When it comes to traditional asset classes such as stocks and precious metals, this much is certain: they have an impressive track record historically speaking, so investors have most definitely had ample time to understand the pros as well as cons associated with them. Stocks have been traded for hundreds of years and when it comes to let's say precious metals, the track record in question is even more impressive, with for example gold having been considered valuable for over 5000 years.
The exact opposite is valid as far as digital assets such as domain names or cryptocurrencies are concerned: domain names have only been used in the commercial sense since the nineties as far as the broad public is concerned and when it comes to cryptocurrencies, the first ever cryptocurrency (bitcoin) appeared back in 2009 (barely over a decade ago). As such, a valid case can be made that investors are still figuring out what the short as well as long-term selling points of pretty much all digital assets actually are.
Let us start by analyzing domain names and refer to the most popular selling points.
On the one hand, we have memorability or to put it differently, a good domain is considered to be one that can be easily remembered. Among domain investors, it has become quasi-axiomatic to state that domain names have to pass the so-called radio test, or in other words someone who were to be exposed to the domain name in question during a radio show needs to be able to easily remember it. Needless to say, the domain should be short or relatively short if possible, should be easy to spell in light of the fact that the average person is a pretty awful speller and the list could go on and on.
Another popular advantage associated with a good domain is represented by the fact that so-called exact match domain names will give those who use them for websites certain search engine optimization benefits. For example, if you want to rank well for the term "cheap car parts," using the domain name CheapCarParts.com for your website would be advantageous from a search engine optimization perspective.
An important question arises: which of the two benefits is something we can consider a long-term edge and for which would it be better if we simply treat it as a short term advantage with not that much in the way of long-term guarantees?
Answering this question in an intellectually honest manner is important because as an investor as well as developer, it would be wise to have a firm grasp on what you are buying and why you are buying it.
In our case, it should be fairly obvious that memorability represents the long-term selling point. Right from the very beginning of the commercial internet, domain investors such as Michael Saylor understood that a good domain needs to be memorable. As an example related to Michael Saylor from MicroStrategy himself, he purchased the domain Strategy.com among other reasons due to the fact that by using such a domain name for your email address, it is easy to be remembered by business partners or potential business partners you come across. For example, if a business meeting goes well and you instructed the other party to contact you at the email address email@example.com, the likelihood of the other party remembering your email address is considerably higher than if you would have used an ultra-complicated email instead (something along the lines of firstname.lastname@example.org). A valid case could be made that people understood the importance of this particular advantage associated with good domain names even before the era of websites, back when the internet was still primarily used for sending emails back and forth.
Perhaps the best aspect associated with this advantage is represented by the fact that the memorability of the domain name is not something that can be taken away. If you own Strategy.com, then that ownership is set in stone (barring game-changers on the legislative front, but those tend to be quite unlikely and go beyond the scop of this article) and there is no entity that is likely to appear in the future and for example make your domain name longer without your consent.
In stark contrast, we have exact match domain names that used to be extremely popular due to the fact that those investing in them believed using such domains was a surefire way to secure impressive permanent SEO benefits. Unfortunately, this has proven to be an overly optimistic perspective and right from the beginning, it should have been clear that the exact match domain name advantage should not have been treated as something that is set in stone.
For the simple reason that you are depending on an entity you have absolutely no control over, in our case a search engine such as Google. Yes, it is true that search engines used to reward websites that used exact match domain names generously and that amazing short-term business models ended up becoming very profitable for precisely this reason, but there was always the looming threat that needed to be factored in represented by the fact that search engines could simply decide to change their algorithms.
Unfortunately for those who thought that search engines would never change course, exact match domain names have lost a fair bit of their luster in terms of engine optimization-related advantages. More specifically, while owning an exact match domain name is still better for search engine optimization purposes than not using one, the positive effect in terms of search engine rankings has been greatly reduced over time.
The lesson which should be learned is fairly straightforward but extremely important to the point of vital: when you are buying a domain based on memorability, there is significant piece of mind associated with knowing that this advantage is here to stay and cannot simply be taken away. As far as exact match domains are concerned, you simply need to understand that the exact match advantage is much more volatile. This doesn't mean the exact match domain name advantage is completely worthless, it simply means it is not permanent and you should adjust your business model accordingly.
The exact same principle is valid when it comes to cryptocurrencies and pretty much all other digital assets.
Why is it so important to have this clear distinction between advantages in mind?
Primarily because when investing in digital assets as opposed to traditional ones (again, in terms of historical track records), you oftentimes have to do your own homework rather than rely on what others have done throughout history. Think of it as blazing trails rather than comfortably using roads that have been built many generations before you. On the one hand, those who blaze trails tend to be rewarded far more generously compared to those who stick with the beaten path. On the other hand, however, there tends to be a fair bit more legwork involved if you want to do it right and far less in the way of certainties.
If you are the type of investor who needs content hand-holding, you will probably have a fairly difficult time getting adjusted to digital asses. If, however, you are an independent critical thinker, you will treat these uncertainties as a fascinating challenge rather than a drawback that keeps you up at night. We can easily imagine a similar process when it comes to for example bitcoin.
Those who invested in the early days, when there was little to nothing in the way of infrastructure, did so to a fairly large degree because they found the long-term advantages such as censorship-resistance interesting. In other words, they loved the fact that they were in complete control over their asset and that there was no middleman such as PayPal or such as a bank that could simply step in and take the asset in question from them.
As time passed, other advantages started appearing, such as the fact that you could trade ultra-speculative cryptocurrencies on derivatives exchanges and potentially make a lot of money. But in this case, just like with exact match domain names, you are dependent on certain entities that could implement measures which affect you. For example, over in the United Kingdom, crypto derivatives trading was banned for retail traders this year. This example and many others make it clear that for the most part, short-term advantages come with greater degree of so-called counterparty risk. More specifically, the fact that an entity you have absolutely no control over such as the FCA over in the United Kingdom can implement a measure which affects your entire business model.
To conclude, there is absolutely nothing wrong with basing decisions on short-term advantages associated with digital assets if you are a trader or business with a short(er)-term business model. But if you prefer making investments that you do not touch for an extended period of time in an effort to build a relatively hands-off portfolio where you do not have to constantly remain glued to your computer screen so as to be on the lookout for new developments, it makes sense to put long-term advantages rather than short-term ones a pedestal.
At the end of the day, this is common sense advice but it's downright depressing the see how many investors simply ignore it. They fall in love with one shiny short-term advantage or another and end up building narratives in their mind that ultimately lead them down the wrong path. The difference between a successful investor and an unsuccessful one is oftentimes not represented by aspects that are in the realm of rocket science. More often than not, it's the absolute basics that make the difference between succeeding and failing, basics such as understanding the difference between long and short-term advantages. Or, if you will, the importance of knowing what you're investing in and why you're doing it.