From IPO to ICO: blockchain’s finance revolution

Andreas Antonopoulos, author of Mastering Bitcoin and The Internet of Money, with Hilary Carter at the Blockchain Training Conference in June, 2016. Photo by Jan Miranda.

For the past year I’ve been researching, speaking, and writing about the blockchain phenomenon and its potential to disrupt business and government as we know it. Anyone following me on social media will by now realize that I have been bitten by the blockchain bug and do my fair share to spread the “mnemonic virus.”

The Intersection of Social Media and Blockchain

Unlike many social media users, I was immediately captivated by the decentralized, global, and transparent structure of Twitter. Those characteristics connected me philosophically to the decentralized structure of open ledger networks such as the Bitcoin and Ethereum blockchains. While radically different in function and utility, both social media networks and blockchain projects have to be able to sustain malicious actors of a Byzantine Generals’ scale: in the same way that Twitter is threatened by abusive and disruptive behavior by trolls and bots, so too is blockchain technology undermined by hackers and scams.

I believe that social media has been, and will continue to be, blockchain’s best friend. Without it, the ecosystem simply could not communicate the vision, scope and benefits as quickly, nor would the ecosystem be as robust as I believe it is today.

Naturally it was social media which first introduced me to the blockchain. Since then, I have consumed volumes of literature and video content, become certified as a Bitcoin Professional (CBP), regularly attended MeetUps, and finally jumped in to contribute my own communications and trust-building perspectives. I’ve been introduced to a burgeoning community of innovators and visionaries (and one notable nomad). How quickly the technology will transform society I can’t begin to speculate. I do know one thing for certain, and that is that the future of value exchange is already here, and that venture crowdfunding will never be the same again.

A Career Disrupted

Why would a social media strategist have any interest in blockchain’s disruption of finance? The answer is rooted in the story of my career. I’ve had two major professional chapters in my life: the first, financial services; the second, communications, and digital innovations have come along to disrupt both. As such, I’ve had no other option but to adapt to new paradigms that are ruled by consensus algorithms — both the kind that power Amazon and the kind that enable value transfer on the blockchain. The blockchain speaks to that first chapter of my career — loudly and clearly, but is also closely related to the second.

In the same way that the internet disrupted the print industry, and along with it, my ability to sustain myself writing as a freelance contributor to print publications, social media networks are proving to be a thorn in the side of traditional media outlets. Along with my digital (and career) crisis came a new opportunity: master mobile communications apps and help business leaders become great storytellers and community-builders on them, and understand both the dirt and clouds associated with the territory.

Like the publishing industry before it, financial services is undergoing (and will continue to undergo) an equally radical transformation. The transparency and instant access to information which the internet made possible has effectively exposed the excesses of Wall Street, giving rise to the Occupy movement. The party, as many of my former colleagues knew it, was officially over. Add to the fact that digital innovations like the blockchain are democratizing finance and value transfer, and that monetary policy has all but run its course as a means to stimulate financial markets, and one can conclude that a paradigm shift in financial services is well underway.

From Global Information Exchange to Global Value Exchange

After the sub-prime mortgage crisis, the White Paper by Satoshi Nakamoto entitled Bitcoin: A Peer to Peer Electronic Cash System was published. Bitcoin, a digital currency defined by its use of cryptography, fixed coin supply, global distribution, transaction transparency, peer verification and immutability, began trading in January of 2009, creating a history of verified transaction blocks, linked together to form “the bitcoin blockchain”. This peer to peer value exchange mechanism offers efficiencies and benefits (low transaction costs being primary among them) which are poised to alter the financial system as we know it today.

The creation of bitcoin may well be a response to the bailouts that followed the global financial crisis of 2008, based on the following reference which appears alongside code lines in the bitcoin genesis block:

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”

From Digital Payments to Crowdfunding

Fast forward to present day where a countless number of spin-offs and applications have been built using blockchain technology. The world has witnessed the emergence of distributed micro-finance and venture capital through ICOs (Initial Coin Offerings), the most notable perhaps being the online crowdsale of Ethereum in 2014, the fifth largest crowdsale in history, where investors bought USD $18,500,000 in ether tokens using bitcoin.

