19. Market Size
One of the overlooked red flags when evaluating a cryptocurrency is the market size. There are a host of coins that are specific in their target market. While capturing a niche market is not an issue, it has become clear that many coins overlap in a way that a more general coin would be preferred in the future. Imagine if there was a coin for buying bread. This might seem like a good investment due to the large market size, until you think about having to use separate currency just for bread. Why not have a more general grocery coin or better yet a general currency? The more general purpose a coin, often the easier it will be to become adopted. People dont want to switch between hundreds of coins throughout the day every time they want to buy bread, get coffee, download a video, play music, go to the car wash, or shop for clothes. Having a different coin for everything is unsustainable.
20. Need
The first of these insights is coming across coins that dont need to exist. If a blockchain doesnt solve a problem, then it doesnt need to be a coin. Dont be fooled by convoluted problems that are simply concocted so the coin can pretend to solve a problem. Simply put, many things still need to be centralized. Most things dont need to be private.
21. Complexity
The world is a complex place. If a coin makes the world more complex instead of less complex, this is a sign that the coin doesnt have a strong purpose. The future of cryptocurrency should be one that unifies markets instead of dividing them.
22. Ponzi Schemes
If it sounds like a Ponzi scheme, its a Ponzi scheme. There are no such thing as guaranteed gains, there is no such thing as free money, everything comes at a cost. When a team markets their coin as something that only increases in value, run as fast as you can. The closest thing to free money in crypto are air drops and forks. Although they appear free, remember that there are a complete separate set of risks and potential scams that are involved with forks.
23. No Hard Cap
There are obvious exceptions to this rule, such as Tethers, but as a general rule, be cautious of coins that dont have a hard cap. When a team can freely mint new coins or increase the total supply, your coins lose value. The reason is quite simple. Without knowing how many coins can be minted, there is no basis for evaluating the future growth. At any moment, the circulation supply could be increased, diluting your share and stealing value from your holdings. Essentially, the team transferred some of the value you were holding back to themselves.
24. Distribution of Funds
Its generally okay for a team to allocate some of the tokens or coins from the ICO to themselves. At the end of the day, the coin will take years of development to accomplish its mission. Essentially, development never ends. There is always something new to build. Whats not acceptable, is when a coin has large portions of the total supply allocated to the team. Allocating 5% to the team is reasonable. Allocating 25%-50% of the total supply to the team is incredibly unreasonable. Imagine if Satoshi Nakamoto allocated 50% of the total bitcoin supply to himself. Not only would he have the highest net worth right now on the planet, it would be likely Bitcoin would crash because nobody wants to own an asset that is almost entirely owned by one person or one group of people.