A weekly newsletter decoding crypto, blockchain and the entire ecosystem.
By Rohas Nagpal
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Zooming rocket ships 🚀, epic crashes 🌊, dizzying waves of wealth creation and destruction 💥, and ads on television 📺 that talks up bitcoins ₿. Cryptocurrencies and blockchain, the underlying technology that is thought (by some) to hold great promise, have rocked our world in the past few years.
From believers who think cryptocurrencies will take over the world to sceptics who think the appropriate value of Bitcoin is zero, opinion is sharply divided. The two sides are also fond of exchanging barbs on social media, making this entire space, with its memes, insider lingo and roller coaster charts, a fun space to watch, especially if you are not invested in crypto.
That’s why Mint is bringing you a new weekly newsletter on crypto, blockchains and everything associated with these spaces. Authored by technologist Rohas Nagpal, Crypto Notes will cover the developments in this heady world and explain their meaning.
The crypto universe is currently going through some tough times.
Binance, one of the largest crypto exchanges in the world, is facing the heat from regulators in many countries.
Bitcoin miners have been forced to leave China and find a new home.
We may be heading for a prolonged bear market or “Crypto Winter”.
Banks are cutting off services to crypto exchanges in India.
In today’s edition of Crypto Notes, I am going to discuss three recent massive crypto crashes:
Internet Computer (ICP), which lost 93% in just over a month.
IRON Titanium Token (TITAN), which went from $52.46 to $0.00000003 in barely 10 days.
SafeDollar (SDO), a stablecoin that suddenly went to 0.
I am also going to discuss some practical ways using which you can make better decisions when it comes to your crypto investments.
ICP, TITAN and SDO – what went wrong?
What went wrong with Internet Computer (ICP)?
ICP had an enviable debut - it started off in the top 10 cryptos based on its market capitalization. But then it crashed from a price of $737.20 to $20.08. That’s a fall of more than 93% in just over a month!
ICP is a creation of a Swiss non-profit with reputed cryptographers and tech experts with 200 patents between them. ICP calls itself “The world’s first frictionless blockchain with web speed and internet-scale”. It claimed to provide “limitless blockchain with the power, speed and scale of the Internet”.
While ICP sounds great on paper, its price crashed because of the bad token distribution process. Project insiders transferred $2 billion worth of ICP to crypto exchanges. This spooked the markets. Investors felt that the insiders were planning to dump their holdings, and this triggered a massive price drop.
What went wrong with IRON Titanium Token (TITAN)?
TITAN went from $52.46 to $0.00000003 in 10 days!
TITAN was building a partially collateralized stablecoin, called IRON, on two networks - Polygon and Binance Smart Chain. Stablecoins are supposed to be stable or non-volatile. This “stability” is maintained either by backing by an asset like actual dollars/euros or by an algorithm.
There were two reasons for TITAN’s crash. One was rumours that billionaire investor Mark Cuban was the sole provider of TITAN on the Polygon blockchain. This type of centralization can destroy the public perception of crypto. The second was the way IRON token’s price stability was maintained by its algorithm.
What went wrong with SafeDollar (SDO)?
SafeDollar is a stablecoin that suddenly went to 0.
SafeDollar (SDO) had a simpler story. It was hacked! SDO is a Polygon-based algorithmic stablecoin whose price went to zero when an exploit resulted in a loss of around $250,000 worth of stablecoins.
How to make better crypto investing decisions?
The important question for investors is - how should we value a crypto asset so that we don’t end up burning our hard-earned capital.
In the good old world of equities, there are tons of mathematical models to value shares. That’s because shares represent ownership of actual companies, and the stock markets have been around for more than a century.
Crypto markets are relatively new - Bitcoin started in 2009 and Ethereum in 2015. Plus, crypto-assets don’t represent ownership of a company or even a project. So what exactly do you “get” when you buy crypto? More on that in the next edition.
I have developed a methodology of valuing crypto coins and tokens using five parameters:
Revenue implies the ways in which the ecosystem of the crypto actually generates economic value.
Let’s take an example of a crypto that aims to put an end to “bot-enabled ad-fraud”, which is estimated to cost $1 billion a year. This crypto also helps content creators earn more. And it enables viewers to get paid for their attention while watching an advertisement. We can put projected values to all these revenue models. And this is critical. If you can’t put a dollar figure to a crypto’s economic impact, avoid it!
Next is the Organization. This includes the entire team - founders, developers, business experts, etc. Team members should be highly skilled, respected, have strong prior experience, strong credibility and positive social media status.
Organization also includes the ecosystem - miners, validators, node operators, partners, startups building on the platform, etc. This ecosystem should be strong, diverse, and decentralized.
The next thing to consider is the History - how well have project milestones been achieved. Also, consider the historical growth in transaction volume, active users, trading volume, liquidity, trade pairs, & listing on multiple credible exchanges.
The next thing to consider is the algorithm and technology. The crypto should be using a proven, secure, and efficient consensus mechanism with minimum environmental impact. It also includes the source code. Factors to consider include third-party audits, pull requests, issues and their resolution, stars, quantity and quality of commits, forks, documentation, etc.
The last and probably the most important is Social engagement and community. Successful crypto has a large, vibrant, active, engaged, positive community with a fair share of fanatics. Need proof of this? Check out how Elon Musk’s tweets move Bitcoin, Dogecoin and other crypto prices.
Next edition: What exactly do you “get” when you buy crypto?