Blockchain is too complicated.
It’s too volatile to the outside world
It’s too complicated.
ICOs are risky businesses on top of a risky currency
HUGE risk business on top of HUGE risk currency is not a sound investment strategy.
“Every dog has fleas” is a saying I use with increasing frequency in business conversations. This takes that to a whole new level.
This piece explains why it’s inevitable for blockchain to become a $100 trillion industry http://authenticid.co/identity-insights/when-will-the-blockchain-economy-reach-100-trillion/, noting what the current constraints are on that path. And the constraints are many.
It came to mind earlier this week when I was talking with an investment banker about the ICO of AuthenticID (http://tokens.authenticid.co - which I am told is under consideration for the “Best White Paper of the Year” award from Smithandcrown) he talked about how investment banks tend to deal with a certain amount of risk when they talk with their investors – but that the current ICO market is so volatile, risky, and uncertain (not to mention unregulated) they are not quite sure what to do with it.
What’s the real problem?
There was a thread earlier in the week about some comments from JPMorgan Chase CEO Jamie Dimon – he said “bitcoin is a fraud” and that drew a lot of attention. On Reddit, where I posted a blog, some people pointed out that he did not mention blockchain or Ethereum. At first that reminded me of a Saturday Night Live skit when the first cigarette company (Chesterfield) to admit in front of congress that smoking causes cancer – the SNL team joked that the rest of the cigarette manufacturers said “YES – Chesterfield cigarettes cause cancer.”
There are a couple of basic problems (mentioned in the article above), but there are a couple of other really big ones.
One of the problems is this 585% number. Google search results show Bitcoin is 585% more common, as a word, than blockchain or Ethereum, even though by most views, bitcoin is an outdated currency model (which is why most ICOs are on Ether tokens).
The bigger problem ties back to my investment banker friend – who talked about risk and volatility. While those sound like boring banker terms that entrepreneurs like you and I shrug off every day, at a simplistic level – in this case - it can be easy to overlook why this is a big deal.
We tend to talk about the Civic CVC tokens and the AuthenticID tokens because even though they are ultimately complementary services, they are both in the identity space. Back in the internet bubble days of 1999, it would have been no contest. Civic hasn’t written a line of code for a narrow piece of the identity verification (IDV) space, whereas AuthenticID is already a global company with Fortune 500 clients and a far more comprehensive identity solution. In the world of venture capital – AuthenticID can and would go in with a very high valuation and have a pretty easy time raising money – and Civic would be happy to get $1 million for an A round. So why does the Civicplatform subreddit have over 3,000 followers and AuhthenticID has less than 100? Why did Civic already have a hugely successful ICO?
It’s because of the internal blockchain enthusiasm for Civic. It’s the bubble no one is talking about.
WHY RISK MATTERS
Anyone who knows anything about risk and business and venture capital gets the “normal” idea of risk for that world. The same is true for investment banking – there’s a basic scorecard of team experience, addressable market, constraints, and risks that most VCs use as a formula. Right now the only formula in ICOs is popularity which usually comes from a different scorecard – do these people get blockchain, do they understand the incentives/tokenomics models? Those are two very different sets of questions – and that’s one reason VCs aren’t spending so much time with the ICO companies.
SO WHAT’S THE BIG PROBLEM?
The big problem is the 585% number mentioned above. When people were building businesses on the internet – that was a sure thing – there weren’t different internets to build different businesses on and those internets weren’t their own highly volatile currencies. That’s what we have with the 585%.
There are these massively unstable currencies, bitcoin is by far the most talked about, and people are creating these ICO tokens (which are as volatile as any internet startup) and attaching them to these massively volatile currencies. At the end of the day the US dollar, since it went off the gold standard, is no more “safe” than bitcoin – in the sense that it’s not backed by anything, but that’s the subject of another blog.
HUGE risk business on top of HUGE risk currency is not a sound investment strategy. That’s what a model like Civic is. Even though AuthenticID is a comparably low risk business – it’s still on a HUGE risk currency at this point – and that, my friends, is the real problem in all of this.
The solution really lies in the link at the top of this piece. The currencies need to stabilize and the only way to really do that is more regulation and a core part of that is adherence to KYC (Know Your Customer) models to add trust to the blockchain.