Crypto's knowledge gap: How do we get better?
There are some aspects which will naturally improve over time. For example, volatility will decrease as larger investors move into the market, more transparent exchanges emerge and as we develop better and more widely accepted models for valuing cryptoassets.
As such, I’m less concerned about trading and more interested in measures to both help bridge the technical gap and prevent the exploitation of many investors. Some of these steps are small ones, but ones I believe are both practical and will improve our industry.
A simple change. Teams don’t need to disclose individual investors, but they should make clear the effective token price and the number of tokens sold during each round of investment. ICO listing/review sites should begin to highlight companies which don’t provide this transparency and make bonuses given one of their most important factors for consideration. It goes without saying, of course, that tokens subject to vesting periods should be held in smart contracts and only released at the appropriate time (it is staggering how often a project relying on smart contracts doesn’t use smart contracts for a very obvious purpose).
Extending this slightly, teams should be expected to provide comprehensive monthly or quarterly updates including where funds are being spent and if this is in line with the crowdsale promises. All too often the last we hear of a team’s plan and burn rate is in the whitepaper.
Given regulatory unknowns, project teams may be tempted to reduce their transparency as opposed to increase it. We need to fight this and encourage transparency as much as possible. Self-regulatory industry bodies such as the ICO Governance Foundation are necessary developments in this.
More consideration given to token sales/distribution
Given away the bulk (or entirety) of supply at the start is sometimes appropriate, but not in all cases. However, it is currently the default setting. More teams should consider doing smaller raises and retaining supply until a later point. It would probably better align interests between team and project whilst giving more flexibility down the line.
Retaining supply can also be used to incentivise users (not traders) or to drive adoption at product launch. Teams should also consider longer lockup periods. Yes, it will likely put off some investors – but there are many examples of projects with decent length lockups raising more than sufficient funds.
Furthermore, teams should stop distributing unjustifiable bonuses which are often given out just weeks or days ahead of the main crowdsale with no vesting period. There are numerous teams which have shown that it is more than possible to succeed without this behaviour. Ally the size of the bonus to the risk they are taking and the import of the money they are providing.
Pay more attention to user participation
Again, I will try not to pick on particular projects, but launching a network which relies on voter participation and not making it easy for users to actually vote in electors is unacceptable. Imagine if a government asked people to vote, but relied on the people themselves to build the voting stations and print the voting cards. How effective do you think that would be?
Decentralisation relies partially on encouraging as many users as possible to participate and as such the same applies if you do not provide clear instructions on how to run nodes, stake your tokens or whatever else is needed to facilitate as many people securing the network as possible. These are simple steps to take and firmly in the remit of the project team. It is not as simple as ‘build it and they will come’. It needs to be ‘how do we build it so that they come’.
Project provided content
This is a tricky one but I believe that companies have a duty to better inform the public about what DLT is and the components that make up their project. Depending on the company, the information could vary, for example:
- Projects: What are DLTs, what is a blockchain, how does consensus algorithm X work and why have we chosen it, what are the potential attack vectors we are working to eliminate, what are the problems inherent to our solution (CAP Theorem, scalability trilemma etc)
- Exchanges: What are the risks of leaving your assets on an exchange, how do you store your own tokens in private wallets, basic information about each cryptoassets (supply, current market cap, issue price, important news events, links to information about number of investors/crowdsale details etc, explanation/breakdown of whitepaper etc)
This can range from the fairly brief (such as the introductory warning that MyEtherWallet/MyCrypto bring up the first time you visit) to more detailed resources such as BitMex’s research output. It would help if there was more content in non-English languages too.
Project’s should also concentrate on making their whitepapers more accessible. I took a sample of some 500 whitepapers and analysed them by word count and readability (for ease I took the Flesch-Kincaid grade, I’m sure there are flaws and issues with it but it was the only realistic way to go through so many whitepapers). I found that:
- The length of them dramatically increased, from an average of 5,869 words in 2016 to 9,381 in 2018
- The Flesch-Kincaid grade score improved from c. 18 to 13, meaning they became easier to read
These results will be somewhat arbitrary owing to the random sample of papers I took, but the increased length tallies with my own experience. Unfortunately, I suspect most of the additional content is the same regurgitated focus on what blockchain is and Bitcoin’s lack of scalability yadda yadda yadda – we get it. Bitcoin can’t do as many TPS as Visa, we’ve heard it hundreds of times. Focus on explaining your own project, how it works and how it will improve users lives.
