When a Salt Lake City crowd recently was asked if cryptocurrency is a scam, several people raised their hands. Panelists on the stage acknowledged that its underlying technology, called blockchain, was confusing and “frothy” but some predict its future impact will be strong and widespread.
{mprestriction ids="1,3"}But that doesn’t mean it will be without confusion as people come to grips with words like “blockchain,” “cryptocurrency,” “bitcoin,” “tokens” and “initial coin offerings.”
“I sense that’s part of where blockchain is today, where it’s sort of overhyped,” William Borghetti, founder and chief executive officer of APiO, said at the recent 34th annual Investors Choice Conference, presented by VentureCapital.org. “Not everybody really understands what it is. They just know that they’ve heard about these cryptocurrencies and they need to be somehow part of that and just sort of ride that out.”
Blockchain is an encryption technology that a CNBC writer called “a new form of database,” like a Google spreadsheet “where everyone can make changes and updates are shared among participants.” But updates are final, meaning no one can tamper with them, making them “immutable” and creating trust that eliminates the need for a central oversight authority. Others have described it as a decentralized, secure, digital ledger.
Cryptocurrencies are digital currencies that have been prominent in news reports recently as their values have fluctuated wildly. They use blockchain technology, but blockchain has other applications, including many that can be applied to everyday transactions.
“I think we’re just in the very beginning of it,” Borghetti said. “I think we’re seeing applications in finance, we’re seeing applications in insurance. It really has the potential to dramatically transform how you store information, how you protect information and make it immutable. Any industry that relies on data has a potential application for that.”
He noted that cryptocurrency is getting the bulk of the public’s attention but blockchain “is a separate animal and has a lot of great uses.”
Michael Proper, ClearFoundation chairman and founder and CEO of ClearCenter, said blockchain is, like any new technology, in an adoption curve, on its way to reaching mass adoption.
Not long ago, blockchain was “this nebulous thing that none of us humans can touch,” he said. “But now we can actually touch it. We can feel like we can have a different savings account than we used to. Currency is only one application for what blockchain means to the world.”
Tim Ruff, co-founder and CEO of Everym, said that until blockchain, “you were just a part of someone else’s database.”
“I believe that blockchain is a major breakthrough, maybe not quite on the scale of the Internet but at least on par with mobile, social media and things of that scale. For the first time, it’s possible to have a database that everyone can agree on that is correct with no single authority in charge. That’s never been possible before.”
Much of the panel discussion focused on tokens, which are based on the distributed ledger technology. Ruff said he believes many people are buying them without actually being interested in using them because the cryptocurrency environment is “all frothy and exciting.”
“There’s some ugliness here to go along with the beautiful breakthrough,” he said. “These things will collide. These things will separate out in the end. The fool will be separated from their money and eventually, in the end, it’s those that provide real product/market fit of a real product that solves a real problem that are finally going to win in this cool, new space.”
Jason Schneiderman, partner at Perkins Coie LLP, acknowledged that the blockchain world can be confusing.
“It’s very complex from a legal and regulatory point of view. There’s a lot of misinformation out there in the news. The SEC is trying to wrap their head around it. It’s a very disruptive technology. I hate using that word, ‘disruptive,’ but it is. It’s a powerful one that is here to stay forever, and it’s one that really does require some very thoughtful thinking when you go down this path,” he said.
“You want to have good advisors and good legal counsel and good accountants to kind of walk through it. It’s not to enter into with a light heart. Be careful what you read out there. There is a lot of misinformation. There’s also a lot of people holding themselves out as experts, and they are not, so just be careful.”
But blockchain, despite its issues, represents opportunity for investors, according to Ruff said.
“There’s some ugliness, there’s some frothiness, it’s unsettled and it’s very dusty and messy, but there’s some beauty in there. … At the beginning of the Internet and before the dot-com bubble, everything was very frothy and all these cool business models hadn’t been figured out. That’s where the opportunity is.”
Many tech companies figured out their business models only after the dot-com crash in about 2000, he said. “The same opportunity is there with blockchain,” Ruff said. “There’s some ugliness, but do not throw out the baby with the bath water. [There are] some special, special things in this field of technology.”
Proper suggested people not invest right now but instead focus on gaining better understanding. “Stay on the sidelines,” he said. “See what happens. There are going to be good companies that will come in the future. Right now is a very good time to just observe.”
“Do not invest if you do not understand this space,” Schneiderman concurred. “I can’t reiterate that more. I’m doing so many more of these deals and I get worried about some of these people that want to get in … and they truly don’t understand it, and that’s just speculative.
“You really do need to understand it, just like any investment.”{/mprestriction}
