On June 29, in partnership with Geektime, we held an hour long conference call with four crypto currency thought leaders (Eyal Hertzog w/Bancor, Meltem Demirors w/Digital Currency Group, Olaf Carlson-Wee w/Polychain Capital, and Kathleen Breitman w/Tezos) and over 400 participants. Since the call last week, Tezos launched it’s ICO, and, in it’s first three days it raised an ICO record $200 million.
Speakers talked for 10 minutes about their company and the outlook for the crypto currency ecosystem, and then the call was opened for questions from the audience. The replay of the call is below (it starts a few minutes in to the call). The slides for the call can be found on SlideShare by clicking here.
This post highlights my view of the eight most important points raised on the call. The first five highlights build on each other, leading to what I believe to be the big takeaway from the call. The final three highlights are company specific.
1. The vast majority of the press about bitcoin is about the dramatic increase in price. But the more interesting, and ultimately more important story, is the infrastructure and enabling technology that has been built up around bitcoin and the blockchain that drive the robust network of today:
2. The Digital Currency (DC) 2.0 boom shares many of the same drivers as the Web 3.0 boom. One parallel is the emergence of platforms that dramatically decreased costs and time of entry. Web 3.0 featured the emergence of Amazon Web Services as a platform that decreased costs and time to market for startups. DC 2.0 has seen the emergence of the ERC 20 token standard for issuing tokens on top of the Ethereum network. ERC 20 lowers the cost and time to market for new tokens. Another parallel is how the funding of the booms. Web 3.0 was funded in part by VCs like Marc Andreesen and Peter Thiel who made their money via their start ups, and then built new VC firms to fund the next generation of companies. DC 2.0 is being funded, in part, by early participants in the coin ecosystem who have have become wealthy from coin appreciation and are now funding the next generation of coin related projects by investing their appreciated coins
3. Ethereum is to Bitcoin as a smart phone is to a feature phone. This analogy, shared by Bancor’s Eyal Hertzog, is helpful to put the differences in to context. While Bitcoin is a single application (the distributed ledger), and a single coin, Ethereum is a platform for applications and currencies, allowing the programming of smart contracts and smart coins.
4. Giving the value creation of a network to the users of the network, via coins, creates a powerful second order network effect. The normal first order network effect for a network company like Facebook, is that the more people on the network, the more valuable the network becomes. However, the value created in the Facebook network goes to the shareholders of Facebook. In token based networks, the users, via their token ownership, are the owners of the network. So if the network grows in value, that value accrual goes to the holders of the tokens. This is unprecedented, and leads to a tribalism for the token network that can be dramatically additive to the first order network effects. This is because each new user not only makes the network more valuable, it makes the users/owners of the network more money. Thus a successful ICO can engender a very powerful 2nd network effect among the user/owner base.
5. The new economic model enabled by ICOs is driving unprecedented levels of open source technology innovation. Traditionally, open source technology was hard to monetize. That’s why Wikipedia has banner ads begging for money even though it’s value creation is massive. In the new blockchain enabled networks, open source networks can accrue value based on use, bringing capitalism to open source. As a result, the most lucrative thing to do as an entrepreneur today is to create an open source network. So while previous developers of open source technology were generally idealists, now capitalists, which is a MUCH larger group, are building open source technology, because that’s where the money is. So on both the developers/fund raisers side, as well as the participant/investor side, open source development and innovation is seeing unprecedented growth.
ICOs are a radical new business model. How disruptive will they be? Well, we’re nearing the 23rd anniversary of the Netscape browser and people are still asking how disruptive the internet will be. The reasons for the massive disruptive potential of ICOs were the big takeaways from the call for me.
6. Polychain Capital is a hedge fund that invests exclusively in blockchain based assets. Poychain’s novel strategy is that the fund holds no equity in any company. Instead, Polychain invests in tokens pre launch, before the project goes live, with the intention of holding on to the tokens for a long period of time. After the investment, Polychain then helps the project get live.
7. Tezos was started, in 2014, to solve the two issues resulting from the “commons problem” associated with the Bitcoin blockchain.The first problem is maintenance. In other words, who is going to take care of the protocol and how. The second problem is governance, or who will direct the protocol and how and who has the legitimate stake in the direction of the protocol. Bitcoin has had a governance crisis for years. Tezos will enable consensus by creating a way for token holders to convene on proposals to the Tezos network, giving it a legitimate sense of direction. Tezos will solve the maintenance issue by creating bounties on the chain to contribute to the protocol. Tezos believes that these changes will result in a blockchain that has more legitimacy every time it upgrades itself. The Tezos offering started the day after the call, and passed a record $200 million after just three days. So Tezos is obviously addressing problems the market has an interest in solving. You can learn more about Tezos by listening to the call or reading about Tezos here.
8. Bancor, which set a record when it’s ICO in May raised $153 million, was founded on the belief that the long tail of coin issuance will be bigger than the head. Eyal was involved in MetaCafe, an earlier leader in online video, where the number of views in the long tail of videos is much bigger than the aggregated views of the most popular videos. With ERC 20 everyone can create a currency, a new mass collaboration tool. But the challenge is liquidity. The coins need certain scale so the market (e.g. market makers, speculators, traders) will take interest in the currency and drive liquidity. Bancor’s solution is a smart token, on Ethereum, that handles it’s own liquidity. So while it sounds like an oxymoron, coins can be liquid without having to trade on an exchange . Bancor accomplishes this, in part, by holding reserves. You can learn more about Bancor at their site here, or by listening to the call where Eyal goes in to greater detail.
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