Blockchain assessment: Here are some critical factors to consider

No one can predict the future, that's for sure. But one thing is certain: blockchain technology will be a big part of our lives in the coming years. It has quickly transitioned from a skeptical space that few dared enter, to a burgeoning technology that is seeing adoption across industries.

Therefore, if you are a new investor looking to tap the potential of blockchain technology, it's probably a very good idea. The only catch is that not all blockchains are created equal. Therefore, if you're looking to put your money on the line, a thorough comparison of the options is extremely important.

Not sure how to gauge your alternatives? Here are some factors you can consider.

This is perhaps the first and most crucial factor you need to consider when comparing blockchains. Go through the whitepaper of the project and find out the reason for its existence, the problems it's looking to solve, and the gaps it's trying to fill. The use cases of the blockchain will also indicate its future potential and, therefore, the scope of price appreciation in the long run.

For instance, the Helium blockchain is looking to create a decentralised network for IoT devices, whereas Bitcoin was launched to provide an exchange and store of value that works without any central authority (i.e., banks). Some blockchains are even launched to solve the problems of other blockchains. For instance, a host of 'Ethereum-killers' were introduced to solve the issues that plagued the smart contract network.

There is a vast gulf between blockchains in terms of transaction speeds. For instance, the Bitcoin blockchain is extremely slow. It can process only seven transactions per second (TPS), with confirmations taking up to 10 minutes. Ethereum is a bit faster, with a TPS of 30 and a confirmation time of around 6 minutes.

However, Ethereum 2.0 is expected to hit 100,000 TPS after its transition to the PoS consensus mechanism. Therefore, the future potential of the blockchain is also important. It should be able to scale and sustain its transaction speed, even if user traffic grows in the future.

Every blockchain has a consensus mechanism. This is a protocol that helps validators reach a mutual understanding regarding the authenticity of transactions. For instance, Bitcoin uses the proof-of-work consensus mechanism. This requires immense computational power while confirming transactions and has received a lot of flak over the last few years.

Newer blockchains use the proof-of-stake consensus mechanism. Here, instead of devoting computing power, validators need to pledge the blockchain's native cryptocurrency to confirm transactions. This is way more environmentally friendly than its PoW counterpart and hence a better investment for traders and a viable implementation solution for businesses.

There are several other consensus protocols as well, each with its pros and cons. Some of these may be more viable than others in the future. Therefore, it is essential to evaluate the consensus mechanism of the blockchain before investing/implementing it.

The blockchain project you are choosing should also have a roadmap for the future. It shows that the team has thought long-term about the project. It also keeps enterprises and investors updated about the path the project is taking in the future and helps them determine whether this path aligns with their values. For example, Hyperledger Grid has shared a community-driven tentative roadmap on their website, along with all the features that future releases would include.

Numbers don't lie. Therefore, it is also important to look at the financial metrics of a blockchain. First up is the market capitalisation of the project, which can help you gauge its popularity. You can compare the market cap of the project to that of its competitors to ascertain its popularity.

Next up is the total value locked (TVL) in the project. This denotes how much money is moving around on the blockchain. The higher this number, the more faith users have in the blockchain. You can also look at the price movements of the blockchain's native currency. Historic price movements could give you critical insights into future performance.

It would also help if you also looked into the team behind the project. The previous credentials of the minds behind the project can give you a good indication of its potential. However, dubious personalities or pseudonymous identities might be potential red flags; these projects are best avoided.