For blockchain investors, the most pressing question is often: "Is this project worthwhile? Should I buy its token?"
To answer this, it's essential to first understand the overall development stage of the blockchain industry. User penetration rate serves as the most intuitive metric. Taking Bitcoin as an example, there are currently 38.46 million addresses holding Bitcoin. With a global population of 7.6 billion last year, the penetration rate is a mere 0.5%. If we consider all global cryptocurrency investors, relevant data from 2020 estimated around 70 million people, resulting in a penetration rate of just 0.92%.
Comparing this to internet user penetration, 0.92% roughly corresponds to the level around the year 2000. What was the state of the internet around 2000? It was a period following explosive growth, characterized by a bubble that formed and then burst. The industry faced setbacks, warmed up again, and continued to develop steadily. This closely resembles the current state of the blockchain industry.
We all know what followed for the internet: after the bubble burst and a period of consolidation, a wave of internet companies rapidly rose. Giants like Google, Amazon, and Facebook profoundly changed our lives.
History doesn't repeat itself exactly. We cannot absolutely claim that the current blockchain industry is identical to the internet around 2000. However, blockchain, driven by the powerful momentum of rising digital assets represented by Bitcoin, is likely to develop much faster than the internet did. Yet, in this rapid development, it's inevitable to see both good and bad projects emerge.
In summary, blockchain development is still in its early stages. During the early growth of any new technology, bubbles are enormous, and it's challenging to distinguish genuine projects from the rest. This article will help you develop a keen eye for quality by interpreting key aspects of a superior blockchain project, including its token model, backing investors, project team, and community.
Token Model: The Soul of a Blockchain Project
The term "token" is a translation from English. For many in the crypto space, "coin" might be more familiar. The token model can be considered the soul of a project. A project's value, its worthiness for participation, and its potential for long-term holding can largely be discerned from its token model.
The token model can be analyzed from several angles: the basic circumstances of the token's production and distribution, as well as its application and circulation scenarios.
Token Production and Distribution
The primary methods for a blockchain project to generate its token include mining, public/private sales, auctions, and airdrops. Mining is currently the most mainstream production method. Nearly all top blockchain projects by market capitalization require mining, though the methods vary—such as Bitcoin's proof-of-work, DeFi projects' proof-of-stake, or Filecoin's storage and pledge mining.
Regardless of the form, a reasonable and self-consistent mechanism is necessary to ensure participants can fairly obtain tokens and enter or exit freely. The production mechanisms of many projects are relatively complex. If users find them confusing, they can look at visible data points, such as the number of miners, the amount of staked tokens, or the computing power size.
Regarding distribution, the main recipients are typically the team, miners, the community, early investors, risk reserves, and incentive reserves for related actions. The most important entities here are the miners, the community, and the incentive reserves. Token distribution and acquisition must incentivize the system to create real value—such as producing content, providing storage, or facilitating transactions and payments—rather than merely offering dividends or engaging in resonance schemes.
Application and Circulation Scenarios
The project team must have a clear positioning for their project. Is there a definite market demand? Is this demand a rigid necessity? Are there sufficient scenarios for the project's token to circulate? Take Ethereum (ETH) as an example. The reason Ethereum has become the "king of public chains" and is believed to have the potential to surpass Bitcoin is its rich application and circulation scenarios: various altcoins issued on Ethereum, DeFi projects, payments, storage, staking, and more.
Beyond the above, factors like the token's circulation rate, the number of holding addresses, and the exchanges it's listed on should also be considered. The number and reputation of listed exchanges are particularly important, as these exchanges have professional teams that conduct in-depth research on projects before listing them.
This information can be obtained through official channels, third-party sources, and media reports, and should be compared for verification. It's especially important to read the project's whitepaper, paying close attention to the economic structure, business logic, technical design, and the team itself.
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Backing Investors: Follow the Professionals
A project's credibility can often be gauged by its investors. Investment institutions are more professional than the average person, invest more resources, and gather more comprehensive information. Their professional due diligence before investing helps mitigate some risks for ordinary investors.
