how to evaluate a cryptocurrency

I’ve been in the blockchain industry for a year and a half now. I started as an Initial Coin Offering (ICO) marketer, but the rush of investing and gains potential quickly became contagious. 

So, I dove deep into learning about it and was on the relentless path of discovering all those new exciting crypto assets. At some point, things got crazy, and, as a big fan of diversification, I became a happy holder of more than 300 various tokens.

Of course, many of my decisions were poor. But all those mistakes allowed me to come up with a clear and straightforward framework for analyzing tokenized assets more efficiently and finally properly manage my risks. 

For some time, earlier this year, I also worked at a venture capital fund as a crypto asset analyst utilizing this very same approach that I am about to share with all Block Explorer readers. 

Don’t get me wrong, even the smartest people on Earth, including the most influential investors in Silicon Valley, have made mistakes. Just think of those who passed on Airbnb or Uber or those who poured money into Theranos. 

Fasten your seatbelts. And let us introduce you to our GGECTRA crypto assets quick evaluation approach. 

GGECTRA is an abbreviation and stands for:

Growth potential

Github activity

Execution

Community

Team

Risk

Average score

Now, let’s break the concept down into the smaller chunks. 

1. What’s the Growth Potential?

The first question to ask yourself is: can this project scale up? Does it have the potential to be used by millions of people or businesses? Can it grow from a small, experimental idea into a true use-case?

The next question is about competition. Are there similar projects out there having success? If so, what does this crypto asset do differently that could tap into that growth?

Finally, ask yourself how much revenue and profit this project can generate. Many startups don’t make a penny in profit for years, but is there a clear business plan for growth and revenue?

Evaluate the potential growth opportunity from 1 to 5, where one is poor, and five is excellent.

2. The Project’s Github Activity

Many of the blockchain-based projects are supposed to be transparent and open source. And they should be. Since this new way of investing is open to thousands of amateur investors from all around the world, the very least they deserve is some transparency to track on what’s going with their funds.

Thankfully, many of the projects in the field are on board with that, and the source codes are freely available on GitHub. One of the best ways to track GitHub activity for crypto projects is Cryptomiso. 

It ranks the projects that are most active and provides visitors with important stats (like source code, programming language, number of contributors, etc.), and, of course, directs you to the project’s Github directly. 

Let’s say we want to estimate what’s going on with Aion, the project that is building a product for solving famous blockchain scalability and interoperability problems. Looking into the team’s Github account, we can see that there is a lot of action going on and new changes are made even as I am writing these words. That’s an excellent sign. 

On the contrary, if you came across the project with little or no Github activity, you can rate it as “poor” with no hard feelings. 

Github activity

3. The Crypto Project’s Execution

I evaluate this metric based on the milestones achieved and judging by the company’s roadmap execution. Following social media accounts and corporate blog updates is a tremendous help in this case.

If you are out of time just briefly check the Twitter feed and see what kind of updates are posted. 

If you see tweets mentioning development reports, new impressive partnerships and delivering yet another milestone from the roadmap – that’s a bold “yes!”

But if there are simply “thank you for being with us” messages, new exchanges listing announcements, or some very distantly-related quotes and reposts from big Twitter accounts, that’s not a good sign.

4. How to Rate the Crypto Project’s Community

I’ve discussed the importance of crypto communities in a previous post. A good community can make or break the success of a particular asset or project.

Evaluating this metric is pretty straightforward. Browse the project’s social media accounts and check the followers. Some things to be aware of: the project might have a pretty decent following, but not so much engagement. That’s not good.

Also, the large volume of retweets and likes might indicate that the company has generous bounty rewards. So, while making your research, don’t forget to scroll through the comments and see if those are making sense. Don’t be too excited over bare numbers. 

For instance, the Aion Twitter account has almost 71,000 followers, but engagement rates are not very high. So, I’ll rate it as “good”, not “excellent.” 

Crypto project twitter activity

5. How to Evaluate a Crypto Project’s Team

When evaluating the team, I try to look first and foremost at the Chief (C)-level employees and their expertise: Chief Executive Officer (CEO), Chief Operating Officer (COO), Chief Technology Officer (CTO), etc. 

I browse through their LinkedIn profiles and see if they have relevant experience and connections in the industry that they are trying to disrupt. 

