Killing trees

Our weekly opinion piece and overview View this email in your browser March 5th, 2017 Be careful what you wish for In this week's TAKEWAY, we look at our Spotlight Survey on blockchain ICOs and draw a disquieting conclusion: the very success of token sales could herald their downfall. (Read more below).      *CONSENSUS 2017* JOIN Diego Gutiérrez Zaldívar, Bill Barhydt, Nimrod Lehavi and other speakers at the most comprehensive blockchain event of 2017.   ☀️️️ REGISTER HERE ☀️️ TOP TRENDS ON COINDESK ICO Insights CoinDesk released its first Spotlight Survey of 2017. The topic? Blockchain token sales or 'ICOs'. We surveyed over 400 industry entrepreneurs and investors on their experience and expectations of token sales, to gauge the sentiment surrounding this innovative new form of financing that is encroaching on traditional methods. We share some of the insights here, the entire report here, a possible framework for evaluation here and we go even deeper in THE TAKEAWAY below. Starship 'Enterprise' The big event in the blockchain world this past week was the official launch of the Enterprise Ethereum Alliance (EEA). CoinDesk has been reporting on it for some time, but we now have confirmation of the original 30 founding members: the list includes both large corporations such as Microsoft, Intel, JP Morgan, CME Group and others, as well as some notable blockchain startups. Ethereum makes friends At the EEA launch, Microsoft announced that it was incorporating JP Morgan's Quorum blockchain (built on ethereum) into its Azure platform. Elsewhere, blockchain firm Monax submitted its codebase with an ethereum virtual machine to the Hyperledger consortium. It will be interesting to see what other collaborations emerge. Spring fever for cryptocurrencies? Perhaps basking in the EEA's potential, the price of ethereum's token continued its steep climb, rising over 50%. Dash almost doubled in price, becoming the third largest cryptocurrency in terms of market cap. And as for bitcoin, its price surpassed that of an ounce of gold. More symbolic than anything, it is giving bitcoin believers their moment of vindication. Blockchain bids As usual, the week saw a flurry of enterprise firms trialling blockchain applications. Canada's ScotiaBank tested a blockchain platform for trade management. And the Bank of England and the Federal Reserve Bank of Boston joined blockchain consortium Hyperledger.  Some are close to actually using the technology: EY began the rollout of a blockchain ID solution for a client that runs a fractional mortgage platform (a CoinDesk exclusive). Thailand's national stock exchange is building a blockchain market for startup financing, looking to launch later this year. And in Japan, 47 banks successfully tested Ripple's cloud platform for payments. Several have committed to bringing it into production in late 2017.   See all CoinDesk stories QUOTE OF THE WEEK "When transaction costs drop past invisible thresholds, there will be sudden, dramatic, hard-to-predict aggregations and disaggregations of existing business models." – Vinay Gupta, "A Brief History of Blockchain" in Harvard Business Review   THE TAKEAWAY  Now, back to the ICOs... While the full report is still very much worth a look, here I want to highlight a couple of slides that point to this new financing method's rise and, at the same time, its potential fall. But first, let me tell you a joke. (Bear with me, this is leading somewhere…).   It was late autumn and the Indians on a remote reservation in South Dakota asked their new chief if the coming winter was going to be harsh. He hadn't yet learned how to read the skies, so he said they should gather firewood just to be safe.   After several days, he managed to get through to the National Weather Service. "Yes," the meteorologist replied, "it looks like this winter is going to be quite cold." So the chief told his people to collect even more firewood. A week later, he called the National Weather Service again. "Yes," he was told, "it's going to be very cold." So the tribe gathered more.   A week later, the chief called again. The weatherman was certain: "It looks like it's going to be one of the coldest winters we've ever seen."   "How can you be so sure?" the chief asked. The weatherman replied: "Because the Indians are collecting a sh*tload of firewood."   From weather concerns, we move to slide 13 of the report, where we see another beautiful circularity and a different type of deforestation:   The vast majority of respondents who invested in an ICO did so for the potential price increase, rather than the token's utility.   