Written by Malik Corbett
Not all blockchains are the same nor are they designed to solve the same problem. In other words, blockchain technology is not a “one size fits all” phenomena. Understanding cryptonetworks and how they work is a complex subject, riddled with subtle differences that have an enormous impact on long-term scalability and security of the network.
Although the price movement of cryptocurrencies, in particular bitcoin, have captured the headlines; the real story is that blockchains and the cryptonetworks built on top of them have the potential to transform the internet and create a smarter digital infrastructure. As faster and more efficient blockchain technology begins to solve today’s challenges such as data privacy, security and transparency; blockchains and cryptonetworks will soon rival today’s centralized systems.
According to cryptocurrency tracker, Coincap, as of today (2/9/2020) there are 1,518 cryptocurrencies that make up the $270.51 billion digital asset market. While it is entirely likely that the vast majority of today’s coins will fail and be worthless, the opportunity for those who pick the winners is in the trillions of dollars over the next few decades.
This criteria, or factors, can be divided roughly into 4 categories:
For instance, Bitcoin was designed to be a sovereign-grade digital currency which places emphasis on security and censorship-less features. Bitcoin was designed so that it would be difficult for even a nation-state to overtake the network. On the other hand, the Ethereum network is designed to be a “generalized” blockchain platform that supports decentralized applications or DApps via an Ethereum Virtual Machine (EVM). Comparing Bitcoin and Ethereum is not an efficient way to analyze the two cryptocurrencies. It would be more appropriate to compare Bitcoin with Ripple which is a comparable cryptocurrency which main purpose is to be a digital currency. Where EOS would be a much better comparison to Ethereum since both are “general” blockchain platforms and compete directly.
Breaking down the investment categories into a multi-factor model allows for investors to compare competing platforms and construct portfolios. Building a factor model helps to compares tokens and better estimate a cryptocurrency’s intrinsic value.
Below are some of the fundamental factors that should be considered when trying to value a cryptocurrency. Although the list is not exhaustive, you can get an idea of some of the important factors when evaluating cryptonetworks:
• Transactions Per Second (TSP)
• Network Capacity
• Transaction Cost
• How many GitHub Stars?
• How many GitHub Forks?
• How many GitHub Commits?
• How many DApps on the platform?
• How many accounts on the platform?
• How easy it is for new developers to onboard
• What is the strength of the core development team?
• Global Regulation
• Health of the traditional Stock and Bond markets