Since I’ve been traveling around at some conferences in the field, it’s relatively easy for me to evaluate how well connected the person is. And, in some cases, even the working ethics of the particular person. I scan through the list of shared connections and make my judgments. 

If you don’t have that luxury yet, you can browse through the person’s endorsements. Let’s say Andreas Antonopoulos pats someone’s shoulder for their knowledge of bitcoin, then it’s a winner.  

Let’s look into the STACK! project. The company is trying to build another cryptocurrency with the goal of mass adoption, with a great wallet and easy crypto payments right from someone’s smartphone. Not a unique aspiration, but STACK!’s Chief Executive Officer has immense experience in the field. 

linkedin connections blockchain

And quite a lot of quality connections in the blockchain department. You get the logic. 

Linkedin activity

One thing to remember when assessing the team: just as with social media following, quantity doesn’t mean quality. On numerous occasions, I came across profiles that blinded me with impressive numbers of endorsements, just like the profile on the picture below (and let’s keep the name and the project a secret). 

However, digging deeper into the list of endorsers it’s obvious that those are not real. In some cases, if I have my doubts about the team member, I would also reach out to former colleagues to clear up my reservations. 

6. How to Measure the Risk of Cryptocurrency Investment

As for the risk evaluation, it’s a mix of various factors that you have to keep in mind, and this list might be adjustable. For example, I look into tokenomics, especially at the token’s supply and distribution. 

Huge supply often means less room for growth. And if a large chunk of all tokens reserved are for the team with no mention of the vesting period (how long the team must wait for scheduled token distributions) – it’s a huge red flag. Anything more than 10% raises some serious question marks for me. 

Then there’s the legal structure and licensing. Is there zero clarity? More questions.  

Overall it’s a very important, but somewhat subjective metric. And there’s a lot to process, based on your own risk appetite and investment strategy.

Jumping into the project with the sketchy team? Risky! 

Investing even if there was no development activity? Risky! 

And so on, you’ve understood the reasoning. 

7. How to Calculate the Average Score?

The average score is pretty much self-explanatory: add up the values of all the metrics and divide by six, the number of evaluated parameters. 

You will end up with a number you can use to compare against other projects. Yes, it will be somewhat subjective. But you still have the logic behind it rather than buying assets based on a hunch. Basing your judgments on such numbers will save you from making any snappy decisions. Just stick to the process and try to be less emotional. 

Do you have any special tricks to identify great investment opportunity when evaluating a crypto project? Go ahead and share it in the comment section below.

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This time last year, everyone was rushing to predict how high bitcoin would go. We had outrageous price predictions of $200,000 per bitcoin and even $1 million.

Now, the current trend is predicting the bitcoin bottom. Considering most price prediction were wildly wrong, it’s safe to assume most people predicting the “bottom” might also be off the mark.

So how do you really tell when the price of an asset has bottomed?

Here are four ways traders use to identify when a market is bottoming out.

Note: Neither Block Explorer nor the author provides financial or investment advice and this article should not be construed as such.

1. Double bottom chart pattern

The classic sign of a market reversal is when a “double bottom” is formed on a market’s chart. It’s also called a “W pattern” because it resembles the shape of a W. Here’s what it looks like in chart form:

Double bottom chart
Source: Investopedia

It typically means that sellers have forced the price down to the lowest point. They tried to break it once and failed. They tried again, but the buyers proved stronger for a second time.

It signals the point where buyers are stronger than sellers and a reversal can begin.

Even if you see a double bottom pattern forming, it’s usually best to wait until we complete the full “W” shape and break out above the W, as indicated on the chart above. That would represent a true comeback.

Bitcoin is in the process of forming a short-term double bottom pattern, but it is not yet complete.

Bitcoin double bottom forming?
Source: CoinMarketCap

Of course, this chart pattern is no guarantee of a reversal. We need to look deeper into the activity of buyers and sellers. And that means taking a closer look at volume.

2. Lower volume on downward moves

In the simplest possible terms, a reversal takes place when more people are buying bitcoin than selling it.

So we need to look for signs that sellers are getting weaker and buyers are getting stronger. That means looking at volume.

“Volume” in this case refers to how much bitcoin is bought and sold in a given 24 hour period.

