The outlook for Bitcoin took a beating this month, with investors running scared as prices tanked below $6,000 – sending the market into panic mode. But whether this is a bear market or merely a blip, cryptocurrencies are here to stay. Troy Norcross, a regular mentor and advisor at Innovation Warehouse, has spent the past year working the Blockchain and cryptocurrency space. He explains where the opportunities lie in crypto and how to get in on the alt-coin act.
Blockchain has been the investment phenomenon of the decade. Investors are scrabbling to get in on the action and many established agencies are already overcommitted. What are the biggest opportunities in the Blockchain space?
The big money is in Initial Coin Offerings (ICOs) and ICO marketing.
Does that involve a lot of community management?
For sure. A big chunk of it is building a good community of people that will buy the ICO the day it goes live or at the pre-ICO stage or as a private sale. That’s a real big thing, but it’s not like crowdfunding. You want to show up on day one with most of your funds already raised and have people champing at the bit to spend.
A cynic might say that cryptocurrencies are simply fabricated wealth – people selling the sheer concept of value. Where does the perceived value of a new cryptocurrency come from?
It’s a digitally unique asset that, in the case of Bitcoin, has scarcity built in – it’s most often equated to gold, which is scarce and must be mined. Bitcoin must also be mined. We’ll only ever find so much physical gold and there will only ever be so many bitcoins, so the value is in the utility of these coins.
Is scarcity integral to every new cryptocurrency that emerges? If not, what is their value based on?
Some cryptocurrencies are of unlimited supply. But a lot of people will say there is value in the function. Some of the coins are stores of value, and that is all they are; others are proxies for shares, so they will attract voting rights or dividends in kind – some other level of value inherent to them.
What OpenGoods was doing was creating ‘asset-backed’ tokens, so there was an actual physical piece of real estate behind the tokens.
That said, tokens aren’t always based on something material, just as it isn’t always the case that tokens are ‘un-backed’. Sometimes they are backed and there’s always the question of the network effect – the more people that have Bitcoin, the more people accept it and want it and take it, and it starts to enter a virtuous growing cycle.
Bitcoin had its start in 2009, but its first set of utilisations were on the Silk Road (an online black market and the first modern darknet market), so not unlike VCRs. VCRs got their start with people watching stuff at home and when they reached critical mass, they were legitimised. That’s how they came to be.
Coming back to cryptocurrencies, we used to have gold-backed currencies and don’t anymore. Currently they are fiat-based, backed by the goodwill of the government, who can print as much money as they want – just as people today can issue as many Lightcoins or Altcoins as they want.
What role are new cryptocurrencies playing today? Are they a new home for investment?
A lot is being done solely for speculation. It’s an asset class unto itself because it’s not being used much for utility. If you look at Ripple, though, it is being endorsed and used by banks for intra-bank transfers and is accelerating those transactions by digitising some old processes that were done manually on paper, or by telephone.
Hasn’t Paypal already done that?
Paypal has done it for small amounts, but you can move millions in Bitcoin instantly with certainty. Whether it’s Ripple or a fork off of it called Stellar, or whether it’s Bitcoin, there are some things that Paypal simply cannot do.
Has demand for cryptocurrencies peaked?
I don’t think it’s peaked at all; I think we’re taking a breather. We had a big peak around Christmas when Bitcoin rose to over $19,000 for a single coin and has since fallen.
We’re all trying to figure out what’s going to happen next. I think in three to five years’ time, we’ll see a new set of Blockchains that are regulator friendly and some cryptocurrencies will be written on those, which will be the real future of the medium. But in the meantime, Bitcoin isn’t going away.
Click here to read Part One of this interview