The world is abuzz with talk of Bitcoin, and a large variety of alternate coins, popularly known as Altcoin for short. Trading volumes for Bitcoin are through the roof, with its price having zoomed upwards of 30 times in the past 12 months alone. It recently crossed $6000 for a single BTC token, clearly showing that more and more people are realizing what it is, and waking up the a new reality.
What is a Digital Coin?
In order to understand what a Coin is, or Cryptocurrency, as it is more technically known, it is important to understand what currency itself is. I have previously discussed what money and currency is, and this will serve as a good background on this article.
In short, however, currency is a way to store and transfer value, allowing two or more parties to enter into transactions. For something to be a currency, a few conditions must be met. For one, it has to be convenient to use. For another, it should be widely accepted as valuable.
A digital coin, or a digital currency is a digital version of money. For a digital something to be treated as money, it needs to satisfy another very important condition. It needs to be controlled in such a manner that it can’t be “copied” like other digital things.
This is where a technology called Blockchain becomes useful, allowing a secure, decentralized manner in which something can be controlled and mediated. This enables digital coin to not just satisfy the condition that it needs to be controlled and not copyable, but also makes it so that this control does not rest with a single central authority.
An example of a single central authority is a central bank, in a country, that decides on various parameters of money supply, basically unilaterally.
Blockchain makes this central point go away, allowing everyone to share the task of being the authority. This decentralization has many benefits, the chief of which is that transactions can be recorded accurately and without being hackable by an untrusted third party. This latter part is ensured using complex mathematics and cryptographic algorithms, hence giving the name cryptocurrency.
Another important aspect of the digital currency is the ability to forge smart contracts or self-executing contracts onto the blockchain. These are immutable and execute automatically when certain conditions specified in the contract are met. This eliminates the manual procedures and efforts required by two entities when they indulge in any form of commerce or business. Smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations on the participating parties.
What is Liquidity?
Liquidity is a measure of the health of any given market or economy. When there are a lot of transactions happening across the board, it is said to have a lot of activity, and the volume of transactions is said to be high. These words, volume and liquidity, both are a measure of this activity. Liquidity can best be understood by understanding a lack of liquidity.
Many small countries, for example, have suffered liquidity crisis when foreign investors suddenly pull their money out of various investments, and/or hold off on transactions. This happens when there is a loss of confidence in the future of that country for whatever reason.
This sudden lack of liquidity, if it intensifies and persists, can cause all sorts of bad things. Good things happen when markets are liquid and trading volumes are high.
Cryptocurrencies and Liquidity
And how does all this involve cryptocurrencies? Basically, since a cryptocurrency is just money, it also needs liquidity and volume.
The usage of the coin as a currency is what makes it liquid - and the liquidity is what makes it a currency. In other words, what is a currency that has no liquidity?
Now, we’ll take a short detour, and will return to the crypto world. A short stop at understanding entrepreneurship and fundraising.
What is a fundraise?
When a new business wants to start, it often needs capital to do so. Or, a going concern may need capital to grow. Or a successful business may want to acquire a rival competitor, and may need capital to do so.
These call for fundraising activities, and there are a whole range of ways for businesses to raise capital. Each has merits and demerits, and various situations decide what options are best suited to the business.
One of the ways in which larger businesses or more ambitious projects raise money, is through something we’re all familiar with - raising money from the public via the IPO.
What is an IPO, or an Initial Public Offering?
Traditionally, when a business starts to grow larger and larger, it needs more and more capital to keep up the growth. One way to raise these larger amounts of capital is for businesses to directly go to the public for the money - in other words, incentivize individual investors such as you and me to fund the business.
This process is called a Public Offering, as in the investing public is offered shares in the business in return for funds. An IPO is the first time a business directly raises funds from the public market, in an Initial Public Offering.
And how is this all relevant to our discussion? And ICO is very similar to an IPO, with some key differences.
What is an ICO?
An Initial Coin Offering is now probably self explanatory. It is the first time the investing public, you and me, is offered the chance to buy coins, in exchange for funding.
The ICO is also called a token sale, since it is selling tokens or coins. It is also called a crowd sale since it is raising funding from a large crowd of people - the general public.
ICO vs IPO
The major difference today between an ICO and an IPO is that the IPO process is regulated by various authorities in all countries. The ICO is an entirely new thing for one crucial reason - the tokens need not be shares in the company.
This means that the business may not actually be issuing stock against those tokens, and the investor is hoping that the appreciation of the token will come via buy-side demand on the trading markets. In other words such tokens are pure-utility tokens, which do not offer any equity in the business at all. This is in contrast with a more rare type of ICO, one that offers equity-linked tokens, or equity-tokens.
But this leads to another insidious difference, and that is that because the business is not issuing stock, this process is not currently regulated. This means that unless one is careful, one can be misled into investing into the wrong project or wrong group of people.