At the moment, more people are selling than buying. So the volume on downward moves is generally much bigger. 

More people are selling = bigger volume on downward moves.

What you’re looking for is that trend to change. We’re looking for lower volumes on each downward move.

That would indicate that the number of people selling is getting smaller and the downtrend is coming to an end.

Unfortunately, we’re not yet seeing that with bitcoin. As Max Boonen, founder of B2C2 told the Financial Times during the latest selloff,  “[Trading] volumes have been quite high in this move lower.”

To gauge the volume of buyers and sellers, you’ll need to look at more technical charts than the basic CoinMarketCap price charts. 

3. Higher volume on upwards moves

Next, we need to see more buyers coming into the market. 

In other words, we should also begin to see volume increase on the upward moves. That would indicate that more sellers are rushing in to buy bitcoin.

This is the simplest depiction of a market reversal: more people are starting to buy than sell.

4. Negative news headlines

This one is less of a technical indicator, but it’s a psychological sign that a bottom is coming.

The press tends to follow the crowd and track the broad sentiment. So if news headlines (especially in the bigger media outlets outside the financial and cryptocurrency world) are turning negative, it means most people are now fearful.

Anyone that does want to get their money out will probably do so after the mainstream negative headlines, leaving only the people willing to hold on.

It’s safe to say we’ve reached that moment with bitcoin. Here are just a handful of major headlines over the last week:

Bloomberg: Bitcoin’s Deepening Crash Now Approaches Its Worst Bear Markets

The Guardian: Only a Fool Would Have Bought Into Bitcoin Last Year. So Guess What I Did?

New York Post: The Bitcoin Pyramid Scheme Continues To Collapse

CNBC: Long, Dark Winter Ahead For Crypto

So, Has Bitcoin Bottomed?

According to these classic criteria, not yet. Although some of the signs are beginning to appear, it’s too early to call a true bottom. Volume is still heavy on the downward falls and the classic “double bottom” has not fully emerged.

On top of all that, technical analysis from charts isn’t 100% effective, and even less so in the new and volatile crypto markets.

In other words, it’s very difficult to predict a bottom and you should take any claims with a great caution.

Note: Neither Block Explorer nor the author provides financial or investment advice and this article should not be construed as such.

Monero cryptocurrency best privacy coin

Privacy is a topic that doesn’t come up as often as it should in the cryptocurrency world, which is funny, considering their cryptographic background. 

Cryptocurrencies like bitcoin have a reputation for anonymity, but they are not as private as you think. Most don’t offer any explicit or built-in privacy features. 

Take Bitcoin, for example. Every transaction is recorded in an open and public place – the blockchain. Due to this, a malicious actor can see every transaction ever made with a simple search. They can see every public address and potentially link it to a person’s true identity.

Your transactions can be traced in much the same way a bank can trace your transactions as they move through its system.

What Features Should a Privacy Cryptocurrency Have?

Now that we know why privacy is a good idea, let’s put together a wishlist of what we’d want in the perfect privacy cryptocurrency.

a. Opaque Transactions

Opaque transactions are those that do not show the sender’s address, the receiver’s address or the amount transferred. 

The rationale behind wanting opaque transactions is very simple, why should everyone be able to know who you are transacting with?

If a malicious actor knows who you are transacting with, they may be able to use that information to pressure you. Or, a malicious actor can figure out which addresses are worth attacking by looking at the amount being transferred in and out.

b. Provable Transactions

Opaque transactions are wonderful but sometimes you need to be able to prove to someone that the transaction was sent. For example, to prove that a donation took place, prove that you actually paid a vendor for goods or to prove a transfer to an escrow took place.

c. Default On Privacy

Having private transactions is great, but the next problem is getting people to use them. 

Only one privacy coin is automatically private right now. All others offer an option between a standard transfer and a private transfer.

If your privacy system requires extra steps to use, most users will end up taking the easier, less-private approach. 

Having some transactions be private and others not private simply draws attention to the ones made private. All transactions being the same makes the attacker’s job a lot harder, as there’s nothing drawing attention to itself.

default on privacy

d. Trustless

“Trustless” means not having a third-party store data or make the transaction. The current banking system, for example, is not trustless, because you must trust the bank to verify your funds and make the transaction on your behalf.

