Cryptocurrency reality checks and the coming boom

If you’re thinking cryptocurrencies have been an embarrassing speculative fad full of shady offshore players you’d be largely right – but we are also now arguably at the end of the beginning and moving into a far more interesting era. If you’re also old enough to remember the early stages of the dot com frenzy in the mid 90’s you’ll remember a similar scenario: Outrageously ambitious business plans based on unproven new technology and markets, endless hand waving self promoters and scammers confusing perceptions of reality, cliques of technology experts, VC’s and suits pumping up their market segment positions.

The naked greed and quick buck speculative atmosphere around cryptocurrencies resembles the rapid rise of the web 1.0 dot com era – from ugly, confused and often corrupt beginnings rose the industry that today dominates the world and the financial markets. Just look at mid 1990’s print magazine articles and TV shows – before everyone was on the internet – for evidence.

I recently met with the organizers of next week’s Distributed2018 conference in San Francisco to get their perceptions of where we are after the recent speculative bubble deflations around bitcoin and other cryptocurrencies. In my opinion speculative frenzy has overshadowed far more fundamental shifts in the maturation of a space which in certain important areas is rapidly gaining sophistication, scale and security. The irony of our meeting up to discuss this in downtown San Francisco’s post Amazon retail apocalypse of empty store fronts, victims of the crushing success of the dominant online sales platforms, wasn’t lost on any of us.

Distributed2018 is an interesting event, and a laudable effort to help east to collaborate and share thoughts with west in San Francisco CA, with significant participation from Chinese, South Korean and Japanese conference organizers and attendees. The organizers are striving to create a credible discussion forum nucleus for the serious side of cryptocurrencies, blockchain and smart contract business logic in a world awash with hype, hustle and zero calorie content events.

The organizers feel we have definitely been through a reality check phase around cryptocurrencies, with a lot more hard questions being asked around investment in previous generation of Initial Coin Offerings (ICO’s) and more importantly upcoming launches. Just like in the early dot com days the rear view mirror makes for some pretty bizarre viewing of the routes taken to get to where we are today (misinformation, speculation, hyperbole and mis-steps) but the route forward looks very interesting indeed as the space matures and regulation around the world begins to start to catch up. More importantly, serious financial market interest is building around ‘old money’ onshore regulated investment in credible ventures.

Crowdsourcing – Kickstarter projects etc – were originally a Web 2.0 phenomenon to help quickly fund ventures via lots of small contributions from interested parties worldwide, instead of the slower route of pitching angel investors and venture capitalists. ICO’s crowdsourcing origins subsequently grew to be a mutant monster of this approach, and just like the dot com boom has been driven more by greed than logic with a few exceptions. In my opinion reframing ICO thinking as early stage investment in promising ventures is a healthier way of looking at this going forward, and given the way venture capitalists have been buying the ICO coins of credible start ups to hold stakes in them, this appears to be the way of the future. Many venture capitalists are also now writing restrictions on ICO’s into their terms and agreements in order to protect their early stage investments from dilution.

The hard facts are that despite all the endless hype about innovation and start up culture, venture capital, angel investment and corporate budgeting is inadequate in a world that is moving ever more quickly. Investing in ICO coins or tokens as ownership of ‘early stage shares’ in a business entity you believe in is a healthy VC like approach – and just like VC’s If you don’t understand the business model, stay away. The Distributed2018 organizers agree – the pace of innovation and change worldwide needs a new, more agile digital framework to support the speed at which business opportunities evolve and mutate, and the pace is only likely to get faster.

Taking a long view on the maturity of crypto currencies, the world wide web from its infancy is barely 25 years old, the iPhone ignited and quickly matured the smartphone and apps revolution eleven years ago and Facebook – who this summer are rumored to be contemplating a cryptocurrency payments system for use on their platform via a company wide blockchain platform – only reached meaningful scale (launching ‘like’ buttons etc) around ten years ago.

Bitcoin is nine years old, Ethereum launched via crowd sale in 2014, barely four years ago. The short video above amply illustrates the febrile atmosphere around the hundreds of ICO’s that launched in 2017 – the cause now of this years’ dot com like reality check.

We’ve just come through an initial period of ICO pyramid and pump and dump schemes that have been all to similar to early stage dot com scams. Decentralized applications (‘Dapps’) have had high market caps but low user numbers, with indexes generating significant revenue from speculators. The big shift has to come though, not least to break the current business monopoly of centralized platforms – Facebook, Google, Amazon – with many anticipating tokenized mobile device Dapps will soon be the next big business wave that disrupts the current platforms deadlock.

Now things start to get interesting – remember the old dot com joke about crazy, loss making startup business plans to sell dog food online? Last year – an age ago in the digital economy – Petsmart bought online dog food vendor Chewy for 3.35bn USD. Similarly, ignore the business maturation and evolution of cryptocurrencies at your peril.

Close to seventy percent of the world’s population own smart phones, but currently only one percent of these smart device owners use cryptocurrencies. Facebook and others are sure to legitimize transactional use of their own currencies to defend their moats, but in my opinion the huge opportunity to decentralize business transactions and incentivize consumers to lock into preferential cryptocurrencies is now looming large on the horizon, and a great commercial engine for the ‘splinter net‘ (both positive opportunities for small players and another platform threat from the giant global corporations). Add in the global implications of the parallel digital explosion in Asia to be explored at Distributed2018 this week, and we have a very interesting new wave of change and innovation looming…

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