3 Reasons why I love Crypto Companies

In just the first year that I’ve invested in cryptocurrencies I’ve been down .5x, up 6x, and experienced everything in between. As a startup advisor I’ve been able to watch and learn the processes of fundraising via Initial Coin Offerings, or “ICOs,” Token Sales, and hybrid variations that involve cryptoinvestor and VC investment. As an avid follower of shiny new tech, I’ve seen companies fail to raise legally, become subject to fraud, and raise hundreds of millions in an ICO, only to have to delay launch over lawsuits.

Sure, there’s a lot of hype and overinflated outcomes that can’t last. I’ve never been one to time the market and can’t speculate on crypto’s future market value. And as more institutional venture capital and regulation builds in the ICO market, we are unlikely to see pre-launch founders raise tens of millions of dollars in minutes like they did in 2017, with little to nothing to show for it.

But I get excited about disruptive forces. And when I’m asked why am I excited about Crypto Companies beyond the current hype? I share these reasons:

1.    Because your time, attention, knowledge, and content are valuable, and token economies compensate you for them.

Consider this: Twenty years ago you would not have questioned having to watch television commercials while watching your favorite TV show. But later, with DVR technology, you could skip the ads and watch what you wanted, when you wanted to watch it.

Likewise, 10 years ago bad digital advertising—pop-ups, interstitials—was awful and annoying, but today, with ad blocking technology, you can once again have your content cake and eat it too by literally removing advertising from your experience (to the dismay and disruption of digital media companies everywhere). Technology has proven to always poke holes into business models that rely on old tech, and only the survivors adapt with new business models—just ask Netflix or Hulu, who offer subscription and hybrid ad/subscription models to audiences who have grown weary of advertising.

And think about other formerly disruptive models that could use a refresh. I’ve often asked myself, would Wikipedia have taken off today, now that Blockchain has enabled a decentralized internet? Wikipedia emerged in 2001, even before social media popularized the notion of sharing information with the world. There was a strong ethos of public service in sharing and generous licensing of intellectual property, backed by the desire of a few early movers to generate the sharing economy.

Years into the sharing economy we see its limitations.

As tech mainstreams, the motivations behind it become more commercial. Mombloggers who in 2004 used to gravitate toward discussion boards and offer up free recommendations and conversation didn’t want to offer their time, community and expertise to massive CPG Brands for free. At the very least they wanted links, recognition, connections that will lead to paying gigs, in exchange for access to their platform.

The same goes for app developers, product reviewers, researchers, travel /food/wine aficionados, translators, fact-checkers, researchers, attention-payers--you get the gist. We all could be doing something other than donating our personal assets to growing someone else’s business. We want our two dollars!

The terms of exchange for our intellectual assets are changing; the expectation for compensation (or credit) is real, and Crypto Companies enable this because they compensate users for their time, attention, expertise, and research via tokens.

It will be a while before tokens/cryptocurrency are uniformly liquid or stable, but at the very least “tokenized” companies enable consumers to get some form of credit for their input.

Tokenizing is breathing life into dying industries that over-relied on novelty, public ignorance, boredom, aversion to new tech, or unexplainable generosity to keep them afloat. 

2.    The democratization effect:

I remember what excited me most about blogging in 2004. I no longer had to pitch heavy-handed gatekeepers (magazine editors) to publish my work. I had my own printing press and with my own elbow grease had control over my content and growing my audience. I also had immediate interaction with my readers, who could comment and share out my content in real time.

I wasn’t the only one who felt this way. Millions of content creators published blogs, some for reasons similar to my own. Some because they saw that influential bloggers were making money, and they wanted to as well.

The playing field got very big, and as more “content farmers” and ad bots gamed the system it became harder to stand out, but in this exponentially more distributed environment there was still a sense of control over one’s content and audience growth. The cream--if motivated to learn, market oneself, and develop community--could still rise, despite the bad actors proliferating in the space.

Similarly, you can see why many ICO companies have built a reputation in investor, finance, and regulator circles as undeserved hall passes for inexperienced vapor-ware producers seeking to get rich quick.

In many cases token sales generate millions of dollars of immediate, liquid capital before even an MVP exists, or even a business plan. But ICOs also level the playing field for strong entrepreneurs who are nonwhite, female, or non-friends-of-someone-at Andreesen-Horowitz who need capital.

According to investor Elizabeth Yin, formerly of 500 Startups and now Hustle Fund, ICOs are levelers of the playing field:

"…there’s a huge disconnect in how we fund founders today at the earliest stages... I saw founders who were really awesome, as defined by fast executors with great VC-sized opportunities ahead of them, who just struggle to raise money. This is because these founders didn’t fit what most early stage investors were looking for. Silicon Valley purports itself as being a meritocracy – the “best ideas” and “best people” win. But, it’s not….  

...I am also seeing interesting new fundraising mechanisms crop up really quickly – crowdfunding and ICOs. Both of these fundraising channels don’t require you to go to a conference room on Sand Hill – you raise money online from people who may never have met you in person. I think we will look back on 2018 and say that was the year that everything really started to change."  

Elizabeth, #AGREE!

3.    The endless applications

I was sent a revised business plan from a friend—a strong, experienced entrepreneur who has orchestrated a number of pivots behind his data startup over the eight years of its existence. The new twist: The data capture and processing occur on a blockchain, and validation of the data is tokenized.

I have my misgivings about suddenly tokenizing fully-baked concepts that have had a rough go off-chain, but you can’t blame people for trying. Kodak has staged a transformational comeback via blockchain. Long Island Iced Tea Corp, the beverage company, suddenly rebranded into a blockchain investment firm and its stock jumped.

Serial entrepreneurs I know are building crypto components into their frameworks from the start, in everything from streaming video gaming to wine supply chain.

And established investors are allocating funds specifically against investments in crypto companies. Some, like investor Tim Draper, feel these investments are a necessary hedge on an inevitable future. From an interview with The Information:

“…it is true that probably more than one-third of the companies I am seeing are tied to bitcoin or crypto in some way. My guess is that that number will keep increasing the same way the Internet changed a lot of businesses.”

Initially we see applications that affect those who are early adopters of blockchain and cryptocurrency, but, like the Internet, the applications will become seamless, and with the concept of token generation fully absorbed in the mainstream, crypto-generating activities won’t seem so obscure.

Micheal Reed, Co-Founder and CEO of PracticalXR, a company I advise, is working with AR app developers to map “The Fourth Dimension”, a crowdsourced version of augmented reality. Reed plans to tokenize the data capture of objects and actions, incenting developers to buy and sell their mapping data, and eventually as a currency to be used within Augmented Reality that integrates with others’ online payment systems.

“Imagine this,” Reed says. You pick up trash in your local park, and through an AR app that validates your actions, you earn tokens from the city for helping to clean up.”

Imagine if the time and attention Wikipedia editors put into that platform were tokenized, and users could earn tokens for fact-checking, validating sources, and thereby eradicating fake news.

For all of it’s technical glitchiness and latency, blockchain can be applied to real problems, making it as ubiquitous an enabler as the internet.

According to Tim Draper:

“Now the blockchain can also globalize healthcare, insurance or pension funds or how you handle poverty, welfare, social security, all insurance programs, any government can now be virtually done.”

Many who understand the technology say that ledger technology is slow and resource intensive. So was mobile, streaming video, VR, and any emerging tech. As this tech improves, so will the range of applications to blockchain.

#cryptocurrency, #blockchain, #ICO, #startups, #ElizabethYin