I was surprised by the drop in Flesch-Kincaid score but it may be because the average ones are targeting the average investors and so are deliberately making it simpler. Some of the more ‘serious’ whitepapers, on the other hand, are borderline incomprehensible. Keep at least your abstract accessible to all (sidenote: It may be nearly a decade old but the Bitcoin whitepaper remains one of the clearest and best examples of what a whitepaper should be like, and is well worth reading even now).
Crypto journalism and curation of content
Allied to the above is the issue of journalism, a problem certainly not confined to the crypto space. Most (not all) crypto news sites are essentially paid for advertising or filled with low-quality pieces that read as if a bot has spewed 500 words onto a webpage (and sadly this is probably what many are).
Furthermore, no-one cares enough about negative reporting on a project they aren’t invested in (there are thousands of other projects – why bother wasting any of your time on the bad ones?) but people really care if they are invested. This leads to pressure and threats, as armies of shills cry ‘FUD’ at every opportunity even when the accusation is true. It’s not FUD if it’s a real issue - it’s just news. The result? As a writer, your work gets read more if you write nice things and you don’t have to deal with harassment. You can see which aspect is likely to get written about more.
As I do not hold much hope of this changing in the near future, the onus for quality is therefore largely on the curation of user-created (mostly free) content.
The amount of information resources concerning cryptoassets has increased significantly but a lot of the best quality content is now hidden from sight, either confined to private groups seeking to keep out the ‘wen Binance’ brigade, on a harder to search medium (e.g. Telegram) or simply lost in a maelstrom of voices competing to promote their usually useless favourite holding
For example, Medium contains better quality content than any crypto news site but much of it is destined to never be read as it is hard to find. Unless you are one of a surprisingly small number of people who can rely on retweets from those with the biggest following, your content will stay largely hidden. Sites such as Reddit also struggle with this problem, as bot armies upvote poor content whilst good content goes ignored. Regular users tend to share and upvote content that portrays their project in a positive light, downvoting everything else. Twitter is better, but of course largely relies on the curation of your follower list. That said, I rely on Twitter to find the best content hosted on other sites – and the quality of materials linked is heads and shoulders above other platforms.
A growing trend here which is helping a lot are daily and weekly newsletters such as TokenDaily and TokenEconomy as well as curated Twitter reads by the likes of Nathaniel Whittimore. These are of great importance and of real benefit.
Another approach as to how we might improve can be seen in projects such as Messari. Messari aims to build “a public data library that hosts standardized token issuer disclosures [that] could serve as the financial backbone of the token economy, much like the SEC’s EDGAR database in modern financial markets”. This ties in with the need for transparency but Token Curated Registries (TCRs) could also help with promoting and sourcing good quality content.
This use of TCRs, in which project information is free, open-sourced and incentivised economically to ensure accuracy and quality, could prove to be integral in improving the quality of information. They aren’t without their problems, but they can certainly help.
One of the biggest drivers for change will be projects beginning to fail, driving token values to 0. The correlation of cryptoassets thus far is high, meaning that the weak projects increase or decrease in a similar fashion to the strong. As the market matures and we begin to see projects fail, investors will realise the importance of due diligence and money should stop flowing to bad teams.
The space is a new one and as such technical knowledge will proliferate over time to a wider audience, just as it did with computers, the Internet, app development and essentially every technical development.
To speed this process up, I would advise those new to the space (or those who want to understand the technical side more) to concentrate less on individual projects and more on the building blocks necessary to understand them such as:
- What the different types of DLT e.g. blockchain actually are
- What decentralisation means in the context of blockchain or Bitcoin
- What consensus algorithms are and how they work to solve the Byzantine Generals Problem
- How are networks attacked? How do we stop them from being attacked?
- Why do DLTs make the design choices they do e.g. the Scalability Trilemma, CAP Theorem
Understanding just these five starter topics in moderate detail will make you far more capable of distilling information thrown at you and being able to objectively assess which ones are taking unacceptable shortcuts or putting forward an undesirable system.
In time some problems will resolve themselves naturally. We will see more attention paid to valuation models and the entrance of institutions will bring increased levels of professionalism and research resources. Bad actors will be uncovered.
Other problems are not confined to crypto, such as the growing trend that people believe the truth they want to believe, the emergence of fake news and the sheer amount of information now spread across our global and efficient networks.
However, as outlined, there are clear and easy changes that can be made to make the situation fairer and more accessible to all. If adopted, they would make the ecosystem a stronger and more equitable space.