The Long View of the Blockchain, Cryptocurrencies and ICOs
Everything and anything that has value will eventually be tokenised. I believe, that what HTML has done for content, Blockchain will do for value and all its related transactions. This is the evolution of the internet to "Internet 3.0." It is inevitable, and in my opinion, unstoppable.
Today, the token economy of the blockchain, represented by its various cryptocurrencies, is worth more than US$400bn. The future has already arrived. Its speed of adoption is catching many of us and governments by surprise.
Why the speed? Because this twin potent force of it being both a public decentralised technology, and the representation of digital currency - led initially by bitcoin and then the growing category of alt coins - has fuelled the rapid ascent of blockchain and cryptocurrencies onto the global stage.
The blockchain is nothing without its token economics, and it is this intertwined "technological-economic" mix that explains its rapid rise and adoption as a public infrastructure.
I note that not everyone agrees with me on this, citing that the blockchain alone is itself a technological breakthrough, but bitcoins and cryptocurrencies however are essentially "worthless," "not real," and downright "evil!"
Interestingly, we see very smart and experienced people on both ends. Indeed, the world is in a dilemma as the tussle between the believers and the non-believers wages on. The debate essentially swirls around this ideological difference.
One thing is clear though. History has shown that all innovation and wealth creation is first led by over enthusiastic speculation of its future and potential. In this climate, some will boom and others will bust, and it is the natural cycle of any significant technological and economic innovation. Put simply, investment will get ahead of actual fulfilment. In this case, the token and cryptocurrency further fuels risk taking. But over time, it will evenly spread out, and things will stabilise and reach its maturity.
But today, the blockchain and its cryptocurrencies, while in its infancy, are real and will become as disruptive as how fast and furious it has come to life. The amount of investments, funding, talent and number of startups, corporations and educational research and development involved in this field at a rate not quite seen before is proof enough that it's here to stay and grow.
This has frankly taken most governments by surprise. The regulations of many countries have yet to catch up with its adoption and growth. Governments are grappling whether and how to regulate, whether to ban it or adopt its development. Will over regulation stymie their chance to become a technological and financial tech centre? Or will insufficient regulation lead to public harm? For sure, it's a difficult decision to balance and simply points to the impact this disruption brings, worsened by the confusion of this "technological-economic" duality.
One very experienced banker I spoke with said it best about adopting cryptocurrencies and supporting initial coin offerings (ICOs), even if our regulators were not outright banning them, it is a "damned if we do and damned if we don't situation." In many quarters, suffice to say, we are surely in a moment of limbo.
As such, without clear signals from regulators and endorsement from incumbent financial institutions, this will certainly dampen public scale adoption. Specifically in terms of ICO investments and the ability to exchange fiat to cryptocurrency, and importantly vice versa, most of the public will be unable to invest or exit easily.
And yet, as useful as this is a question, the more interesting question is why then are we witnessing the largest fund raising by ICOs for blockchain projects, and the demand for it?
In terms of funds raised for blockchain related projects, ICO's delivered 3.5x more than venture capital funding, to a tune of US$4.5 billion over a 14 month period from 2017 to 2018, according to a report by TechCrunch.
The answers to that will certainly bring insight to what is missing today, and hence a multi-billion dollar opportunity and a chance for countries to leapfrog.
In fact, ICOs raised US$6.3 billion in the first three months of 2018, more than the whole of 2017 and a 118% increase, according to data collected by CoinDesk. This certainly debunks any myth that ICOs are going away.
So what do we think will happen?
Many ICOs offered by startups will fail. Some reports indicate that about 60% have failed in some form or fashion, and we believe it could go as high as 80-90%. This is not an uncommon benchmark for most early stage investing. So we would like to caution buyers to beware.
Like any startup or business, one would need to look into the addressable market size, the value proposition, the defensibility of the business model, the experience of the team, and the traction or validation of its product to the market.
