It’s time to talk about the concept of a Crypto City. But a few things first.
Cryptocurrencies (Bitcoin, Ethereum, and others) have emerged in the last few years as a completely new “beast”. Cryptocurrencies will have a huge impact in many sectors — the economy, politics, tech, etc.
The last few months have seen a “craze” over the so-called ICOs (Initial Coin Offering). Let’s start with the basics: what’s an ICO?
And then: what can we do with an ICO, that we couldn’t do before?
What’s an ICO?
An ICO (Initial Coin Offering) is an event where a company issues new crypto-tokens, usually based on an existing blockchain (usually Ethereum, or on occasion Bitcoin), and sells a percentage of these new coins in exchange for other cryptocurrencies.
These new tokens offer some form of functionality or service, that in theory gives them value.
Companies promise various things to ICO token buyers in order to convince them to buy into the ICO: Civic tokens provide the ability to handle identity and KYC functionality; Basic Attention Token (BAT) allows publishers to buy them and use them to pay for “attention” from other people that will be rewarded with BAT tokens; and so on.
In other words, ICOs are a way for companies to raise money, often without any need to give away equity. As angel investor Gil Penchina says, ICOs are roughly the equivalent to AngelList + Kickstarter, on steroids.
Compared to an IPO (Initial Public Offering), there are huge regulation and financial differences, but the concept is the same: raising money.
The mechanism is open to scams, but if well designed and properly executed, it can also be a very powerful way to create network effects over time.
An ICO example
An example: I create the company NotAName Inc., and issue 1 million NotAName tokens (NAN). I keep 50% of them, and sell the remaining 50% at a price of 1 ETH = 50 NAN.
If my ICO is 100% successful, I will have sold 500,000 NAN for 10,000 ETH, currently valued at about 3 million US$.
I can then proceed to spend these 3 million US$ (after converting them from ETH) to do whatever the company does.
Why did people buy NAN? Because I promised them two things:
- There is an immediate value provided by the STK token, TODAY.
- Buying the token now guarantees financial returns in case in which the service provided becomes very successful over time.
My new startup: NotAName Inc.
This is where the idea to use a crypto ICO can be connected to my new (real) startup.
Let me describe the startup first, in a sentence or two. The name is still pending, so let’s call it NotAName Inc., like in the example above.
I’m Simone Brunozzi, an Italian living in San Francisco. After a career in IT at Amazon Web Services, VMware and others, and some parallel experience in investments with Mission and Market, I decided to leave my last job at a Silicon Valley startup and become an entrepreneur (again).
I believe that there is a need for a new model of “living”: whether urban, suburban or rural, our current housing infrastructure is vastly inefficient, slow, unsustainable, unfair.
I am working to build a platform where a number of “projects” can be financed, and then built, based on a specific “design” that provides benefits in terms of : better financial returns; efficient, green buildings; a “community” experience where the architecture design itself helps people connect and know each other.
Example: Project 1 could be the creation of a “borgo” (village) in the outskirts of San Francisco. A beautiful, well designed group of apartments and houses, with a central Piazza and the typical few things that you find in an Italian village, like a bakery, a coffee shop, a bocce field, a little family-run restaurant, maybe a church. It could be an ideal primary home for people that can telecommute, and that want a different lifestyle compared to the one they find in the city. It would be more affordable, more sustainable, and a better investment.
The main problem with this type of projects is that they require millions and millions of dollars. It’s not easy.
The Real Estate industry is too conservative to try innovative ideas like this. But it would make a ton of sense to build it, if only raising capital for it wouldn’t be so difficult.
This is why I believe that there is an opportunity to use a crypto/ICO mechanism to finance an infrastructure project. In this case, an entire City, probably from scratch.
This is how it could work (numbers provided are simply an example):
- NotAName Inc. invests time/money to produce the blueprint of a specific project, named “crypto city”. Let’s assume that it captures the interest of several hundred, if not thousands, of people. They say they want to live in a place like this, if someone builds it. A good start!
- First round of funding / ICO: we issue 1,000,000 tokens, retain 50% of them, sell 500,000 for 10,000 ETH (about 3 million US$; 50 NAN = 1 ETH).
Why would you buy tokens now? Because of what happens at #6 (they eventually generate a dividend, and can be always sold to others).
The tokens issued to the company have a vesting schedule, and some limitations to avoid speculation or taking advantage of the token buyers.
- We use the funding to hire an architecture firm and a real estate developer to identify a land, and create a more structured project. At the end of this phase, we have an executable project that only requires funding to be initiated and completed.
- Second round of funding / ICO: we issue 9,000,000 tokens, bringing the total to 10,000,000. NotAName Inc. gets another 1,500,000 tokens, bringing its total to 2M (20%). The remaining 7.5M are sold in an ICO, at a rate of 10 NAN = 1 ETH (total amount raised is 750,000 ETH, or about 250 million US$).
- The money raised is used to buy the land, pay the various firms and contractors to build the city.
- After some time, a city of 10,000 people is built. Apartments and houses are not sold, but only rented out. The proceedings go to the token holders.
Of course, this is a rough, short, dirty plans, with several holes and issues at pretty much every single step.
The size of the city could change. It could be a smaller village of 500 or 1,000 people. Or it could even be bigger.
I think this framework is a good start to think about novel ways to leverage the ICO mechanism to fund initiatives that wouldn’t exist otherwise.
I am sharing it here, because I am looking for feedback and suggestions from you.
Let me know what you think! Thanks.