token buyers are missing when they look at a white paper is that the blockchain under consideration will almost certainly change. Why? Because technology changes. Use cases will expand and other blockchains will compete for attention.
I think it is much better to evaluate a blockchain the way you evaluate a startup — you assume the starting point is a starting point, not an endpoint. Crypto buyers, it seems to me, evaluate a white paper like a final product, and that is where they go wrong.
First of all, when I look at crypto deals, I think about a different set of things. I think about where they are starting and where they are likely to be in a decade, and the path to get there.
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If you want to evaluate opportunities that way, here are four things to consider.
- Team — This is what I look at first. Building a network is hard. Can this team attract partners and participants? Most of the ones I see are doubtful. I look for a team that isn’t just a bunch of super techie blockchain dudes. I want to see business people who understand marketing and evangelizing.
- Vision — Where is this network going? What are the possibilities past the first use case? The more a network can do in the long term, the more valuable it will be.
- Scope — How broad or narrow are the use cases for this blockchain? This is a hard one, and it is similar to how one might evaluate a new software application. Too broad and the messaging and positioning get diluted. The tool gets eaten alive by competitors.
- New vs. Existing Market — I know my opinion here is in the minority, but I just don’t believe blockchains are going to disrupt most existing markets. The traditional ecosystem has no incentive to change. I think blockchains are going to enable new markets where trust was difficult before, and now it is possible. I’m sceptical of blockchains for things like existing real estate.
So, consequently the next time you look at a token or a network, just skim the white paper. Make it a secondary factor in your decision, not the primary thing you buy on.
You need to spend your time looking at the team and also understanding the big vision, researching the market opportunity, and thinking counterfactually about the possible futures of the network as a result you will make better decisions.
Original article https://www.coindesk.com/scrap-white-paper-evaluate-tokens-blockchains/
Phillip Nunn is CEO of The Blackmore Group investment house based in Manchester and London.