And yet, why the attraction for participation in ICOs? In short - equal access and ease of participation.
Last year, I invested in one of the major ICOs of 2017 called Kik - a chat messaging platform - with their Kin Token offering. They raised US$100m from both a private and public sale. Their public token sale attracted over 10,000 buyers each spending an average of US$5K, for a total $50 million.
Kik is a good example of the mass participation that ICOs can offer. The ICO and public blockchain enables a decentralised and cost effective platform to reach out to the public, something not available in the past. The small amount of each investment, literally from hundreds to a few thousands of dollars, provides a wide base of participants and a risk-reward return usually not made available to retail investors. Hence the growing popularity and demand from certain segments of the market.
Interestingly, from much anecdotal evidence, it seems that the millennials have most embraced this asset class. I hazard a guess that they see this as a class of asset that they are most digitally comfortable with, and with the risk-reward return and affordability to invest small amounts of their discretionary funds with.
ICO's are here to stay. Regardless of government bans on exchanges and banks reluctance to support such transactions. The future will be a world of multi-tokens representing digital value on the public blockchain. As the world shifts to a digital token economy, this asset class will naturally rise in usage and value as a whole. I foresee that we will head from a fiat currency to multi-token currency economy, facilitated by token to token exchanges in the not so distant future. It's the inevitable path to a digital economy.
What will happen is that successful ICOs will become better in quality and raise even more funds. Investors will become more discerning, new rating and analysts reporting will emerge to guide investors, and new iCrypto Bankers will emerge to help filter and guide startups in their ICOs, building up their reputation on their selections and the track record of their buy-sell recommendations.
As more institutional funds pour into ICOs, it will also bring in more expertise and governance to this industry. So, the future of ICOs is bright as it finds its steady state and market fit.
This is one of the reasons I am backing and invested into a travel blockchain startup called WeGoGo and its WeGold token. I believe the best way to shape the future for the better, is to take part in it. As inventor Alan Kay once famously said "to shape the future, invent it."
The founders of WeGoGo have identified a large market opportunity (the booming Chinese millennial international traveller) that will be worth over $37 billion by 2020, and have developed a value proposition and business model connecting these 100-200 million travellers over the next few decades to the long tail of aspirational travel experiences. WeGoGo's pioneering peer-to-peer model for discovering and promoting small travel providers and their activities through their "pathfinder fair-share" economic model is ground breaking.
And so I am very pleased to being the lead investor and backing an experienced team of entrepreneurs, financial and technology leaders in WeGoGo and WeGold. Their US$88m ICO to build a fair-share travel platform for the long tail of travel is bold and visionary. The size of the funds raised is to match the size of the market opportunity of US$37 billion (activities and tours segment in Asia) and to create a sufficiently vibrant token economy through its WeGold offering. See this article.
We believe that travel is an area very ripe for blockchain applications and the shift towards a token economy. The large amount of cross border payment and currency usage in the tourism industry as well as the high fragmentation of the industry, is a natural domain for moving towards a public blockchain network that will bring down transaction costs, and offer more seamless interoperability. See the following article.
As we bring better projects and robust business models to the blockchain, we will help shape a better environment for ICOs as a legitimate method for fundraising.
Although scams and startup failures will continue to exist, there is no reason to not step up and offer better alternatives. I am most excited by that higher purpose, just as my fellow WeGoGo founders are excited about creating a fair-share travel economy and making the long tail of travel better. See this Medium article.
To sum up, we believe all value will be eventually tokenised and decentralised on the public blockchain network. The lower costs and ability to transact safely at much faster speeds over a public network, will be a primary driver of its value proposition and eventual global adoption.
Aside from speculators, there is long term value in holding on to cryptocurrencies and tokens. For those who believe like we do, cryptocurrencies and tokens are the future of digital currency and digital economies. Their value will increase over time as the world's value shifts more to the digital form. But buyer beware. Do sift out the good from the bad. It's still the Wild Wild West out here on the blockchain.