Crypto Currencies, Blockchain and the ICO
Crypto currencies are a digital currency that uses encryption techniques to regulate the creation of currency and verify the transfer of funds, operating independently of any central bank. They are built on top of a Blockchain, which is a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly.
While not exactly new, the Blockchain and Crypto currencies may be hitting critical mass and are now simultaneously upending multiple industries. They will eventually disrupt almost all industries. The ICO may be it's first "Killer App".
The world of finance in particular is directly in it’s line of sight. Because token holders need only hold private keys to guarantee custody, it means that as this progresses we will not even need a bank to hold our tokens/coins/currency. The long run value of "intermediaries" like banks is now in question. This totally changes our behavior related to money and property rights. With Coins, the international blockchain is the arbiter of who possesses what property.
Blockchain by it’s very nature is to disrupt. It is the essence of the “Hacker mentality”. It has it’s own political and ethical standards already...that was essentially birthed out of the Great Recession. It may not be coincidental that it began as a Libertarian “movement”. Many of the original BitCoin and Crypto adherents tended to lean a bit towards the anarchist perspective. If the result of Bitcoin's success was to completely disrupt the banking system and "democratize" money, then they were on the right path. That path is becoming evident.
It is changing how governments act and react. It is changing the balance of power in industries and in fact putting far more power in the hands of the individual than ever before.
Many in that community would agree that Blockchain is moving us from a centralized world, to a decentralized world and ultimately to a fully distributed world. We are already seeing this in the new economy anyway. Sometimes called the "sharing economy", the likes of Uber, Lyft and AirBnB and many others have set the stage and prepared us for this trend towards a "distributed economy".
The establishment of Bitcoin as a real, fungible currency, after nine years is all the proof we need. But now we have the first “killer app” for Blockchain. That is the “ICO”, or Initial Coin Offering. Led by Ethereum and it’s Offering of Ether, there have been dozens of “alt” coins offered in recent months. They all purport to deliver a utility with their Coin or Token. This “utility” is the use case and value proposition of the coin in a business endeavor. These companies offer Coins for sale in a crowdsourced offering to the public. Many have skyrocketed in value(and many to immediately crash back to earth). But, nonetheless, tens of billions of dollars have been raised to date. This is the “Crypto Craze”.
These Crytpo coins that trade on global exchanges such as Ether, Tezos, LiteCoin and the dozens of others have a market capitalization of more than $100bb USD equivalent. This is no longer a small, fringe market. Real, established VC firms are involved and now investing. Companies are adopting these currencies and even the likes of Goldman Sachs has been granted patents in this category. There are new banking consortiums that are banding together to establish alternative ledger based Blockchain systems. Some of the worlds largest corporations such as Daimler have issued securities (bonds in this case) on the blockchain to great success.
This genie is out of the bottle. As crazy as the ICO phenomenon appears to be, all technology “movements” begin with hype. The bigger the initial hype, the bigger the long run opportunity. In fact, you can predict the scale of the future opportunity directly by the scale of the initial hype of a new technology. To this person’s eye, the level of hype here is on path to grow beyond what we saw with the first Internet bubble in the 1990’s. In fact, I think that this phenomenon will grow far larger.
Why might that be the case? As the internet affected all of us, the Crypto craze will as well. The “decentralization” and mass collaboration that I discussed magnifies the opportunities and thus the number people that the hype touches. This is not just a U.S. phenomenon, but could be argued as PRIMARILY a global phenomenon. The early ICO's are being launched outside of the US, from Singapore, Switzerland, and Japan to name a few. This provides new capabilities to the nearly 1/3 of the world population does not have a bank account, with crypto - bank accounts are not needed. Barriers to entry of new businesses will continue to fall. Ability to raise and move capital becomes faster and easier. All assets or property ends up on the blockchain, thus of permanent record and far less capable of fraud. This brings confidence to the system. The sharing economy moves from "appearing" to be sharing but actually centralized (Uber has captured a massive $65bb in value from providing their services) to fully distributed where that value becomes distributed among the constituents.
Unfortunately any capital creation machine attracts the worst kind. And there are many frivolous and shady players already offering ICO’s and Coins. But this should not take away from the shear magnitude of the opportunity. Tread carefully and do your diligence. Expect massive volatility. When the dot.com bubble burst there was over $2 Trillion dollars lost...by just the top 280 internet companies. But 15 years later, the internet itself is far bigger than ever, and more important.
So, this genie is out of the bottle. It is casting spells on millions of would be entrepreneurs, investors and scam artists alike. The trick will be to not miss the long run opportunity for the quick buck. But no matter how massive the volatility becomes in this space, keep an eye on it because this is going to be big.