Why Increased Scrutiny is Good for ICOs & the Industries they Disrupt

It seems like the Initial Coin Offering (ICO) mania of 2017 (and early 2018) is beginning to skitter to a halt. While it may have been possible to raise millions for a cryptocurrency based on damn near anything last year, the landscape is changing. Both retail investors and regulators are smartening up. Retail investors are more weary, and regulators are coming down on ICOs that are obviously taking advantage of an unregulated fundraising mechanism.

The increased scrutiny that ICOs undergo helps weed out projects that shouldn’t be launching in the first place, and as an unexpected byproduct: sets a higher standard of quality for future blockchain projects. As regulation tightens its grip, founders find use cases that hit larger demographics, and token utilities with, well, more utility.

A new breed of token sales

I believe we’re starting to see a positive trend in the quality of token sales in 2018. It’s harder to run a token generation event now, so only the companies that genuinely need blockchain for their product/service to work are considering it. Not to long ago, it was easy to just throw “Crypto” or “Blockchain” in the name of your company and launch a token sale. It’s my belief, and my hope, that this time is over.

Kik, the messaging application, raised $100 million in an ICO last year. Now, their CEO Ted Livingston is warning other would be token offerers that implementing Blockchain into a business is harder than it looks. So difficult in fact that the company issued a statement saying that they will no longer be tying dates to the development milestones they plan to hit- they’d rather not create expectations over the possibility of failing to meet them.

“We decided within the company that there are so many unknowns within crypto, we don’t put out dates anymore, but, as soon as possible,” — Ted Livingston, CEO of Kik

The only intention Kik has is to create a token that can be used as a virtual currency within its application, there’s nothing innovative there. The CEO practically said that launching their token was a cash grab. Something they needed to do to compete with larger companies like Facebook and Google. It’s not surprising that they bit off more than they can chew. Companies like Kik may be realizing that blockchain isn’t as alluring as it seemed, but there is still a genuine use case for blockchain in improving processes.

So, where are the killer blockchain applications we’ve all been waiting for?

The biggest roadblock to industry-wide innovation..

The ICOs I’ve seen successfully raise money in the past few months seem to be taking a different approach than their predecessors. More and more companies are asking for a reasonable amount of capital in their token sales, and the use cases are getting more realistic. 2017 saw a lot of ICOs that made large claims, stating use cases that required participation (from more organizations than was feasible) to succeed. I’m excited to see what the futures holds for the ICO environment, I genuinely believe the next wave of blockchain projects will leave a more lasting impression on the niches they’re targeting than the last. To succeed in this environment, you have to convince investors who, at this point, have already been burned by the ICO craze. Some even several times over.

Almost any process or industry that is filled with middlemen and intermediaries can be improved. Any use case where there is an organization or individual who requires trust from both sides of a transaction. This is especially the case in antiquated industries. I received a Lean Six Sigma certification in 2014. As a part of my studies, I had to find a company and examine their processes, to find one that I could make more efficient. Once identified, I had to craft a plan to improve the process, and present it to the company. The company I worked with was an oil refinery in Arizona. They put me in the most exciting department of the company, accounting.

It was my job to look at how they managed accounting, and find ways to cut costs. I looked into their flow of information: how accounting gathered all the information they needed to do their job. What I found was pretty surprising, and was the conceptual first lecture of a valuable lesson I learned.

The oil refinery managed the entire process on paper.

Everything.

Photo by Sear Greyson on Unsplash

I can’t remember the exact details, but they had a ridiculous amount of employees on salary whose only job was to collect and validate the data, that was gathered by another person — whose only job was, you guessed it, gathering data. Maybe it was naive, but I was stoked. I thought I had found overlooked flaws that I could easily address with some automated programs.

This certification is going to be a breeze, I thought.

I wrote up a proposal on how to automate their data aggregation and parts of the accounting process. It could have saved them millions over the following years and cost a fraction of that to implement. When I submitted the proposal, they were excited, to my face. Fast forward a few months, however, and nothing about their process had changed. They didn’t do anything, I outlined every step necessary and how to do it in a damn binder. I even put those little plastic colored tabs to mark the different sections, it was glorious. At the time, it was my magnum opus.

The lesson I ended up taking away from that experience, but not really comprehending until later in my life, was this:

If a process sucks and has sucked for a long time, but the key stakeholders are making money, they’re not going to care about improving it.

Aka, the “If it ain’t broke don’t fix it” approach.

The biggest roadblock for industry-wide innovation — or even innovation within a process as specific as accounting in an oil refinery — isn’t technology. It’s people, people who by nature resist change, even when it benefits them.

Ripe for Disruption: industries on the brink of change

These antiquated industries/processes are precisely where I believe blockchain should be implemented. Let’s take a look at some processes and industries that need improving, and some that are in process of improving already.

Supply Chain

Supply chain management requires cooperation between several different parties, to ensure that products get from point A to point B.

In any given supply chain, inventory is likely to change hands several times, each transfer requiring signing off on paper documents to confirm each party has done their part. The ocean freight industry for example accounts for 90% of global trade, and is still managed almost entirely with paper documents. The industry has been around for so long, and is profitable enough for the current stakeholders — for there to be no need to innovate.

IBM recently announced that they’ve implemented blockchain to handle all of their supply chain management. This is a near perfect example of a real-world application of blockchain to improve processes. IBM clearly has a strong understanding of blockchain and where it’s best suited for use. The infographic below was taken from a recent study they published on the inefficiencies still evident in supply chain management.