Many ICOs have occurred since, creating new opportunities for people around the world with small (or large) amounts of investment capital to participate in wide-ranging, innovative projects. All that is required is that the investment capital be in the form of a cryptocurrency. Chronobank, an Australian-based blockchain innovator in human capital, is currently conducting a crowdsale that accepts six different cryptocurrencies: bitcoin, litecoin, waves, NEM, ether, and ethereum classic, with very low minimum investment requirements.

In Canada, The TokenFunder Project is an Ethereum-based platform in development that will enable entrepreneurs and non-profits to tap into a global investor base and easily create their own tradeable, project-specific tokens and manage donations and other types of contracts. Full disclosure: I’m personally involved in this project from a communications perspective and look forward to seeing the initiative unfold. And yes, there will be a TokenFunder ICO, or ITO (Initial Token Offering) to fund the project development.

For entrepreneurs with compelling project concepts, the ICO opens the door to unprecedented levels of funding right at the outset, from investors located anywhere in the world, and without having to pay the kinds of fees associated with well-established crowdfunding platforms or indeed other means of raising seed capital.

For investors, the ICO creates access to new opportunities — though not without significant risk — at a time when equity markets are at all-time highs and interest rates remain at historic lows.

ICOs are inspiring for their potential to give everyday entrepreneurs a chance to fund their project, and the average person a window of opportunity to invest in the future, come what may. Previously, investing in groundbreaking technology was only available to insiders, high net worth individuals, and top clients in private equity houses and private banks.

Memories of Yahoo

Allow me to take you back twenty (plus) years to 1996, and the event that left an indelible impression on me with respect to the workings of a centuries-old model of finance at the dawn of the internet.

I was roughly a year into my first full-time job at one of Canada’s investment brokerage firms, and Yahoo was raising capital by way of an Initial Public Offering (IPO). Yahoo partnered with a number of financial institutions to raise equity through underwriting, and our firm was one of the fundraising partners. Clients of these partnering firms, both private and institutional, were given the opportunity to buy shares — known as new issues — at a fixed price before they became publicly traded. As long as the underwriters priced the Yahoo new issue accurately enough to avoid wild swings at the outset of trading, everyone would be happy.

As I remember it, not everyone was happy with the Yahoo IPO. Because my firm was to raise only a small percentage of the Yahoo capitalization requirement, it had a limited opportunity to offer many of these new issues to clients, coupled with the fact that demand interest in the company exceeded the supply. Only a select few would be given the opportunity to invest in the new Yahoo issues. I witnessed intense animosity between colleagues over who was entitled to what amount of the allocation. The biggest, most successful brokers secured allocations for their largest clients, while the average investor was shut out.

That reality, where the largest clients got first dibs on new ventures, taught me my first lesson about the realities of the ‘modern’ economy: the big cats eat first.

Having been given my professional start in the world of traditional finance and IPOs, I’m mesmerized by the shift in process and the democratization of investing. I’m also inspired about the kinds of projects that everyday people now have access to. Not all ICOs are necessarily investments in high-risk software developments. The possibilities are limitless for people in developing economies to raise funds for local projects on the blockchain. This could take the form of a community-based power grid, a farming co-op, or a fair-trade factory.

Social Media and the ICO

Social media has become the indisputable communications partner in the world of digital finance — and it is here that my two career interests officially collide. Twitter has been the platform required to create global awareness of ICOs, and in doing so, it gives these ventures the opportunity to establish a global investor base. Other channels such as Slack and Medium are essential to building trust in the new financial paradigm. It is on social media where innovators are engaging, responding, and leading discussions about their ventures, and being completely transparent about the associated risks.

Thus far, blockchain innovators are socially savvy and well versed in conducting transparent debates — sometimes heated ones — about their ideas. It’s a necessity in all industries, but particularly in cryptocurrencies. Blockchain innovators know that the cryptocurrency world is one that needs to build greater levels of trust, establish a human face, and create — and then sustain — a supportive community of advocates. They know that in order for their applications to enter the mainstream, they need to actively share knowledge, information, and their intrinsic motivations on social channels.

While the IPO will still be with us for some time, the ICO is the game-changing mechanism that will fund the future of grass-roots innovation. There are plenty of issues to be addressed, but just as the internet changed the world of communications, the blockchain-based ICO has forever changed finance. The little guy has a chance to be a part of the Yahoo equivalent of today, and the everyday entrepreneur with a winning idea has greater access to funding at lower cost, and on his or her terms. The democratization of finance is finally here.