The first question you should ask about every new cryptocurrency

It is easy to fall victim to the urge to jump on each new coin. The hype around an Initial Coin Offering (ICO) is usually enough to drive even the most sober investor to distraction. But before you jump on any coin you have to ask yourself at least one key question:

Does this idea really need a Blockchain solution?

Cryptocurrency and the Blockchain are currently hot buzzwords in the online communities. Consequently, a lot of people are flocking to the “Bitcoin craze”. But not every idea is a good fit for the blockchain, and not every inventor is totally honest with themselves or others. You need to decide for yourself if a given idea makes sense running on the blockchain. And for that you need to understand the key idea of the blockchain.

The blockchain is a verifiable record of transactions

There are a lot of features the blockchain can provide, but the core concept is that of a verifiable, public ledger of transactions. Note that complete anonymity and privacy are not central to the concept of the blockchain. Specific coins may (or may not) implement some for of anonymity/privacy but that’s not usually the default. If a given problem does not benefit from a verifiable, public record then it’s probably not ideally suited to the blockchain. There is also no rule that the transactions are financial of nature — any sort of small, informational data could be stored on the blockchain. Butthe blockchain does not easily substitute for decentralized database, the information storage capabilities are inherently limited (i.e. the whole Segwit2x situation in BTC).

Some ideas are just a bad fit

Take an somewhat absurd example. Comic Book Coin (CBC) a cryptocurrency to handle comic book sale and distribution via the blockchain. Anyone creating a comic book could accept payments through in CBC and send the comic books to subscribers using though the CBC blockchain. This idea is flawed because of two reasons: file size and redundancy. First and foremost, comic books are relatively large files. Most blockchain solutions only handle a few megabytes of data in a block (1-8MB). Also publishers don’t really need or want the books themselves stored on the blockchain. Second, there are already plenty of cryptocoins that allow for online payments. This idea isn’t really well suited for its own coin.

But wait!

There is an easy fix to the CBC cryptocurrency that makes it seem like a much better idea. Instead of using it for sales and distribution, simply use CBC to track subscriptions (and possibly payment). Now the first issue is no longer a problem, since distribution of the comic books can be handled in any traditional way (web download, postal mail, etc). Payments could be handled with BTC or other coin, but maybe CBC could be used as well. But the real win is to handle and track subscriptions using the blockchain. Now publishers can easily create a list of accounts that have paid for the current issue. Advertisers have a verifiable way to determine the popularity of each comic book. Customers can discover other books read by people who subscribe to the comics they already like. Understanding the nature of subscriptions to comic books does make sense as a public record of transactions, and it might be a worthwhile investment. (If someone does this, don’t forget to cut me in).

So before you put your hard-earned cash behind the latest ICO fad, remember to ask yourself: does this idea really need a Blockchain solution?