In my previous post, I made the point that the vast majority of ICOs were extremely risky and unlikely to result in real businesses underlying the associated blockchain and token. Specifically, I raised the following requirements for the tokens to have real value:
- The technology has to be built (vast majority of these are issued via whitepapers)
- The technology has to be launched into the wild.
- Nodes and network participants need to get online
- Ultimate end users need to adopt the product offering. Often switching from existing incumbents who already enjoy network effects and moats.
- The holding company needs to have enough cash on hand or be profitable enough with user adoption to continue to operate as an ongoing concern.
For a startup company, even a well funded one, steps 4 and 5 can be particularly hard. But if an existing company, one with a national brand, a capable and larger team, and cash flow, offered a new token, the odds of success rise considerably.
Specifically, if you dig deep into crypto currencies and use cases, the key to successful implementations is a true decentralized business case. Cryptocurrencies are particularly well suited for businesses where a central entity that provides risk capital may not be able to generate substantive returns. So in the “old” world — think mutuals or cooperatives. In the new world, we’re seeing two types of crypto based token companies emerge.
The first is trying to dislodge a traditional incumbent by using this new decentralized technology. Two great examples of this are Sia and Filecoin — both companies attempting to take on Amazon S3, Dropbox, and Google Docs by leveraging unused hard drive space at data centers, offices, etc. When you dig into many of these coins, you learn that while the technology is well thought out and communicated (typically via a white paper), the actual technology adoption and market penetration is not. And these coins often fail to think through the counter moves existing incumbents will play as well as the sheer power of branding.
The second type of token companies that are emerging are enabling businesses that simply could not exist before. So businesses where there is actually no real business case to generate acceptable returns to any one person or entity who puts up the risk capital. For corporations, there are thousands of examples one could imagine of business extensions or add ons that are decentralized in nature and a) provide more value for the customer b) provide more value for employees c) provide more value for other market participants, but will never justify the investment of additional risk capital by the corporation itself.
The creation of an ICO and subsequent decentralized business model alongside traditional C corps and LLCs will enable corporations to provide this additional value; to architect this additional value to drive market participants; while enabling funding to happen from the community itself. The difference here? There is a legitimate shot to both drive adoption and see the business through to a scale and build — specifically overcoming the the objections 4 and 5 that are so tough for startups.
An existing corporation with brand and scale will have the team, mechanisms, and consumer relationships to drive to a successful adjacent decentralized network through existing blockchain technologies and ICOs. The new Kodak One ICO fits this to a tee: leverage the Kodak brand its long history amongst photographers; rely on the credibility of the Kodak corporation and technology brand; and leverages a decentralized structure to drive market participation.
Expect to see many more of these in 2018.