So are there any safe ways to invest in ICOs?
As we discussed so far, there is no regulatory authority today for ICOs. Therefore, there isn’t any such thing as a “regulated” ICO. So far. Regulation itself is good for the industry, as it brings about dependability and predictability to things, not to mention some oversight that adds responsibility into the mix.
Having said this, there are several ICOs today that are doing things by the book, even though there is no book. They’re simply following the IPO rule-book. In other words, some “regulated ICOs” are simply faithfully complying with the law of the land where they’re domiciled, and behaving as if they were doing an IPO. Of course, there is no under-writing process, so there continues to be that difference.
These voluntarily compliant ICOs (to the furthest extent that the intent of the rules can be applied) are a good way to seek out mature teams that are building products and services for the long run, as opposed to just trying to find a quick way to raise money without offering much in return to investors. Equity-tokens on the other hand are backed by actual stock in the business, along with certain rights as well.
An example of such an ICO is PressCoin, for the business is issuing equity, and is offering PressCoin tokens that each are backed by a share in the company. Further, the business is based in Zug, Switzerland and is compliant with FINMA regulations for raising funds from the public.
ICOs as an Alternative Investment
The current demand for coin investments is only the beginning. There are several reasons why there is such an investor appetite, and also several reasons for why this will continue for some time. Two of these reasons are of note.
The first is that ICOs have become a very popular alternative for entrepreneurs to raise capital for their projects. This trend will continue dramatically, and has already surpassed investments made by the venture capital industry this year.
The second reason that this space will continue to see massive growth is the sheer potential of the underlying technology: blockchain. The applications of blockchains, or distributed ledgers, is thoroughly transformative, and this innovation will drive wealth creation for the next couple of decades.
To really understand cryptocurrencies, one has to really understand currencies and blockchain, at least enough to understand what the crypto revolution is going to be all about.
Here's an article I wrote for BloombergQuint - What is a Cryptocurrency?
And here's the unedited footage, for those who like the behind-the-scenes story :)
HigherOrderVC has its origins in Quintype. Common founders, next evolution, that sort of thing.
Quintype itself originated in the world of media tech. What began life as the world's most advanced media technology cloud morphed into the world's smartest abstraction for new Internet applications.
A platform for Quin
After all, what is an Internet application today? Is it a website? A mobile app? Email newsletters? Smart push notifications? A chat-bot? A voice-assistant? Social presence across Facebook, Twitter, Snapchat, Instagram, and who knows how many others around the world? What about presence on new platforms and devices, and constantly keeping up? How does geo-location fit in? What about personalization, and big-data, and AI?
More than anything else, in this crazy world of infinitesimally small attention spans, how does a business drive customers, keep them engaged and satisfied, convert them, and then how does one repeat this consistently, while navigating the changing technology, market, and economic landscapes?
We realize that every business in the world is a digital business, driving a funnel. At the bottom of the funnel, media companies are monetizing their users' attention via advertising. The rest of the world is selling stuff. In that way, everyone is a marketer or a media company, driving awareness, driving engagement, hoping to convert, hoping for repeat business.
And it's full of stars! At the very least, funnels are not just funnels in themselves, but they're composed of sub-funnels, and so on. Which makes creating data-driven enterprise possible only if you have a very strong data-foundation on which to build this digital business. We all know the challenges with being truly data-driven in today's world... without seamless integration, it is fundamentally impossible.
What then is the formula for success in this new post-Facebook, post-mobile, post-glocal, post-data, post-AI, frankly, post-fact world?
Quin = Community + Activity + Commerce
Quintype is a platform to launch Quin.
Quin bring together 3 critical things for their businesses. The first is community/audience that the business identifies with. The second is a very specific activity/purpose for which users have come... this things-they-do-when-they're-there manifests into what keeps them engaged, serves their needs. Which leads to the third and most important thing about a Quin: it surfaces value.
When an engaged community coalesces around a clear purpose and a set of features that add value to their lives, this interaction, this exchange leads to commerce.
Quin and the New World
Our goal at HigherOrderVC is to help create the largest, most valuable Quin for the new world. To this end, we started HigherOrderVC to apply Quintype to the world at large. We do this by creating new companies, joint-ventures, and other forms of partnerships with enterprising teams and organizations around the world.
You'll hear about several of these in the coming weeks and months.
The New New World Order
There is change in the air. From climate to politics to racism to hunger and disease... things seem to have taken a perceptibly dark turn. At HigherOrderVC we believe, however, that we have the potential to save ourselves. And in that, lies the opportunity to create and facilitate that truly new world order that will be about the people, and for the people.
And whatever the technological needs of the future, one thing will remain correct - that software will eat (scratch, create) that new world. And to that, we add: the future will be platformized. Come join us in inventing that new world order.