For anyone that doesn’t like to read, here’s a video version of this post!
Like most of the people who got into the blockchain space in 2017 we all had to wade through a sea of BS, incomplete information, and a whole lot of market fluctuations.
It was a great ol’ time.
A lot of us made money and a lot of us lost money.
About three months ago, we decided we had enough of the rehashed white papers and 3 minute videos about the next 100X Lambo Moon-coin of the month by Crypto (insert generic name).
We decided we wanted to bridge the gap between the real projects/ideas/technologists and the people investing in them.
So we started to interview a few projects.
3 months later and we’ve interviewed over 45 projects, and spoken to more than 50+. I can’t think of a more hands-on journey into crypto than this.
There were just so many insights that either occurred before or after the interviews that I knew people would appreciate.
So I compiled a list of 25 nuggets of wisdom shared by some of the 45 founders we spoke to.
I’m not saying any of them are true, and I’m not promoting any of their projects. This is just me sharing insights from CEO/founders that you might otherwise not have access too.
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So let’s get into it.
I’ve broken this down by numbers, with the italics being my own thoughts on.. well, their thoughts.
Enjoy, and feel free to let me know what you think.
1. Don’t think that regular VC companies know what they’re doing when it comes to investing in early stage tech companies. There are no rules or definite markers of success. The vast majority of VC funding falls flat. Same with crypto.
I think most ICO and early stage blockchain investors don’t know what they are doing and that’s why they look to put their $ into projects with popular sentiment, as it’s the only reliable heuristic out there.
It’s important to remember that a lot of VC funds also can’t accurately measure whether a project will be successful or not.
It’s hard work and the unpredictable nature of blockchain tech and ideas makes it even harder.
2. The biggest challenge for high quality projects is attracting developers and real users. Money isn’t a big issue with high quality projects. Expect way, way fewer crowd-sales.
I think the era of regular people getting into amazing ICOs is over. Sorry to say.
The value will shift more to VC funds for one simple reason — a lot of big VC funds offer great value adds. Whether it’s publicity or their network of support, it’s a no brainer for most projects.
Not to mention most VC funds are usually 100% legally compliant. No issues with KYC.
3. Airdrops will become the new crowd-sale.
We’ve spoken to a lot of projects over the last few months who have decided to opt for an airdrop model to avoid legal scrutiny.
It also saves them from dealing with the hordes of humans asking “WHEN BINNANCE” “WHEN TOKENS” in telegram.
Crowd-sales are absolute chaos and a target for hackers. Expect all good projects to be snatched up by VC funding right away.
4. SEC is overall friendly to crypto and wants the community to self regulate first.
We won’t be naming names, but we’ve spoken to a few people that regularly speak with either the SEC, used to work there, or are taking part in a consolidated effort to educate government officials about crypto.
They realize there is a big shift coming and they need to be accommodating towards it. My personal take is that I’m not worried about regulation and actually welcome it.
A large percentage of retail investors either can’t read English well enough to find scams or are too uneducated/lazy.
5. Liquidity is one of the biggest issues for crypto and why it’s so volatile. Lack of liquidity pools are the biggest problem here.
I’m pretty sure this one is pretty easy to understand.
Lack of liquidity means easily manipulated order books and more volatility. Liquidity is pooled in individual order books and not shared across exchanges.
DEXs will hopefully change all of that.
6. The majority of smart contracts aren’t secure and there is eventually going to be some standard for validating security.
Projects like Quantstamp and Certik are looking to audit smart contracts for the massive amount of security vulnerabilities. Just take a look at this report indicating that 34,200 vulnerabilities in smart contracts.
Yikes!
This leads to the conclusion that eventually there will be a globally recognized standard for verifying smart contracts. Sort of like a seal of approval or standard from some highly respected group.
Whichever project it is will be worth a lot.
7. Culture helps people adopt to crypto faster. Some cultures are better suited for crypto adoption.
Countries like Korea and Japan are big on video games. More than half of their population plays video games, and digital currencies have long been a staple of these games.
So the adoption curve for creating a real currency isn’t that steep.
On the other hand, we have cultures that haven’t grown up so technologically integrated.. which leaves crypto adoption for only cyberpunks and speculators.
8. 2017 was like the Primordial Ooze of Crypto.
We had a lot of great projects come out and we also had a LOT of garbage. If I was to throw out some non-verified estimate, I would say 98.5% garbage and 1.5% quality.
But that’s not the point.
The point is that we needed that evolutionary process to get to where we are now and will hopefully go in the future.
Think of it like evolution. Legitimate projects will adapt, grow, and flourish, leaving the lazy ones to die.
9. Incentives are the most important thing tokens need to be designed around.
Charlie Munger, Buffet’s right hand man, has a famous quote which is very appropriate to crypto —
“Show me the incentives and I’ll show you the outcome”.
A lot of projects forget this. Some of them don’t even seem to have spent more than twenty minutes designing their token functionality.
Designing for incentives first and foremost ensures a robust and resilient ecosystem that will live long into the future.
It’s also the basis for any network effect.
10. Cryptomarkets will eventually be worth trillions.
Just saying…
11. Icon is an insane project.
The shill of the week. Here it is.
Combine high quality tech + a new incubator with 300 projects + thought leadership + a total blockchain ecosystem + tons of Koreans + good marketing = ICON is awesome.
12. Most serious developers don’t even think about price, they just focus on the tech.
This is something we saw over and over again.