It’s a pretty standard request for any cryptocurrency, but more so for privacy cryptocurrencies due to the fact that any hole in the armor makes the entire cryptocurrency weakened at best. 

Any privacy cryptocurrency that requires a trusted setup should be considered very carefully.

e. Obfuscated IPs

One issue that doesn’t come up as often as it should, even some of the most private cryptocurrencies, is that your IP address is exposed to the network when you broadcast transactions. 

This means that someone listening very carefully can figure out where in the world a transaction came from, and potentially which transactions belong to you. From there they may or may not be able to find out further information about the addresses involved, and how much was transferred. In general, it’s a good idea to look as uninteresting as possible.

Keeping your IP to yourself, or using some sort of anonymization layer (like Tor, or I2P) is a good idea. For a privacy coin, having first-party support for such anonymization layers is definitely a plus.

Monero vs Zcash: Best Privacy-Oriented Cryptocurrencies

Now that we have some grounding in what it means for a cryptocurrency to be private and why privacy is a good thing. Let’s take a look at the two best-known privacy cryptocurrencies, Monero and Zcash, to see how they stack up against our wishlist.

Monero

Monero tends to be the flagship privacy cryptocurrency. It offers various features and covers our wishlist well.

Monero infographic

a. Does Monero Use Opaque Transactions? ✔

Monero’s transactions are opaque. They make use of a technology called Ring Signatures (and, more recently, Bullet Proofs) to hide the sender and amount transferred in a transaction. It does this by mixing various transactions together, creating “decoys” that are difficult, if not impossible, to trace back to a specific person

A one-time-use stealth address is also used for receivers so you can’t be linked to multiple transactions.

monero-ring-signature
Credit: BitcoinKeskus

b. Does Monero Offer Provable Transactions?  ✔

You can prove a transaction occurred on the Monero network by use of a view key, which can be created for both a single transaction and an address.

c. Is Monero Private by Default? ✔

Monero’s privacy model does not allow for non-private transactions to occur on the blockchain. No matter what, your transaction will be private, though you can share a key with others to allow them to look at your transactions in the same way your wallet does.

d. Is Monero Trustless? ✔

Monero’s entire network requires no external trust to use, assuming you are running your own node, anyway. Like with most cryptocurrencies using an external node for your transactions carries some risks around logging. Though even if your transactions are logged, they will remain private.

e. Does Monero Obfuscate IPs? ✘

Monero does not currently have any sort of built-in IP obfuscation. Meaning that your IP can be logged by other nodes when broadcasting transactions. 

Though there are some plans for this in Monero’s future, namely, a technology called Kovri which will route and encrypt transactions through I2P Invisible Internet Project nodes. 

For the moment, if it is required, IP obfuscation can be achieved via third-party anonymization tools like Tor and I2P.

Zcash

Zcash offers both private and transparent transactions. A few of the boxes in our wishlist are checked by Zcash, but unfortunately, some of the more major ones are not.

zcash transaction types

a. Does Zcash Use Opaque Transactions? ✔

ZCASH offers a completely private transaction, known as a “shielded” transaction. With a shielded transaction, neither the addresses or amounts involved are visible on the blockchain. To achieve this, Zcash uses a cryptographic technique called “zero-knowledge proofs.”

Monero also uses a version of zero-knowledge proofs, but Zcash’s system is different in that it requires a small level of trust in its setup. We discuss this in the fourth section below.

b. Does Zcash Offer Provable Transactions? ✔

When the private transaction type is used, those on the secure side can disclose information via an experimental system. It allows you to prove a transaction was made without revealing information about the sender. However, it’s not a simple process.

c. Is Zcash Private By Default? ✘

ZCASH’s privacy scheme is not on by default, meaning that some effort is required for its users to send private transactions. There are four different possible ways for a transaction to occur. Only one of which is completely private for both parties. The other three are sender private, receiver private, and completely public.

A private transaction takes longer and costs more in fees. However, a recent Zcash upgrade aims to reduce the friction and move Zcash to a privacy-by-default system.

d. Is Zcash Trustless? ✘

ZCASH’s zero-knowledge proofs, known as zk-SNARKs, do require trust of third parties. Specifically, some parameters need to be generated and the source material destroyed. The issue with this is that if the source material for the parameters is not destroyed, those that have it can use it to create verified transactions.

