The internet is in the middle of a revolution: centralized proprietary services are being replaced with decentralized, open ones; trusted parties replaced with verifiable computation; brittle location addresses replaced with resilient content addresses; inefficient monolithic services replaced with peer-to-peer algorithmic markets.
At the core of this revolution is Blockchain. Blockchain-based systems are politically decentralized (with no single point of control), architecturally decentralized (with no single point of failure), and logically centralized (representing a single state, with data cloned across all the nodes). When paired with a token economy, blockchain based networks create lucrative monetary incentives for their participants and investors. As of this writing, the collective token market cap has exceeded over $300 billion in value.
Chart illustrating collective token market cap
Tokens may represent a >1000X improvement in the time-to-liquidity and a >100X improvement in the size of the buyer base relative to traditional means for US technology financing.
In 2017, blockchain companies have raised over $3.2 billion using ICOs (Initial Coin Offerings). That summer, the funds raised have eclipsed that of traditional Venture capital, dramatically changing the early stage funding landscape.
The opportunity to disrupt by solving for inefficiencies created by core-models, and the ability to raise massive amounts of capital from a global base of investors naturally attracted entrepreneurs from all walks of life, made it extremely difficult to separate the good from the bad. A good analogy for blockchain today is how the internet was in the late 90s. For every ninety-nine pets.com, there is one amazon.com.
As an investor, to see the signal in the noise, a good starting point will be to understand the people driving this trend. I wrote this post to share a valuation framework I developed that worked well for me. I categorize people into four distinct categories based on strength of their values and conviction:
A. Poor values held poorlyB. Poor values held stronglyC. Strong values held weaklyD. Strong values held strongly
A. Poor values held poorly
Hype naturally attracts opportunists with a drive to ride the wave, and unfortunately, most folks fall into this category. They tend to be opportunists inspired by the increasing hype around token sales via ICOs with a motivation for a quick monetary gain with little interest in the foundations, principles, or evolution of the technology.
Since they don’t invest in gaining depth, they lack conviction and may be open to changing those values with decent reasoning. Without growth, there is a good chance they’ll fail. Some may succeed, at least in the short term.
B. Poor values held strongly
These are folks that have week values but are convinced they are correct. They are not open to change and usually don’t grow. Anarchists fall into this category. It’s easy to detect them because they tend to be weak listeners and heavily ego-statical. I would avoid them at all costs.
C. Strong values held weakly
Most successful entrepreneurs and investors fall into this category. They invest time and resources to build their values and communicate with conviction because their values go deep. They tend to embrace idealism over pragmatism. Their values are open to evolution with sound reasoning.
D. Strong values held strongly
The original innovators fall into the category. They develop values from profound understanding and out-of-the-box thinking. Being maladaptive with high values that are firmly held makes them less receptive to environment or situation. Strength in values and conviction makes them extraordinarily influential but not necessarily great entrepreneurs.
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