Readers ask: “Why Don’t You Like ICO Start-ups?”

Readers want to know why we rate and recommend only native tokens, also referred to as blockchain protocols.

They want to know why we don’t cover non-native tokens.

For the distinction between the two, see “What Gives Tokens Their Value?”

“Why don’t you like ICOs start-ups?” they ask. “What about all the great new start-up projects running on Ethereum?”

The answer in a nutshell: Most ICO companies are trying to create broad consumer applications on top of platforms that are still fragile, largely experimental, have inadequate usage and haven’t been battle-tested sufficiently.

Face it: The cryptocurrency space as a whole is still in its infancy. It does not yet have the usage, speed, scalability or overall maturity needed to accommodate billions of people or compete with the likes of a Google.

Yes, first-generation cryptocurrencies have usage. And yes, the newest cryptocurrencies promise speed. But neither has both. And even the usage of the most widely used cryptocurrencies is still relatively small.

Just consider the facts and compare the hard numbers:

Fact #1. Bitcoin gets clogged and becomes virtually unusable at around one million transactions per day. And that’s assuming all the recent scaling upgrades get fully implemented. In contrast …

Fact #2. Facebook gets hundreds of millions of posts, comments and uploads on a daily basis.

Fact #3. Google gets 40 thousand searches per second or about 3.5 billion per day.

The obvious conclusion: At this early stage, there’s no comparison. From a usage perspective, cryptocurrencies are still far from mainstream adoption.

And there’s good reason for that.

Remember What Happened in the 1990s Internet Bubble

Remember the plethora of seemingly “worthless” businesses that sprung up in the early days of the internet.

Remember how it all culminated in a $5 trillion Nasdaq boom and bust at the turn of the millennium.

It was too early. But that doesn’t mean it was wrong.

Yes, it was a speculative bubble. But that bubble was also a mass incubator for some of the most successful businesses of the new century., ridiculed as garbage in the wake of its 2000 crash, is now the king of retail.

Even the infamous, the poster-child of internet naysayers, actually had a great business idea: online sales to a huge market of pet owners.

“Selling on the internet is absurd,” they said. “No shoppers will ever abandon brick-mortar-stores,” they predicted.

And at that time, they were right.

Why? What was the big hurdle the internet revolution had to overcome back then?

The same one blockchains face today — user adoption.

You see, the problem with and other failed internet businesses of that era wasn’t that the ideas were bad.

The problem was the internet simply didn’t have enough active users to carry the day.

It was too slow. It was too hard to use. It was expensive. And the brick-and-mortar business model was not yet breaking. “Our old favorite stores are just fine, thank you” said its defenders.

Sound familiar?

It should, because that’s exactly where we are today with blockchain and, more broadly speaking, Distributed Ledger Technology (DLT).

Like the internet of the 1990s, DLT today is still slow, expensive, difficult to use. And often convoluted.

Most newcomers scratch their heads wondering why on Earth they’d need to use this new medium when, for the most part, all they see is a strange and unfriendly new world. “The old internet is working just fine, thank you,” they say.

An Idea That’s Too Great, Too Soon

Just this past week, we finished reviewing a blockchain-based project that’s all about decentralized cloud storage.

The idea itself is genius: Files aren’t stored on a central database, but are split and stored across a decentralized network instead.

The files are encrypted. They’re inaccessible to anyone but the owner. Plus, in addition, the central authority is replaced with a system of market incentives that will allow thousands of different actors to compete as data storage providers.

The promise: It will not only drive down fees, but also improve the quality of service.

More benefits: The entire structure is based on smart contracts that no single authority can control. There are no arbitrary restrictions, no last-minute policy changes, no unreadable terms and conditions virtually force-fed to unwitting consumers.

It’s a beautiful vision.

The problem is, like the internet of the late 1990s, this platform is slow, expensive and difficult for the average person to use.

In fact, to make the best use of their platform, the developers even recommend that users familiarize themselves with command-line interfaces. “Back to the dot-prompt,” they say.

Seriously? And this will enjoy mainstream adoption!?

Yet, this kind of mismatch between great idea and terrible marketing is very common among ICOs.

My forecast: Most of these startups will fail — not because their ideas are bad, but because the technology is not yet ready for mass adoption.

The bottom line …

The blockchain space is indeed at a very early stage of development. We must never forget that.

Developers are still building the infrastructure. They’re still trying to figure out exactly who pays for what. They’re have not yet completed the right architecture for optimal scaling. They’re still working out who will decide how to upgrade protocols. They have not yet struck the right balance between immutability and flexibility.

These are tough, fundamental questions. Without the right answers, Distributed Ledger Technology cannot plow ahead to its next stage of mass adoption.

That’s why we recommend strictly blockchain projects themselves, e.g., base DLT protocols. That’s speculative enough.

We don’t yet recommend any of the projects that piggyback on top of those protocols. That’s even more speculative.

The time for “the next Amazon” will come. But it’s not here yet.



About the Editor

When econometrician and pro trader Juan M. Villaverde first applied his algorithms to Bitcoin years ago, he discovered a regular cyclical pattern. And he has since used it to build the world’s first crypto timing model based on cycles. Thanks to his analysis, the Weiss Ratings team has accurately picked the top and bottom of major crypto booms and busts.

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