Investment Risk/Reward
This section is based largely on price action, reflecting the buy-and-sell behavior of investors and speculators in the marketplace.
Within this section, you will see three columns:
- Risk is based largely on price volatility and recent declines. It tells you at a glance the relative downside you need to watch out for. At the top end of the scale, “Excellent” means relatively minor risk. At the bottom of the scale, “Very Weak” means relatively major risk.
As we’ve said from the outset, risk is something you should always pay attention to. Unfortunately, too many investors ignore it. Don’t make the same mistake.
- Reward, based mostly on price momentum and recent returns to investors, is the place to look for likely profit potential. “Excellent” means large profit potential; “Very Weak” means small profit potential. Our studies indicate it’s a strong tool for short-term trading, especially in trending markets.
Caveat: In a choppy, sideways environment, if investors rush to buy a particular crypto, this indicator may rise disproportionately. So be sure to focus on the overall Weiss Rating, which counterbalances for these unusual situations.
- Investment Risk/Reward Grade. The component grade that gives you a snapshot of the risk and reward combined. A+ is the top of the scale, implying a very favorable combination of low risk and high reward. E- is at the bottom, implying very unfavorable risk/reward, in our view.
Technology/Adoption
This section has very little to do with investors or speculators — and everything to do with the achievements by the team of developers, sponsors and leaders behind each cryptocurrency. It also has three columns:
- Technology reflects the strengths, weaknesses and features of the computer code. Factors considered include the level of anonymity, sophistication of monetary policy, governance capabilities, the ability or flexibility to improve code, energy efficiency, scaling solutions, interoperability with other blockchains, and many more.
Think of it as the machinery inside a new invention — how well it’s built, how the wheels turn and what it’s capable of doing.
Adoption (formerly called “fundamentals”) measures how well the cryptocurrency is actually performing in the real world. It evaluates factors like transaction speed and scalability, market penetration, network security, decentralization of block production, network capacity, developer participation, public acceptance, and many more.
Technology/Adoption Grade, as the name implies, combines the technology and adoption into a single letter grade. Our studies indicate it’s a strong tool for long-term investing.
To be successful in the long term, a project needs both technology and adoption.
It might have brilliant technological ideas behind it, but due to poor implementation, those ideas may rarely see the light of day, never attract much attention and wind up in the trash can of history.
Conversely, the crypto could get adoption thanks to a lot of advertising and hype, but ultimately fall behind simply because it’s technologically an inferior product, eventually acting as a barrier to adoption.
As the crypto space transitions from Bitcoin (with excellent adoption but old technology) to coins like EOS (with superior technology but less adoption than Bitcoin), we find that, for now at least, none of the coins have achieved the ideal combination of both.
Nevertheless, we believe you can rely on the technology/adoption grade as an early indicator of each coin’s long-term prospects for success or failure.
Some Important Caveats
First, although our ratings are driven exclusively by a disciplined, objective review of large amounts of data, never forget that, in the final analysis, a rating represents an opinion — not a guarantee of future outcomes.
Second, you should know that our overall rating is not simply the average of the grades. Our ratings model is much more complex than that. It’s designed to combine all of the above factors, evaluate a wide range of scenarios and give you one, single, consolidated viewpoint.
Third, stay focused, as always, on the overall rating. The Risk/Reward Grade gives you only half the story. Ditto for the Technology/Adoption Grade. The picture that’s most complete and balanced is always the overall Weiss Cryptocurrency Rating.
This coming Tuesday, May 29th, we will make our list of 93 cryptocurrencies (along with the ratings and grades) available to the public as a one-time sample of our work. In contrast, since you are a subscriber, you are getting it five days ahead of time and will continue to get it faithfully every week, along with our commentary.
All told, our new report format starting today represents a valuable upgrade to your service. It will give you, at a glance, a clear perspective not only on WHY each coin merits its Weiss Cryptocurrency Ratings, but also more tools for using them in practice.
Now for this week’s review …
Crypto Market Melancholy
Arriving Right on Schedule
A couple weeks ago, I warned the 80-day cycle correction now underway would be so discouraging pundits might write obituaries for Bitcoin and the crypto markets.
Sure enough, the gloom is gathering right on schedule. Nervous investors are throwing in the towel. Talking heads on TV are once again dismissing crypto as a fad.
This is far from the first time we've seen investors fall victim to the cycles that govern market behavior. And it will not be the last. Expect a new resurgence in June.
Verge gets hacked. Again!
Verge's key selling point has been security and anonymity. But largely because of documented flaws in its code, it has never been rated higher than C- by our Weiss cryptocurrency model.
And now we see hackers exploiting the very same flaw in the code they did previously.
Sheesh. When are the Verge folks going to wake up and smell the coffee?
If you happen to own Verge because privacy is your No. 1 concern, you're probably going to be better off with higher-rated cryptos like Monero or Zcash, both of which have better technology than Verge.
EOS to Redeem
Ethereum’s Grand Vision
Ethereum promised to reinvent the internet and redefine how corporations and communities self-organize to become more free and democratic.
In this brave new world, the distinction between owners and users would fade away. Everyone would have a voice and participate in governance.
Billions — if not trillions — of new wealth would be unlocked, as the global financial systems became borderless, permissionless and censorship-resistant.
So compelling was this vision, that people flocked to Ethereum. Usage shot through the roof, exposing bottlenecks few had previously taken note of — not mention an inability to scale up to the levels such a grand vision required.
This is a key reason EOS’ public launch is so important. It promises to finally make good on Ethereum's vast promises.
It’s quantum leaps ahead of Ethereum in terms of scalability. And it incorporates decentralized governance, so it can upgrade its technology without splitting the network and dividing the community.
