I’ll Buy Your Coin But What Do I Get For It?

Cryptocurrencies i.e. currencies with no central authority guaranteeing its value is a hot topic these days. It started with Bitcoin but now everyone seems to want their own. Cryptocurrencies are powered by Blockchain which is also why we’re now taking a look at them as part of the series Blockchain Opportunities And Risks For Finance. In more specifics, we’ll be looking at ICOs (Initial Coin Offerings) which is the cryptocurrency version of an IPO (Initial Public Offering) where a company sells a part or all of its shares on a stock exchange. The reason we’re looking at ICOs is that it’s an alternative way of funding your company which means that Finance would be directly involved.

To get some insights into the topic I’m this time introducing to you Linas Beliunas, a FinTech enthusiast aiming to drive the financial world forward with the help of technology. Linas currently is a key account and project manager at Contis, and an advisor at Micromoney.

Now in this series, I interview people working with or involved with Blockchain yet when I asked how Linas is involved his answer surprised me because he writes a lot about Blockchain and is very knowledgeable about the topic.

“My work (or job) doesn’t involve blockchain. At least not right now. However, I am really interested in this technology, hence, I try to explore it to the best of my knowledge and get to grasp all the future potential that it holds.”

My surprise was also due to Linas working with FinTech and given that the application of Blockchain is definitely coming to the financial sector I would have thought that FinTech and Blockchain were a match made in heaven. However, Linas expanded on the connection.

“Many start-up companies powered by Blockchain are indeed in the FinTech sector, however, you can’t just take your existing business model and move it to Blockchain regardless if you’re in FinTech or not. You need to carefully evaluate if Blockchain will work for you otherwise you might just be doing more harm than good”

So Linas, just like me, is to some extent an outsider looking in on what Blockchain might be bringing us in the future. One of these things (which is already here) is ICOs, cryptocurrency funding which we’ll now dig further into.

I give you money and you give me what exactly?

In simple terms in an ICO a company, a project or a DAO (Decentralized Autonomous Organizations) issue coins or tokens in exchange for FIAT money like USD or other cryptocurrencies such as Bitcoin or Ether which the company can then use to fund its activities. Now instead of holding a publicly listed stock in the company you hold coins or tokens giving you an ownership share of the company. And just like when you own stocks the coins can increase and decrease in value depending on how the company is doing. And we’re not talking small money either although it’s not competing with IPOs by any means yet.

In total 1.6 bUSD have been raised so far with Ethereum having the largest market share of the ICOs. It’s clearly taking off right now and you can see in 2017 alone the cumulative value of ICOs has quadrupled. Like we discussed last week in “What Stance Will Finance Take On Blockchain?” there could definitely be a bubble in the market and now Linas also weighs in on the topic when asked whether or not we need regulation to control businesses enabled by Blockchain.

“This is a must. Look, for instance, at ICOs. There are a lot of worthless ICOs with shady, if any, business models, and only a whitepaper as a business plan/strategy. Yet, companies raise millions. This will burn a lot of people before proper regulation, which is essential, kicks in.”

According to Linas, it looks like the ICO/Blockchain/Cryptocurrency frenzy is also starting to hit the boardrooms and management teams.

“…on a corporate level, this is too much over-hyped. Many executives believe that blockchain is a solution to all their problems – “employ blockchain technology, and we will thrive”, many have such thought. Yet, I believe that a proper understanding of the technology, as well as its implications, is first and by far the most important thing. If you have the understanding, there will be no problem to promote and eventually deploy it.”

However, it’s clear that this is still very much an immature market with scams, phishing, Ponzi schemes etc. making up 10% of all ICOs on Ethereum. Hence, like with all crowdfunding platforms, the benefits for the person who funds the benefits are far from always realized. Still, it could be a good way of funding your start-up and maybe the only way if all the VC’s say is “NO”.

It is also worth noting how governments around the world are reacting to the proliferation of ICOs. The most recent being China declaring ICOs illegal, likely to be the strongest regulatory challenge so far to the burgeoning market of ICOs.

So, why should Finance care about ICOs?

Let’s be realistic. It will take a while before mainstream companies will fund themselves via cryptocurrencies and if we’re talking start-ups they typically don’t have much of a finance function anyway. No, the reason why I think finance professionals should care about ICOs is that it’s a great indicator of the adoption of Blockchain technology as well as an early indicator of which areas of business that will be affected by Blockchain. With “only” 1.6 bUSD invested in ICOs so far, it’s not something you should expect to go mainstream tomorrow, however, if the exponential growth continues you better start watching this space and the companies that fund themselves via ICOs. They could soon become your competitors! Linas also shares his view on whether we should expect companies powered by Blockchain to take over the world soon.

“I believe the majority of corporations are not yet ready. The technology is here, but I would still argue that it hasn’t moved from the infancy phase.” and he adds further when it comes to his own company “At my company, not yet. Although we are in FinTech business, we don’t want to jump on the bandwagon only for the sake of doing it. When the time comes, and if there’s a good business case, I don’t see why this shouldn’t be deployed.”

ICOs are just one aspect of what Blockchain technology brings to the world of business but it’s one that finance professionals should take note of. Maybe not to buy the coins but if nothing else to estimate where the bearing on Blockchain is heading.

Let me know what you think of the article by liking, commenting or sharing! Blockchain is such an exciting topic hence if you have any experience with it I would love to know. Otherwise, follow my Blockchain series here on LinkedIn or on Twitter. You can also dig into some previous series about what's happening in the finance function and not least “Introducing The Finance Transformation Nine Box” which is really the starting point for the transformation. Finally, you should join the Finance Business Partner Forum where we will continue to discuss this topic.

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Anders Liu-Lindberg is the Head of Global Finance PMO for Maersk Transport & Logistics and is working with the transformation of Finance and business daily. I have participated in several transformation processes such as a (business) finance transformation at Maersk Line, going Beyond Budgeting at Maersk Drilling and transformed a finance team from Bean-counters to Business Partners. I would love the chance to collaborate with you on your own transformation processes to help you stay out of disruption. Don’t be shy! Let’s get in touch and start helping each other.