Wondering how we come up with our Crypto Profile ratings? We break our analysis into five main sections. Note maximum score for each section is 2 points.
We ask several questions when analyzing the viability of a project’s use case:
- Does the project have a whitepaper published?
- What is the consensus algorithm that is being used?
- How is the blockchain network being used to solve a problem?
- Can other technologies be used to solve the problem more efficiently?
- Is the cryptoasset serving a necessary function within the ecosystem?
Development Team and Partnerships
The blockchain network is only as good as the individuals that are building it. Having a strong development team is so important. At the end of the day the code used to build the network and the cryptoasset is what is creating value.
Most projects in this space are generating great ideas but don’t have the necessary resources in-house to scale the project. This is why we look at the partnerships the project has formed. We want to get an understanding of the ability the team has to bring their product to ordinary consumers all over the world.
Competition and Risks
A project can be amazing but if competitors are executing in a better way then it will be difficult to achieve long-term success. In this section we identify the competitors within the market and see how the project we are analyzing stacks up.
Network and User Growth
The amount of transactions that a network processes per day is important to look at. It can help us understand if more users are transacting on the network. The maximum number of transactions that can be processed in a given time period will also help us understand the limitations of the network.
Increasing transaction fees can lead to an avoidance of a network. Decreasing or stable fees are a good sign.
Mining or approval distribution determines if the ability to approve transactions is centralized or decentralized on the network. The Herfindahl-Hirschman index (HHI) is a commonly accepted measure of market concentration. We use this to analyze the distribution of approval power in a network. Amounts less than 1,500 means the environment is competitive. Markets with HHI of greater than 2,500 are considered to be highly centralized.
New User Creation
The amount of new users that are adopting the platform is vital to understand. If more people are using the platform and this amount continues to increase over time we can assume that the project is moving in the right direction.
Increasing social media presence can signal wider adoption in the future. As the amount of people learning about the coin and technology increases the more potential consumers there will be to use it. We use CryptoCompare social media statistics to gauge social media presence.
Coin supply can help determine if coin price will benefit from economic principles. A good use case and a limited supply likely will lead to higher prices.
Price and Market Capitalization
Price and market capitalization can help investors understand if a coin is undervalued or overvalued. Generally investors are looking for assets that are undervalued as they are more likely to increase in value in the long-term.
Coin performance over time can help investors identify good entry points. The cryptocurrency market is volatile and understanding how a coin has performed overtime is necessary.