From conferences to interviews, high quality projects don’t even worry about their investments or price. They just keep developing and working on what they are doing.
I think the value in this is it exemplifies an attitude that real HODlers need to have — absolute confidence in the tech and direction of the project.
Price is only a temporary bump on the roadmap to awesomeness.
13. Blockchain is a unique space because you need to understand a little of everything.
This is one of the only spaces where a long-term investor needs to understand a plethora of topics.
Governance, token economics, functionality, scalability and how to build community. If anything, investing in crypto is a LOT harder than traditional blue-chip investing.
You need to understand different dynamics and think like a VC. There are no clear cut agreed upon metrics like P/E to help you decide.
14. The OTC BTC volume is staggering.
The majority of BTC volume does not exist on exchanges.
It’s all taking place over-the-counter. Sellers and buyers working directly to buy/sell massive amounts of it.
Who is buying it?
Financial players working under different aliases or companies.
People are accumulating BTC and they are buying… a lot of it…
15. Crypto needs a robust and healthy derivatives market.
Short sellers and other derivative based financial instruments keep regular markets healthy and stable and reduce volatility.
I didn’t understand this concept that well, but had one of the leading decentralized exchange founders break it down for me like I was 5 years old.
While short-sellers often get a lot of hate, they are an essential component of any healthy market.
Look to projects like Market Protocol and 0x to bring derivatives trading to the blockchain.
16. Big institutional money hasn’t entered the space yet, despite what Novogratz said.
The huge, huge money hasn’t come in yet.
I’m talking about pension funds, teachers retirement funds, and huge index funds. They haven’t entered crypto and won’t be for a while.
The reason is two fold -
First, lack of custodial services to help them facilitate/purchase/store crypto.
Second, it’s way too volatile for them.
This leaves most of the “big money” that has entered crypto to be tech-focused VC funds and some family offices.
17. Key Management Services (KMS) will be huge in the future.
Most people don’t want to hold their public keys, and even when they try to do it some experts still mess it up royally (won’t say who).
The average person doesn’t want to be their own bank and I can’t blame them.
Storing your own private key is scary as hell.
It’s important to remember that the majority of people aren’t even responsible enough to save money, let alone carry around a secret series of numbers that allows anyone to steal your money in 1–2 seconds.
KMS will be a huge, huge, HUGE market in the future. Some KMS solutions may even become like crypto-banks.
18. Blockchains aren’t private, companies can’t store data on public ledgers without compromising data privacy rules. Privacy layer is huge.
If you are serious about understanding blockchain tech and investing in new projects, you definitely need to read up on data security laws.
I’ve seen so many Dapps that offer to liberate people and free data or create open marketplaces.
……Cool
But your white paper doesn’t mention anything about how to store this extremely private, sensitive data that is governed by a highly developed set of international data security laws.. does it?
Data privacy on the blockchain as integrations with the underlying chain, or as layers built on top, are going to create a HUGE market and are essential to scale consumer-grade apps.
Look to Keep Network and Enigma for these solutions.
19. The main killer app of crypto is faster technological innovation and funding.
For the first time in history, regular people can become venture capitalists. We have liberated an industry that once belonged to the uber-rich to regular people like ourselves.
Yes, this has led to a lot of fraudsters and charlatans, but it has also led to an accelerated rate of technological innovation.
20. Data is the new oil.
More and more people will start to realize how powerful data is and that it needs to be protected.
Data is the new oil, and companies like FB and Amazon are the new petro-dollar-oil overlords of the world.
Luckily blockchain offers a reliable method to break these data silos and create a world where data can be liberated by sharing data, all while still maintaining an immutable ledger or its original ownership, therefore allowing creators to be rewarded.
Ocean Protocol is by far the top project leading the way on this.
21. Discount token models are badass.
If you don’t know what a discount token is, it’s pretty easy to explain.
Think of a reward point or Airmiles.
Basically, you get a few advantages with discount tokens. First, they aren’t securities. Second, they encourage network use and participation. Third, people tend to hold them for future use which adds an element of price stability. Forth, it still allows for other currencies or fiat to be used to access a system.
I think discount tokens are going to become more popular in 2018–2019. Here is a video all about them.
22. Everyone likes Ethereum.
Every project and developer we spoke to loves ETH, the community, and what they are trying to build.
A lot of elements of the Ethereum community embody the same values and ideas that brought people into the blockchain world in the first place.
I personally look to ETH to have a massively larger market cap in the next 2–3 years.
23. The FAT Protocol Thesis is still very much applicable.
If you don’t know what it is — watch my video.
FAT Protocols are the idea that value will be captured at the protocol layer and not the application layer.
I generally agree with this statement, and most of the founders we spoke to still believe we are in the early days of this new blockchain world and protocol projects offer the best long term investment value.
Pro tip — look for projects that incubators setup to launch new projects.
24. Everyone is just trying to figure this whole thing out.
Phewwwww
That’s a relief. Most of my life as an entrepreneur has involved this nagging feeling that I don’t really know what the hell I’m doing.
It seems that the blockchain world is no different. A lot of projects are figuring things out as they go along, networking and exploring new ideas.
That is the beauty of our current stage of development. It’s a thriving and exciting time to learn new knowledge and challenge what you think you know.
That’s it.
Hope it’s been insightful.
I’d like to end with one last note — talking to projects on all parts of the planet working on the same problems with the same enthusiasm has made me more bullish than ever before on the blockchain space.
We’re in for a wild and exciting ride guys.
Let’s strap in and enjoy it.