ICO is the most interesting thing for me right now. Bancor raised $153 million in 3 hours. Filecon raised $257 million. Tezos has raised $206 million in about four days. Many companies raise fucking huge amount of money. Most of them have only papers.
How does this make sense?
Let’s think step by step.
What is ICO?
ICO is kind of like IPO.
Everyone can issue their own token/currency and sell it to raise funds for their projects. It sounds you can do IPO anytime anywhere without regulations! Like Siraj said, blockchain democratize IPO. It sounds fantastic.
Putting that aside, how are people convinced to buy such tokens?
As an entrepreneur, I know most startups fail. I believe most people do too. If I were potential buyer, I never ever want to invest money in ideas of someone whom I haven’t even heard of.
Investing in protocol?
Some developers said that there had not been a way for protocol projects to raise money even though protocol was super important and benefitial for society.
Their point is if some technologies or service is used by many people and actually helpful, that technologies and services worth a lot of money.
I agreed that protocol is important. That’s why historically protocols are developed by academia and government or sometimes by big companies.
But for me it’s similar to bridge or road.
Road and bridges and other infrastructures are damn important. It’s super beneficial for society. But being important or useful do not necessarily means worth investing because it’s or it should be free or close to free.
My question is do you want to invest in bridge which never get direct revenue?
You can be an owner of 0.01 % of a bridge. This is honorable but I don’t see any money making opportunity.
Becoming an owner of infrastructure is cool but infrastructure never give you rich no matter how many user use it.
Is blockchain project viable as startup?
Some friends say you can start whatever startup you want with blockchain because blockchain is fundamentally disruptive.
Uber on blockchain, Amazon on blockchain…
But what is the benefit of blockchain for end users?
Historically most disruptive startups make service accessible in at least one of dimensions like location, time, price, easiness, and convenience. I name a few.
And there is one more condition. Startups should be able to acquire new users who had not not been able to access the services before.
Let’s check each dimensions.
Blockchain is nothing to do with time.
Since ICO made fund raising accessible for entrepreneurs who live outside of the Silicon Valley, we may think blockchain can make something, which is only accessible in specific location, accessible.
So blockchain has potential in this area.
But blockchain is a backend technology like Linux, this is some other technologies’ role to make is easy and convenient.
And blockchain make server cost more expensive than traditional centralized system. But since blockchain make things work without trust, we may be able to remove middleman, some of whom take high intermediate fees like financial services.
So blockchain has potential in this area too. But since most companies work as middleman, I have no idea how they can keep making money after removing middleman including themselves.
Some friends taught me that the benefits of blockchain are…
make system work without trust
make system more secure
None of which are important for end users.
End users want tangible benefits and want companies to take care of security and other less sexy things.
Does it make sense to invest in utility tokens?
Most ICO insist their tokens are utility instead of security. Of course they do because they need their tokens to be utility to do ICO in the US. Only accredited investors can invest otherwise.
But my point is the price of utility is known or at least predictable in most case.
Let’s think about the Filecoin’s case. Filecoin is a highly technical and super interesting project but Do I want to invest in filecoin token?
Filecoin is a decentralized storage, Amazon S3’s competitor in a nut shell.
Think about it. Filecoin token is a utility token and Filecoin as a company is backed by many traditional venture capitals. So token holders are noting to do with company’s success and the money generated by the company is going to be taken by venture capitals and founders. And you know the price of file storage.
$0.01 per 10,000 tags per month < Amazon S3 (Oregon)
Of course there are slight difference between decentralized system and centralized system like censorship. But price is price. The value of utility token can not be more than known price. And the price is going to decrease in the long run because of other technological innovations.
Why do people invest in ICO?
Like block geek said, this looks to be because of the greater fool theory and bubble.
What kind of tokens worth investing then?
Let’s go back to the road analogy.
If there are limited number of owners and only owners can access to fast lane, it could be interesting. Protocol as infrastructure should be open to public. It will lose meaning of existence otherwise. But if that protocol can provide some privilege to limited number of token holders, and that privilege can provide real benefits and that benefits go up with the usage of tokens, that could be interesting.
And since blockchain has already made fund raising democratized, services which make some kind of like privileges of people living in developed countries accessible to all over the world are very interesting.
Or projects which try to remove middleman AND not try to make money at all are also interesting. I think trying to develop profitable company by removing middleman is super hard. But developing peer-to-peer service as infrastructure is still cool. Token price may not keep going up, which means you may not be able to keep making money from this kind of projects. But still this is cool and I think buying tokens for future use and having sense of supporting cool projects make sense.
Or if nobody knows future price of utility token, it could be interesting. I mean if there is a super cool project and the project issue utility tokens and the value of the utility token is not known, I may buy the token. Even tough i’m not a part of the company and nothing to do with the profit, it’s exciting to keep some tokens because future price is not predictable and it could go way higher than I expect.
So I may buy tokens if
token let me to access to privilege and there are limited number of holders
project democratize something especially in developing countries.
project try to remove middleman AND the project don’t try to make profit.
future price of the token is not predictable.
Thanks for reading.
Give me any thought.
Any comments, feedbacks are appreciated.