Investment institutions conduct in-depth research on a project's value, market prospects, technical strength, and team composition. Project teams often publicly disclose their investors. We can check how many well-known investment institutions have backed the project, in what form, and how much they invested.
When investment institutions fund a project, they don't just provide capital. They also offer subsequent support, such as professional consulting, networking, and other resources to push the project forward.
In essence, entrepreneurs and investment institutions share common interests. Institutions use their resources to support entrepreneurs. Therefore, a project backed by renowned investment institutions generally has a higher probability of success, which, in turn, reduces risk for ordinary investors.
Community: The Foundation of a Blockchain Project
The community is regarded as one of the three core attributes of blockchain. A project's maturity requires a solid user base and the participation of more users. Blockchain communities are notably decentralized. How a project attracts a large number of users early on and wins their recognition significantly tests the team's capabilities. Many professional investment institutions and major exchanges also place great importance on a project's community building.
If a project has a good user base and an active community, the project team is likely to achieve decent results upon launch, making it a potential investment worthy of consideration.
From the perspective of the secondary trading market, the essence of price increase is the continuous entry of new people and new capital. Therefore, the quality and consensus level of the community can be seen as the foundation of the project, determining how high the building above can rise. For example, Dogecoin's impressive performance in the recent market cycle was largely driven by its powerful global community, which enabled this meme coin to snowball into the top five by global market capitalization.
Project Team: The Right People Are Fundamental
As the saying goes, no matter how great an endeavor is, it cannot succeed without the right people.
Other factors in a blockchain project can be seen as timing and conditions, but the right team is the fundamental element for success. The quality of a team can be analyzed from multiple perspectives: the original intention behind founding the project, the founders' past resumes, the team members' educational backgrounds, professional experiences, and economic status, among others.
Furthermore, team composition is crucial. A team should ideally include a mix of talents—such as technical experts, operational gurus, and financial elites—to form a synergistic force that can develop the project vibrantly.
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Frequently Asked Questions
What is the most important factor when evaluating a blockchain project?
While all aspects are important, the token model is often considered the soul of the project. It defines the economic incentives, utility, and long-term viability. However, a strong model must be supported by a capable team, credible investors, and an active community.
How can I check who has invested in a blockchain project?
Project teams usually disclose their investors on their official website, in their whitepaper, or through press releases. You can also check crypto data aggregator sites and professional investment databases that track venture capital funding in the blockchain space.
Why is community activity so crucial for a blockchain project?
A strong, active community drives adoption, provides valuable feedback, creates network effects, and contributes to the overall security and decentralization of the project. It's a key indicator of genuine interest and belief in the project's long-term vision.
What are some red flags in a project's token distribution?
Be wary of distributions where too large a percentage is allocated to the team and early investors with short vesting periods. This can lead to massive sell pressure. Also, avoid models where the token's primary function is simply for dividends without providing real utility or incentivizing valuable actions within the ecosystem.
How does a project getting listed on a major exchange help?
Listing on a major, reputable exchange increases liquidity, makes the token more accessible to a wider audience, and provides a degree of validation, as exchanges perform their own due diligence before listing an asset.
Is a high token circulation rate always good?
A high circulation rate generally means most tokens are already in the market and available for trading, which can reduce the risk of large, inflationary unlocks. However, it must be analyzed in context with the token's utility and demand. A high circulation rate without corresponding demand isn't beneficial.
Risk Warning:
Finally, it's essential to highlight the risks. All investments carry the risk of loss. While blockchain offers immense potential, it is also rife with bubbles and risks. Compared to traditional investment markets like stocks, the blockchain field is still in its early stages. Many projects are still some distance away from real-world adoption, and a significant number of institutions are not yet fully aligned with true blockchain principles.
We believe that the development of blockchain will see the superior outperform the inferior over time, achieving a transformative leap. However, as investors, it's crucial to recognize clearly: the market involves risk, and investment requires caution.