If you’re exploring cryptocurrencies (cryptos) as a means of payment, it’s important to consider the riskiest cryptocurrencies to accept in your e-store. But with speculation being a driving force of crypto value, how can you evaluate the safety of these coins?
Finding objectivity in the crypto-world can be difficult. Nearly everyone with something to say on the subject also has something to gain. With that in mind, a template that evaluates crypto risk factors can be more useful than merely listening to individual opinions on which coins to avoid.
This past January, an independent agency, Weiss Ratings, applied their 47 years of experience rating stocks, bonds, and funds to the world of cryptocurrencies. The result is the first financial rating agency to incorporate a robust computer model to deliver a ranking system. If you have a smaller operation that can’t yet handle extreme volatility—for example, maybe you sell beauty products from home—you’ll want to determine the criteria for evaluating the riskiest cryptocurrencies to accept in your e-store.
Before we dive into the components that make up Weiss’ system, a few caveats bear repeating
- Contrary to other rating agencies, a B rating is good, a C is fair, and a grade D+ or lower is risky.
- There is no such thing as a secure cryptocurrency.
- Ratings frequently change because the variables used to evaluate cryptos continuously change.
- All ratings are an opinion. Weiss explains that although they base their ratings on objective analysis, they still only tell one side of the story.
- Their ratings are incomplete. There will never be a model that considers all factors, especially in the uncharted territory of cryptocurrencies and blockchain software.
Now let’s take a look at four of the broad criteria that Weiss uses in their evaluation model:
- Risk Index: An evaluation of number and magnitude of price fluctuations over time.
- Reward Index: An evaluation of the returns of cryptocurrency vs. the averages of others.
- Technology Index: An evaluation of the technology behind various cryptos utilizing white papers, discussion forums, and open source code to evaluate the protocols underlying each.
- Adoption Index: An evaluation of transaction speed, scalability, market penetration, network security, centralization and other key factors.
With those components of the model in mind, let’s take a look at what Weiss deemed the 12 riskiest cryptocurrencies as of March 15, 2018:
Note: D = weak, E = very weak, +/- represents upper/lower third of the grade range
One of the reasons the Weiss scale should be considered useful for e-commerce store owners is it provides several benchmarks to evaluate cryptocurrencies to make the decision process more manageable.
While companies like Weiss intend to help the public understand the volatility of currencies, others are entering the market planning to get rid of it entirely. A new startup called Basis has entered the market with the goal of creating a price-stable cryptocurrency. Basis is building an algorithm like all other cryptocurrencies, except it attempts to keep prices stable by algorithmically adjusting the supply. As demand rises, so does the amount of Basis coins the blockchain creates. When demand falls, the blockchain will buy back basis coins. While the team is relatively small, they’re building steam. In April 2018, they received $133M from investors who recognize the value in the promise of a stable and fiat currency with the security and portability benefits of crypto.
In summary, it’s easy to get lulled into the idea that because a particular cryptocurrency carries informed positive opinions, it’s safer than another. For now, every crypto is a gamble. All you can do is get as much information as you can before you decide against the riskiest cryptocurrencies to accept in your e-store.