The risk is mitigated somewhat by making the source material distributed. That way any one person that helped generate the data can destroy their source material and render the rest useless. Though that does not make the fact that a trusted setup is required, which, in the world of cryptocurrency, is a bad idea.

e. Does Zcash Obfuscate IPs? ✘

Much like Monero, ZCASH does not currently support any built-in IP anonymization technologies. Though running a ZCASH node over Tor does work. So if you do need the additional privacy you have the option of using Tor.

Monero vs Zcash: Which is Better?

While Monero and Zcash have their merits, Monero takes the crown for privacy, checking all but one of the items off our list. But Zcash has more control over how your transactions are done, at the cost of always-on privacy. Zcash’s trusted setup is also questionable, but unlikely to cause an issue in all but the most extreme case.

Bottom line, It’s up to you as the user to decide what cryptocurrency to use. And to weigh pros and cons against your use case. If you want absolute privacy, Monero is your go to, there is nothing quite like it currently. Otherwise, if you want to be able to send both private and transparent transactions, consider Zcash.

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pay taxes with bitcoin

As of today, Ohio becomes the first state in the US to allow businesses to pay taxes with bitcoin. Ohio edges out Arizona, Illinois, and Georgia which have seen similar initiatives fail to pass state legislatures.

The move is a stamp of legitimacy from the US authorities for a cryptocurrency that has, until recently, been derided as a mode of payment only useful for criminals, speculators, and money launderers.

We should point out that the government itself won’t directly accept or process bitcoin. It will be converted through a third-party payment provider, Bitpay, and the taxes will still technically be paid in dollars.

Individual Taxes to Follow

Businesses operating in Ohio will be the first to benefit from the new initiative. The state of Ohio has launched a new website, ohiocrypto.com where businesses can register and begin the tax payment process with bitcoin.

The site lists 23 taxes that are currently payable in cryptocurrency, including employee withholding taxes and sales taxes.

While it’s not yet possible fo individual filers to pay with bitcoin, the state of Ohio is working on it, as well as the potential to accept other cryptocurrencies.

“I do see [bitcoin] as a legitimate form of currency,”

Ohio Treasurer Josh Mandel is one of the few government voices to publicly champion cryptocurrencies. Speaking to the Wall Street Journal (paywall), he said “I do see [bitcoin] as a legitimate form of currency,” granting it some authority in the eyes of government.

Back in August, Ohio passed a law that legally recognized blockchain data, while Ohio speaker Ryan Smith confirmed Ohio’s grand plans: “because this is so new and this is just beginning to take shape, we can position Ohio out front.”

You might also be interested in: A Giant Blockchain Town is Being Built in the Nevada Desert

No Legal Status, Yet

It’s important to note the move does not give bitcoin any legal status. In order to accept the payments, Ohio will use a third-party payment provider, BitPay, to convert bitcoin to US dollars. In other words, the state will not process or hold bitcoin itself. The taxes are still technically paid in dollars, just routed through a third-party.

While this is a stamp of approval for cryptocurrencies, it does not mean the government accepts or processes bitcoin directly.

Other States to Follow?

Ohio has kicked down the door and other states may soon follow suit. The Arizona Senate approved a similar bill earlier this year, but it was knocked back by the House of Representatives.

Representatives in Illinois also submitted a proposal to accept bitcoin back in February, while two state senators in Georgia proposed a similar bill in early 2018.

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bitcoin price crash

As expected, the media has gone into a frenzy over the recent bitcoin crash. As we plunge below $4,000, the familiar cries of “bitcoin is dead” are ringing again.

True, bitcoin is now down more than 80% from its all-time high in December last year.

But now is a good time to remind everyone that we’ve been here before. Twice, actually. Bitcoin has suffered larger percentage falls than this and survived.

Worried about the crash? Here are 9 strategies for surviving the crypto crash.

Of course, that doesn’t mean history will repeat itself, but it does prove that bitcoin is resilient. Let’s take a quick look back through history.

June 2011 Bitcoin Crash

Top price: $30

Bottom price: $2

Percentage drop: 93%

How long to recover? Two years

bitcoin crash 2011
Bitcoin’s price rise and crash in 2011. Source: 99 Bitcoins

What triggered the price rise?

