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Three Simple Questions (And One Difficult One) To Ask Before Investing In A Blockchain

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There has never been a better time to be learning about blockchain. Between the rate of growth amongst currencies like Bitcoin or Litecoin and the wide-reaching applications outside the financial sector, distributed ledger technologies are transforming the way we do business.

If you’ve read this far, you’re probably considering investing in this, but you’re likely a little daunted by the volatile nature of these projects. Certainly, the news on Bitcoin’s value fluctuations might make investing in blockchain like backing an epileptic horse for a race through a rave: a pretty risky bet. But an investment is an investment, and there are some simple questions you can ask to guide your decision-making.

What’s the motivation?

Bitcoin, in its initial stage, was created with a specific purpose to solve a real-world problem. Once it took off, competitors tried to match its success by following its actions, but not its motivation. A company developing a blockchain project should have a primary goal in mind other than capitalizing off a trend, otherwise, they’re not worth your time.

”While you’re researching your potential blockchain investment, figure out what problems blockchain is seeking to solve and match that up against the company’s mission statement. This might be financial, or something like promoting shared information for medical procedures or food-production industries,” says Lashonda Jackson, tech writer at Paperfellows and Oxessays. Companies providing distributed ledger technology in innovative ways that actually help are much more likely to become valuable in the future. 

Who’s behind it?

Once you know a company is going in the right direction, it’s important to ask who is in the driving seat, and who are the important people the company needs on the side to get where they want to go.

Are the team experienced professionals in technology? Demonstrable expertise in blockchain technology is a must, and holding previous roles in blue-chip companies is a good sign. Also, do they have experts in the related industries on board, or are their promises to transform the market empty? “Take a look at their social media presence to gauge how serious their marketing department is, and also how transparent the company is. At a minimum, the senior team-members should be identifiable and verifiable,” says Sarah Goldman, blockchain expert at Boomessays and Assignment Help.

The next stage is looking beyond the company to its partnerships. If a blockchain developer is serious about making a change, it should already be reaching out to partner with established companies. These partnerships might be future users of the technology or technical advisors. At this stage, you may also begin to get a sense for the specific industry big hitters, whether they are on board, and whether they need to be to organize a consortium.

How does it work?

Even with a stellar company and a quorum of industry professionals, there’s no point investing if you can’t trust the product. With many new blockchain projects the actual working product is nowhere near finished. The longer it takes for a product to be developed, the more risk you are taking on as a developer. This isn’t necessarily a complete red flag: a lot of good can happen during product development as well, but it’s certainly something to be aware of.

The other working condition to figure out is the token situation. Tokens are the reward a miner gets for doing the work of the blockchain: they are the currency that feeds the system. A blockchain without an earnable token is a company relying entirely on volunteers: not the most stable basis to invest in. On the other end of the spectrum, too many tokens can devalue the blockchain. That’s what happened with Ripple, which is worth a few dollars compared to Bitcoins’ tens of thousands.

Do I believe in it?

This final question is sometimes the hardest to answer. Time and again, the techniques proven to give multiple returns on investment have been long-term in nature. Buying into a blockchain project with solid credentials and holding it for an extended period of time is difficult, and it helps if you genuinely believe in the company’s mission and goal.

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