Across the globe, bitcoin and blockchain investment deals in 2015 grew 32 times over the five deals reported in 2012. The amount of financing reached $550 million by 2016. This accelerated growth–notably in the last few years– in global bitcoin and blockchain financing trend was recently reported by Business Insider.
Are cryptocurrency and blockchain technology a fad, or a new and more efficient way to buy goods and services, or even fund startups in a society that is becoming increasingly digital?
MITCNC has invited a panel of experts, consisting of technologist, entrepreneur, VC and investor to share insights into blockchain, bitcoin, cryptocurrency, and Initial Coin Offering (ICO), as well as to weigh in on the pros and cons of this type of currency and its underlying technology.
I have had the pleasure of talking with the moderator, Jake Seid, managing director of Stone Bridge Ventures. Jake has given us a preview of the panel discussion and will expand on the details at the upcoming event.
Anna: Hi Jake, thank you for taking the time to speak with MITCNC Blog. Who should pay attention to the blockchain technology and cryptocurrency, and why should they care?
Jake: Good question. I think the topic of blockchain, cryptocurrencies and ICOs will be relevant to a very broad set of people. If you’re a consumer, a B2C or B2B entrepreneur, or an investor I think this panel discussion will be relevant.
Anna: OK. Let’s start with the consumer.
Jake: One way to look at bitcoin is as the next “store of value,” like gold, but in many cases more portable, divisible and accessible than gold. For example, a consumer—where the value of their fiat currency is being inflated away— the store of value function and the benefits vs. gold above becomes important. Other cryptocurrencies might be more focused on use cases that are more currency like or that provide access to distributed services or applications. Cyrptocurrency transactions make use of a ledger that’s distributed across a network of computers so there’s no central authority.
Anna: This means we have to “trust” bitcoin to hold its value. How should a consumer evaluate its risk and reward?
Jake: Here’s how I look at it. Robert Shiller, the Noble Prize-winning economist who famously called the housing bubble, calls Bitcoin a fad. In the same breadth, he calls gold a fad, but it’s a thousand-year old fad. He says the price of gold is much greater than it should be if it were priced purely based on its utility. We are willing to pay for a certain amount of gold because the community agree that gold has value. Look at Leonardo da Vinci’s painting of Salvator Mundi; it was sold for the record-breaking bid of $450 million at Christie’s. Gold, or art—there are market places that agree on value. Relative to gold and art, Bitcoin is in the early days of building its community, but that community isn’t insignificant and it’s growing rapidly.
Anna: I’m going to switch gear and ask you about the risk and reward for entrepreneurs using cyptocurrency and blockchain.
Jake: Cryptocurrencies have been very valuable to entrepreneurs seeking capital to fuel growth without giving up ownership and control. The token sale is non-dilutive: entrepreneurs have raised billions of dollars without giving up any equity. What many casual observers don’t realize is that companies not only get the money from their initial coin offering (ICO), but they also have the value on their balance sheet from the coins they minted but didn’t sell. That could be a multiple of what they raised in their ICO. Beyond money, it helps companies rapidly build a community around their project. This is all very transformative relative to not that many years ago.
Anna: To help some of our readers understand “token sale,” let’s talk about the mechanics of it for a moment. We’re seeing blockchain-based startups using initial coin offering to raise funds. Anyone interested in a given blockchain project and want access to it can do so by sending the company some money–usually in the form of bitcoin. Instead of getting “shares” of company stock in return, they will be getting the equivalent amount of tokens.
Jake: Right. Buyers/investors look at this as an investment in an asset class. Through this vehicle, entrepreneurs can raise money and build their products.
Also, in an open source community, developers contributing code to building products used to do it just for reputation. In blockchain-based companies, entrepreneurs can pay them with tokens–as an added incentive–without giving up equity.
In the scenarios above, there’s no dilution. Entrepreneurs would see a higher return if they have good products—because they are keeping more of the equity.
A key thing to note is that the regulatory landscape for an ICO and trading tokens is still early and evolving, and it varies by country. Fortunately, we’ll have one the country’s regulatory experts in this area on our panel as well.
Anna: And for folks interested in investing in blockchain-based companies, what would you tell them?
Jake: This type of investment is a high risk, high return game. To be clear, the startup risk is the same. Is the market ripe for the product, and is the product intrinsically sound? Does management have the ability to execute?
Anna: Any closing thoughts?
Jake: We spent a lot of time talking about the financial aspect of cryptocurrencies. There are a lot of tech and non-tech companies thinking about how to use blockchain technologies in very innovative ways. That’s a key part of what we’ll explore during the panel. For companies large and small, how can blockchain and tokens make their business and products intrinsically better? What types of companies and products are best suited to adding this new approach successfully?
We have some amazing panelists and we’ll have a chance for attendees to submit questions for me to use and ask questions live during the event.
In the last year, bitcoin grew with more than 1100%, hitting an all-time high of over $8000. Shiller who correctly predicted both the high-tech and housing bubbles in his “Irrational Exuberance” calls bitcoin a fad.
What do you think?
Bring your questions to Jake and the panel of experts.
Wednesday, Dec 6, 2017
6:00pm – 9:00pm
Intercontinental, San Francisco
888 Howard Street
San Francisco CA 94103