In June 2011, bitcoin was barely two years old. It began to creep beyond the obscure cryptography forums and into some high-profile tech publications.

New exchanges cropped up, making it easier to purchase bitcoin and the Silk Road dark web marketplace attracted new bitcoin users. 

At the beginning of June 2011, Gawker published its groundbreaking article on Silk Road, drawing enormous attention to bitcoin (arguably for all the wrong reasons). By the end of the month, bitcoin topped out at $30.

And the collapse?

The world’s biggest crypto exchange at the time, Mt. Gox, was hacked, with thieves making off with 2,000 bitcoins. This wasn’t the fatal blow for Mt. Gox (that came later, in 2014). But it was the first in a series of major hacks in the crypto market.

Coupled with the negative publicity around bitcoin and its association with drugs and the Silk Road, a harsh sell-off began.

The bitcoin price fell from $30 in June to $2 in November: a 93% fall in just five months.

It wasn’t until April 2013 (almost two years after the high) that it hit $30 again.

November 2013 Bitcoin Crash

Top price: $1,026

Bottom price: $152 (on Bitstamp exchange)

Percentage fall: 85%

How long to recover? Three years

Bitcoin crash 2014
Bitcoin rise and crash 2013-2014. Source: CoinMarketCap

What triggered the price rise?

In March 2013, the government of Cyprus did something unprecedented. They confiscated the money in people’s bank.

Anyone with more than €100,000 in the bank had a percentage of their funds frozen or turned into shares of the failing bank. It caused outrage. 

To avoid the brutal policy, Cypriots turned to bitcoin.

For the first time, people realized that bitcoin could be a viable alternative to government-controlled fiat currencies. The cryptocurrency began an epic price run.

There was even positive sentiment from governments – the US Senate spoke of the promises of virtual currency and China told its citizens they were free to buy bitcoin.

And the collapse?

Unfortunately, the flurry of excitement about bitcoin overwhelmed the fledgling infrastructure.

The biggest exchanges were slammed with activity and security holes were breached. Mt. Gox was hacked with 744,000 BTC stolen (worth $350 million).

At the same time, China changed its mind on bitcoin, banning financial institutions from trading bitcoin.

The Mt. Gox. scandal and bankruptcy continued through the year. Meanwhile, governments tightened their grip. The bitcoin price bled out for over a year until it finally bottomed at $152 in January 2015 on the Bitstamp exchange.

The bitcoin price didn’t climb back to $1,000 until early 2017, three years after the previous high.

December 2017 Bitcoin Crash

Top price: $19,792

Bottom price: $3,600 (so far)

Percentage drop: 81% (so far)

Time to recover: ?

Bitcoin crash 2018
Bitcoin price rise and crash 2017-2018. Source: CoinMarketCap

What triggered the price rise?

During bitcoin’s three-year “winter,” a whole blockchain industry was being built. Ethereum gained traction as a platform for new crypto projects. Big-name players like IBM began experimenting with blockchain technology. Ripple established itself with some of the biggest banks in the world.

At the same time, ICO-fever gripped the markets – providing a new way to invest in crypto startups.

But the biggest catalyst was the launch of a bitcoin futures market. It offered the first route for institutional investors to trade the bitcoin market. This announcement sent bitcoin flying to $20,000.

And the collapse?

Again, the flurry of activity exposed a lot of problems in the crypto infrastructure. The Bitcoin network couldn’t handle so much activity. Confirmation times took days and it cost up to $50 to make a bitcoin transaction.

The much-hyped bitcoin futures market also allowed people to bet against bitcoin’s price, introducing new short-sellers to the market.

And the ICO hype fizzled out as investors realized many of the projects were useless or outright scams.

What Next?

If history tells us anything, it’s that bitcoin could fall further yet. We’ve seen bigger percentage drops in bitcoin’s short life, and long, dark “winters.”

There is light at the end of the tunnel. Potential catalysts for a price surge include Fidelity’s proposed crypto trading and custody service, the much-hyped Bakkt launch, and the expectation of a bitcoin ETF. 

One thing’s for certain, though, it’s too early to call the “bottom.” A long process of rebuilding lies ahead.

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