Yesterday, Weiss Ratings held an “emergency crypto briefing” yesterday mid-day where the team discussed their strategy behind their cryptocurrency gradings. The notorious ratings bureau was founded in 1971 and has since graded everything from insurance plans, stocks, mutual funds, and financial institutions. The Weiss team took on grading cryptocurrencies late January of this year. Many have been looking for a researched and unbiased metric to gauge cryptocurrency, as investors currently seek advice for cryptocurrency investing from either forums, facebook groups, or colleagues.
During the web conference, the Weiss team’s econometrician and mathematician, Juan M. Villaverde, spoke about his top cryptocurrencies and the five to avoid. I covered that yesterday here. If you’d like to listen to the entire briefing of their strategy, you can do so by clicking this link.
Dr. Weiss prompted a question to Mr. Villaverde during the web conference asking him what metrics an investor should follow when considering cryptocurrency investing. Villaverde followed the question with seven metrics all investors should use to research a specific cryptocurrency and its underlying project before actually investing. The first couple he put a lot of emphasis on but was very brief with the last few. If you are new to cryptocurrency or even a ‘seasoned’ investors, these seem to be a great start to cryptocurrency investing.
Cryptocurrency Investing: The 7 Metrics
A big issue when cryptocurrencies were taking off in the second half of 2017 was the upgrades requiring hard forks. Projects and their developers were unable to agree on which direction the project should be headed causing multiple chain splits such as Bitcoin Cash and Bitcoin Gold. Governance is the top question Villaverde asks when looking into a new cryptocurrency. What is the voting mechanism or decision making process for the advancement of a project? Does the blockchain even require a hard fork for an upgrade?
To compete with giants like Visa and Facebook, blockchains need to be able to complete transactions at lightning speeds. Many of the new generation blockchains can verify thousands of transactions in a second, that is a big metric to take into account. Can the transaction times compete in the market? Along with the speed of the transactions, comes the cost. The slower the verification of transactions, the higher the fees so these are synonymous. Many new blockchains on the market are now fee-less, as well.
What can be done on top of the blockchain? Bitcoin allows for smart contacts, but it’s mostly just a payment vehicle. Its smart contracts allow for payment reversal and multi-signatures, but that’s about it. With Ethereum, an entire company could literally be built on top of the platform since its smart contracts allow for that. Obviously, Ethereum couldn’t handle it currently due to its scaling issue, but its smart contracts allow it. What is the potential of the project and cryptocurrency, down the road?
How trustless is the project? How much influence is exerted over decisions?
What types of security measures are taken? What code is used on the blockchain, is it widely known or a brand new code not many know? Generally a longer blockchain and more nodes, the harder the code is to crack, as well. The length of the project is something to take into consideration, as well.
How well known is the project/digital currency? Does it have a strong following?
This is by far the hardest metric to gage and one you might want to rely on Weiss ratings for. It can be almost impossible to come up with these calculations on your own, if you don’t have a strong financial background.
So there you have it. Cryptocurrency investing can be a daunting task, but following Weiss Ratings 7 metrics should help you on your way.
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