Infographic courtesy of IBM, “The Paper Trail of a Supply Container”

Let’s hope that IBM is the first of many established companies to start utilizing distributed ledgers where they can bring impact.

Mortgage Processing

The mortgage application process has to be one of the most paper-heavy, tedious, and time consuming processes I’ve ever come across. It’s borderline insane. Another classic case of key stakeholders not being incentivized enough to improve the process.Which is shocking seeing as this is a process that almost everyone living in most first world countries has to go through at some point in their life. Buying a home is a cultural milestone, a new chapter in a persons life, a coming of age ceremony — it’s something you update your Facebook status about. It hits a pretty gargantuan demographic in the U.S. and Canada alone, The amount of new mortgage debt to be taken out in 2018 globally is estimated to be around $37 trillion USD. I didn’t even know mortgages were global until I started reading about Block66. To be honest, the mortgage industry research I tout as if I did it myself was just pulled from their white paper.

A mortgage application can take anywhere from 24–45 days to process. In that time, the individual applying for the loan fills out paperwork with sensitive personal data — which is then passed on to several different underwriters who verify the information provided. Then it goes to banks, a few more different stakeholders, and finally back to the mortgage broker who shares the results with his or her client. Block66 completely automates this process, and claim to be able to cut the time needed to complete it to 48 hours.

Going back to my Lean Six Sigma days, I got really excited by process improvement applied the mortgage industry, it seems like a no brainer. I hopped in their official telegram channel and managed to speak directly with the CEO. They’ve already locked in some pretty insane partnerships including Ethos and Civic, along with the partnerships they’re bringing on Shingo Lavine (CEO of Ethos) as an advisor. This is one of those projects that gets me excited, because it checks all of my boxes. The development team comes from other blockchain projects in similar fields, the utility is strong, and the advisors/partnerships they’re starting to form are going to put them in a great position.

The other blockchain companes in the space are addressing the problem from a different angle. Some companies will allow you to purchase homes with crypto, sure, but you have to put the entire payment down upfront. What percentage of the global population can afford to put a $1million USD + down payment upfront? Block66 has the potential to partner up with the platforms that facilitate crypto real estate purchases, and create a reasonable and cost effective way for everyday people to purchase homes with cryptocurrency.

Digital Marketing

I found my humble beginnings as a digital marketer running a boutique digital agency in Los Angeles. I’m well aware of the inefficiencies prevalent in digital advertising, and the frustrations they cause.

The metrics we use for tracking Return on Investment of digital advertising campaigns are inefficient at tracking results. Cost per click can be misleading, and who the hell decided that cost per thousand clicks was a valuable metric?

As a company, I don’t care about clicks, I care about conversions. Adding more metrics into the fold just gives marketing managers more to talk about when they’re called to meetings, many of the metrics currently used don’t bring a large amount of value. Don’t get me wrong, there are age-old classics that still reflect the efficacy of marketing campaigns (love that conversion rate). But most metrics just add a layer of confusion for those not adept with the terminology, and give bad actors more room to manipulate these metrics.

One company attempting to address this issue is Basic Attention Token (BAT), but they concluded their ICO in 2017 so they don’t count for the sake of this article. A more recent player attempting to disrupt the digital marketing industry is Plentix. While BAT attempts to directly address the problem at hand, Plentix provides an alternative to the current inefficient methods. They’ve created a completely decentralized referral program, similar to what Uber users to acquire new customers. They’ve created a system for referral marketing, and decentralized it- opening it up to the public for users to see all the possible referrals they can use, and opening it up to the businesses so that they can develop their own referral programs with whatever parameters they like. One of the benefits of blockchain in improving processes is cost reduction, I have no idea how much they’ll charge clients, but I’d imagine it’ll be less than traditional competitors. They’re starting their private sale pretty soon and have started building out a whitelist, I’ll be paying close attention.

Data Acquisition

This is one of those processes that no one really thinks about except for the people whose job it is to think about it. I personally didn’t really think about it until I heard about Nucleus Vision, who finished their ICO earlier this year. They caught my attention because out of all the ICOs that have launched in 2018, they’ve brought their investors one of the largest return on investments. When I saw the success its’ had, I took a dive into the industry to see what about their solution is so disruptive.

Nucleus Vision automatically gathers customer data to benefit both consumers and businesses. Consumers benefit from getting a more custom-tailored solution to their retail needs, and businesses benefit by being able to provide this solution at all. Customer data acquisition usually involves a tedious surveying process, sent out over email or even done in person with paper forms. We give out a lot of data to social media platforms we use, but those platforms don’t speak to consumer brands about how to use that data to benefit us. At the moment that data is only used to benefit the advertiser with increased targeting capabilities.

Takeaways

The increase in scrutiny and regulation may make the lives of would-be founders more difficult, but it also helps weed out the bad projects. If we keep seeing projects like the ones above, projects that are addressing real-world, feasible, and impactful use cases, I think the future is brighter than current sentiment would lead you to believe.

The inefficient industries or processes these companies are addressing have a lot of room for improvement, and its likely that stakeholders involved will have that , “If it ain’t broke, don’t fix it”, mentality. But, you can only try and hold the floodgates of change shut for so long. Eventually, they break and take you along for the ride.