Due Diligence in the Blockchain Age

original medium article

Anybody who lived through the dot-com bubble can probably draw parallels between the late 90s craze and the “ICO craze” of today. It’s the wild wild west all over again. There are other ways to “invest” in blockchain technologies or startups, although ICO is popular these days. Note that an ICO’s intended purpose is to release a token into the world, so that users may now be able to use the platform. To assess the “investibility” of an ICO, we can think about the problem in the same way a venture investor would invest in a startup. A typical framework may look like this:

Team

This is probably the most important aspect. Does the team have experience working together? Do they already have online presences? Are they active in the ecosystem? Do they have people who have the technical skills to build out the platform?

Technology

The technology aspect is important. There are many blockchain startups going after business ideas that clearly do not need a token. For example, tokens that are created simply for the purpose of raising more money are complete garbage. So are tokens that claim to help “bring Facebook / LinkedIn / Snapchat to the blockchain”.

Traction

This is hard to see just from perusing the company / potential ICO’s website. As with non-blockchain startups, it is important that the company is providing a platform that people legitimately want to use. The best way to understand if the company is building something that people want, is by talking to the customers themselves. Details on this are best found by talking to the founders to get an idea.

Whitepaper

The whitepaper is a culmination of all other parts of the framework, described in detail in a document. Whitepapers should be highly detailed with technical details on the implementation of the platform. The roadmap in the whitepaper should be highly detailed and should describe a plan of action that can be reasonably completed by the team. A whitepaper should not be treated as marketing material. Examples of poorly written whitepapers are everywhere: they’re flashy, don’t include any technical details, and look like they can fool any naive teenager into donating her lunch money to the ICO. The above clearly isn’t a “right answer”, and likely will evolve over time.

Some more food for thought: