Investors and entrepreneurs can make money at the transition between bleeding edge and leading edge.
Bleeding edge means that there is technology risk, which is a quick way to lose money. The key at this stage is to experiment and learn cheaply.
Leading edge means that lots of investors and entrepreneurs are jumping on the bandwagon and prices become too high to make money. This is when you start to hear bubble talk.
Somewhere between bleeding edge and leading edge lies opportunity. Thanks to the Internet, the transition from bleeding edge to leading edge is a lot faster than it used to be as momentum riders accentuate and accelerate every trend. There is a reason that being nimble and agile is so prized these days.
I believe that Bitcoin and smart contract blockchain systems are currently around this transition point.
Yesterday I attended a very practical MeetUp in Geneva focussed on Bitcoin and Blockchain systems. This was not like a gathering of the Crypto faithful that I witnessed at a MeetUp addressed by Vitalik Buterin of Ethereum just a few short months ago. Most business people would have felt uncomfortable in such a geeky MeetUp.
There were two Swiss ventures on stage at the MeetUp – SBEX.ch and Clearmatics.
SBEX are a Swiss Bitcoin broker. The most surprising insight from Alexis Roussel was that Switzerland treats Bitcoin as a currency (not as a commodity as in some jurisdictions) and the regulators found the concept of an alternative currency to be quite normal because Switzerland is a multi-currency country. What? I know Switzerland is multi-language, but I also know the famous Swiss Franc. It turns out that there is an alternative currency called WIR that was set up in 1934 that is quite legal. The WIR was set up by people wanting to create an alternative to a financial system that had failed so dramatically in 1929. Sound familiar? WIR accounts for a tiny % of Swiss GDP but it is real, useful and legal. So the idea of adding another legal currency was not too big a stretch.
Daily Fintech has already written about the competition between jurisdictions to be home to the wealth creation around Bitcoin (while avoiding the trap of being a haven for scammers and crooks). Switzerland could be one of the jurisdictions that get the formula right.
One question at the MeetUp was:
“We are in Geneva, which is home to a lot of Private Banks. What can Private Banks do to meet the needs of customers related to Bitcoin?”
There was an interesting debate around this subject. Alexis Roussel of SBEX.ch made a key point that Bitcoin does not have a user interface, leaving lots of room for innovation and value creation around the User Experience (UX) level.
This is a new stealth-mode venture using Blockchain for clearing and settlement in OTC markets. These OTC markets are big and complex markets and undergoing a lot of change from both digitization and regulation, so Clearmatics are fishing in good waters.
Here is my 101 guide to blockchain systems:
– Blockchain technology was used for Bitcoin, but many of the new use cases have nothing to do with Bitcoin.
– Blockchain is a Ledger, just a distributed ledger that is not controlled by any single institution. You trust the code/math rather than the institution.
– A blockchain database is immutable. In the language of transactional database systems, it is CRUD without the Delete. You can never delete a record. Update means add a new record to the Blockchain, it does not mean that you change the record. You don’t have to trust an institution to maintain this record securely (this really matters in countries with lots of corruption at Government level, because those who control the records effectively control who owns what).
– Smart Contracts are “if this then this” business rules automatically enforced by code. Most business contracts fall into some variant of “I will do x, when y happens”. The key is that enforcement is not via courts, it is via code. Smart contracts often use an entity that is akin to an escrow agent where release of funds is based on “multi sig” (multiple signatures) to confirm that funds can be released because an event has been triggered.
The idea of code-enforced contracts can be utopian or dystopian depending on your POV. I am sure there will be lots of needed debate and regulation around this subject. Can the code-controlled entities be “taken to court” if they run amok (or does Harrison Ford get enlisted in some Blade Runner future?)
From a more practical business POV, blockchain based contracts bring near real time (a few seconds) performance to the kind of intra-company processes such as settlement, compliance and custody that we normally associate with batch processes.
Smart Contracts on the Blockchain are leaving the bleeding edge stage as Ethereum starts to deliver working code. There are plenty of issues to discuss at a technical level around scalability and security and there will be glitches and hurdles, but the balance of probability is now that it will work.
Last week I attended a conference in Lausanne (near Geneva) for investors to connect with tech entrepreneurs. Yesterday was an entrepreneur organized MeetUp where investors were trying to spot the next opportunity.
In both places I witnessed something that one normally only sees in Silicon Valley which is the money guys coming up to talk to the innovators (rather than the other way round). In Silicon Valley it is accepted wisdom that value creation comes from innovation and that money is a fungible commodity. That POV is becoming increasingly accepted in other places, including Switzerland (where that idea would have seemed totally foreign only a short time ago). It is why Angel List gets the investor to pay to access entrepreneurs whereas in Europe the norm is still that the entrepreneur pays to access investors. At the Tech Growth Forum there was a good presentation at a macro level that showed that investor returns without a technology driven “innovation shock” would be well below the 7% annual returns that are needed to maintain things like pensions and endowments. Sp, countries, regions, cities and Banks are all courting innovators like never before. At a micro level, we can expect more investors attending MeetUps that are in the transition between bleeding edge and leading edge, particularly if the MeetUps are Fintech related (because investors understand the Fin part even as they climb up the learning curve on theTech part).