For the analysis of an investment in the crypto area, the exact viewing of the underlying Token. Questions such as token distribution, technology, or Regulation to play a role here. Here, you can Orient yourself well on the different Frameworks for your own Due diligence.
BTC-ECHO wrote a few days ago about DYOR – Do Your Own Research. The article stressed the need for a continuous investigation that DYOR is not just a magic word against any Form of critical questions. A part of this critical stance, the exact viewing of the own Investments. Especially in the case of ICO-Investments the analysis of the token structure plays a major role. On the way, you can evaluate the project-related tokens with respect to the technology, the regulatory classification and targeted Use Cases in more detail.
What relates to the classification, there exist various systems, and each has a different focus and a different degree of complexity. This series of articles presents the different systems that can help potential investors in their own DYOR.
Distribution of the Token
A first thing you can note in the case of an ICO, a Hard Fork or the Start of a new crypto-currency, is the token distribution. Is there from the beginning, an extreme centralization? If ICO is still a large part of the tokens are in the project, this will initiate the price of the same in the Hand and can, optionally, Pump-&-Dump Schemes. You can do the same in the case of Hard Forks, and new crypto-currencies to the Pre-Mining say.
Engineering analysis of Token
A first approach can be the technical analysis. Technically-savvy people to make a distinction according to whether the Token being part of a Blockchain, or on one that’s already in the Blockchain have been issued. A classic distinction in this case Bitcoin would be on the one side, Golem on the other side. While Bitcoin being the Bitcoin Blockchain is one of them, is the Token of the Golem on the Ethereum block Chain. And is not so far from the only one.
So, in terms of issues such as scalability, or the transaction speed is a concern, in the case of Golem, that many different Use-Cases to run on the Ethereum block Chain and, where appropriate, to bottlenecks. On the other hand, the technical analysis of a ERC20-Token easier than in the case of Bitcoin, since the underlying Smart Contract is often written in Solidity and therefore more verifiable.
Regulatory consideration of Token
It also approaches, the less of the underlying technology rather than by the regulatory out exists, however. The Federal Association of the Blockchain makes this distinction:
- Crypto-currencies primarily serve as a means of payment. A good example of this is Bitcoin.
- Utility tokens have a specific function beyond the use as a means of payment. A good example of this is Ethereum, cryptocurrency, Smart Contracts to clear more things as to use for payment purposes.
- Security tokens are a similar Form of securities. They correspond to share, so participation rights and/or dividend distributions are possible. Examples of this Token, the pure possession leads to a further distribution, such as, for example, NEO.
This distinction is for investors to be important, as regulatory bodies consider the three Token-forms in different ways. The observation of the value of the paper, which occurs when the Security Token, is tax-relevant. In addition, this arrangement brings for organizers of ICOs-specific regulatory requirements.
A Framework that can be used by investors, especially in the regulatory area, the Howie Test. This is not quite up to date, as the SEC classified currently almost every ICO as a Security. Nevertheless, the Howie Test still offers to aid you in the legal classification.
The three considered points of token distribution, technical and regulatory consideration – assist in the classification and risk assessment. This is the claim of “Do your own research”. The following two articles provide more complex classification systems that allow for a balance of the Use Cases with the token structure.