Bitcoin started it all. Ethereum expanded on Bitcoin’s vision. And now EOS promises to deliver on that vision.
So if you love crypto, pay close attention to the EOS public (MainNet) launch next week, and in the months ahead. Because EOS is the most technologically-ready platform to start building the decentralized economy of the future.
Wanchain joins
Weiss Ratings universe.
This week, we add Wanchain to the Weiss Ratings universe, a cryptocurrency whose single biggest selling point is “interoperability,” the ability to transfer assets from one blockchain to another.
At their core, cryptocurrencies are protocols for transferring information, and storing it in the form of a distributed ledger that keeps track of the account balances of all its users.
Indeed, what makes cryptocurrencies unique is Distributed Ledger Technology (DLT), in which …
thousands of participants, who don’t necessarily know or trust each other, have a copy of the ledger …
the ledger is updated in (almost) real time, so there are no disputes on the current balance of each user on the ledger, and …
there is no central authority with power to dictate who has what, and who’s allowed to trade with whom.
Here’s where it gets really interesting: Since cryptos are partly protocols for transferring information, many people think the future of crypto will be like the internet, which took off when the IP protocol emerged, allowing the technology to scale.
They argue the next step in the development of cryptocurrencies will likewise require the emergence of a single, dominant protocol. Some say this will be Bitcoin. Or Ethereum. Or, some other crypto.
But this analogy to the internet breaks down when you start looking at precisely how cryptocurrencies store information.
Bonds, stocks, commodities, real estate, options, futures, currency swaps — and the countless other derivative securities that clever investment bankers dream up — are one day going to be stored and traded on distributed ledger platforms.
But it's very unlikely a single protocol or blockchain will prove optimal for each kind of asset.
That's going to put a premium on finding ways for all kinds of different crypto platforms to talk to each other, without relying on some centralized third party.
Wanchain wants to be the crypto platform that accomplishes this — in a way that makes it easy to own and trade assets that exist on different distributed ledgers. All within a single platform.
A Single Wallet for
All Your Cryptos
Here's a simple, but real-world, example of how important it can be to interconnect various blockchains.
If you own the top-rated Weiss cryptocurrencies, you've probably noticed no single, non-Web-based wallet can hold them all. You probably need several wallets. Why is that?
Because right now there is very limited ability for blockchains of different cryptocurrencies to talk to each other. With the interoperability that Wanchain aspires to achieve, you could hold all your cryptos in one wallet.
And in the future, that wallet could also hold your stocks, bonds, real estate or just about any other asset.
But that's just the beginning.
Wanchain ultimately intends to give you the ability to open your own "bank teller" window in the digital world. Want to earn interest on your cash or crypto? Then you could lend it to any qualifying borrower and probably get significantly higher market yields than you would on government bonds.
Don't want the headaches of chasing late payments or verifying collateral? No problem. Because all of that would be handled automatically by smart contracts on the blockchain.
And speaking of borrowing and lending ... why not also lend out your gold or silver and collect interest in ounces?
Or rent your shares of stock to would-be short-sellers or takeover artists for a fee? All with no banker or broker charging you commissions.
Talk about a grand vision! What an epic disruption of the banking (and brokerage) industry this promises to be!
To be sure, Wanchain is not the only crypto platform that aspires to “bridge” different blockchains. Developers of Blocknet and ARK are also working on this; even NEO and Ontology have teamed up on a similar project. What makes Wanchain stand out is its laser-like focus on trading between different blockchains.
Interoperability Without
Centralization
How can Wanchain link all these blockchains and hold the private keys to assets on them without becoming a central authority itself?
Answer: because Wanchain is itself a distributed ledger. There is no single person or authority with access to all these assets.
For additional safety, Wanchain splits the private keys of the assets it controls into several pieces stored on special "validator" nodes on its network. Unless you have all the pieces, you cannot operate the key.
This also points toward a possible vulnerability: If a sufficient number of malicious nodes conspired, they could unlock and seize assets on the blockchain.
The platform guards against this by requiring validator nodes to hold a big pile of Wanchain crypto (WAN). If it misbehaves or breaks the rules, it loses its stake. But this incentive works only if that pile of WAN is worth more than the assets a malicious node hopes to purloin. And we can imagine circumstances where that might not be the case.
Generally speaking, the Wanchain platform depends on the price of the WAN token being high enough that all the nodes will be adequately incentivized to behave according to the rules.
Not exactly reassuring.
Of course, it is possible this may turn out to be more of a theoretical concern than a genuine, real-world risk. Time will tell. But wherever we see even potential danger, we call it out.
Summing up:
Technology: Wanchain gets top scores for interoperability. This is easily one of the best platforms in this category. The way they handle private key storage in a distributed way, and the way it’s so easy for a single account to hold assets in different DLTs, is truly novel and ingenious.
On the downside, there is no talk of scalability or of governance and upgradeability. This is worrisome because the vulnerability we discussed above must be addressed at some point. And as the technology for storing data on various blockchains evolves, so too should Wanchain.
Adoption: Like most new projects, this is where Wanchain lags. It’s just been released, and its interoperability solutions are still being initially deployed. Promising as it is, it remains to be seen whether people will actually use it.
Risk and Reward: Wanchain’s price action is nothing to write home about. It correlates strongly to the broader crypto markets, and there doesn’t seem to be a lot of investor enthusiasm for it at present. As trading patterns go, this is unexceptional.
With excellent technology, but weak adoption and reward-risk scores, we give Wanchain a C rating. But as it gains in popularity, it’s very possible it will merit upgrades.
In the meantime, watch for a major bottom in crypto markets in June and get ready for a new phase of the bull market.
by Juan M. Villaverde