Slide 21 shows that almost half of respondents believe that institutions will come to dominate the ICO investment space.   There's the circularity: if some institutional investors treat blockchain tokens as an asset class, then they become an asset class attractive to other funds.   Institutional investors are competitive. Therefore, success in an ICO bet encourages others to take a similar risk, and before you know it, hedge fund managers are competing to grab tranches of interesting projects. The success of some recent issuances could be an indication that we are already seeing the effects of competing funds chasing relatively illiquid investment opportunities.   While the notion of institutions muscling in on a financing method originally aimed at involving the community of developers and users is disquieting, that's not the part that will weaken the system.   It's this: if investors are buying tokens for investment or as a speculation, as our survey showed, then they are a security. And if they are a security, the SEC (or its equivalent in other jurisdictions) will take an interest.   If the SEC takes an interest, it's generally to (at best) increase the reporting requirements and compliance hurdles, which significantly raises the cost of financing through this method. In fact, it could end up pricing this path out of the reach of the small startups that had hoped to crowdsource their initial operations.   If this trend progresses, we could see an intentional dial-back of the investment appeal. Allocations could be limited, the utility of the token could be emphasized and institutional investors may end up deciding that there are more interesting high-risk opportunities elsewhere.   Without a shift in direction, the future of ICOs looks rocky. Just like a tribe's reputation as weather diviners ends up killing a lot of trees, the success of token sales as an investment could end up being the nail in their coffin. - Noelle MORE BACKGROUND: Watch Out – The ICOs Are Coming 2016: The Year Blockchain ICOs Disrupted Venture Capital ICOs and Appcoins: A Blockchain VC's View Appcoin Law: ICOs the Right Way Share Tweet Beyond CoinDesk... OTHERS ARE TALKING ABOUT Most of mainstream media struggled to find something meaningful to say about bitcoin's price reaching that of an ounce of gold. TechCrunch drew on the implications for asset management. TNW helpfully pointed out that it has a way to go before catching up with cocaine. And CNBC suggested that we don't read too much into it.   Elsewhere, Bloomberg published an in-depth article on the likelihood and potential consequences of ethereum's planned move to proof-of-stake consensus. The Harvard Business Review carried an overview of the recent history and imminent future of blockchain technology. Digiday covered the kerfuffle surrounding R3's alleged rejection (which wasn't) of blockchain technology, and what that says about the sector's terminology. And Yahoo Finance carried the report that CoinDesk (yes, that's us) has a new CEO. Hi, Kevin, welcome aboard! UPCOMING EVENTS March 3-5 – CoinAgenda Caribbean – San Juan, Puerto Rico March 5-6 – World Blockchain Forum – Dubai, UAE March 6-7 – LendIt USA 2017 – New York, NY March 7 – Reinventing Retail: Mobile and Multi-Channel Commerce – Dallas, TX March 7-9 – APAC Blockchain Conference 2017 – Sydney, Australia March 9 – Blockchain & Bitcoin Conference Tallinn – Tallinn, Estonia March 13-14 – The Blockchain Academy – London, England   WHAT WE'VE BEEN UP TO As you will have gathered, our team is growing. The incorporation of our new CEO, Kevin Worth, was announced this week. And as you know, CoinDesk recently bought the data and research platform Lawnmower. Their team joined ours, and you're starting to see the results in the cool charts and useful research we're featuring on our web and in these newsletters. This week you had our Spotlight Survey on ICOs. Next week, we release our State of Blockchain 2017. Never a dull moment, I'm telling you…       Copyright © 2017 CoinDesk, All rights reserved. You're receiving this email because you subscribed for updates on our website. Our mailing address is: CoinDesk 636 Avenue of the Americas New York City, NY 10011 Add us to your address book Want to change how you receive these emails? You can update your preferences or unsubscribe from this list Received this from a friend? Subscribe here.