3 Common Misconceptions About Blockchain From An Early Industry Adopter
Back in the early days of blockchain — when one bitcoin could be bought for just a few dollars — many people associated the technology with illegal activities like drug transactions.
This stereotype has changed dramatically in recent years, as blockchain has become widely accepted as a legitimate technology for enterprises. In fact, all ten of the world’s largest public companies are currently exploring possible blockchain solutions.
On the bright side, the technology no longer carries a negative stigma. The downside is that new misconceptions have arisen, and misinformed people are spreading information that isn’t always true.
Misinformation often leads to a raft of false impressions about blockchain and crypto.
Many find the industry too intimidating to approach. Others think an Initial Coin Offering (ICO) is the only way companies raise money.
As you embark on your blockchain endeavors, here are three misconceptions to ignore:
1. It’s too late to join the industry.
Only a small percentage of the world’s population is involved in cryptocurrency.
But for many people, the industry feels like a bubble that’s already popped. They think it’s too late to buy bitcoin, dismissing it as “over and done with.”
The opposite is true. Bitcoin is still in its very early stages, much like the internet before the browser wars of the 1990s. A permissioned blockchain network today is functioning similarly to how companies’ intranets worked before they were connected. Digital currency may, too, in the future be connected by a massive, global, super-computer. But it isn’t there yet.
Buying bitcoin today is the functional equivalent of buying Apple stock at 15 cents. That is, it’s an opportune time to get involved because the industry still has plenty of room to expand.
One thing’s for certain: it isn’t too late. You’ll just have to pay more than pennies to get involved.
2. Every blockchain project or company is holding an ICO.
In 2018 alone, ICOs raised over $12.4 billion.
Despite those eye-popping numbers, not every blockchain project is using an ICO to raise capital. People often believe the terms are synonymous, mostly because of how they’re covered in the American press. Many think a company doesn’t exist unless it has a stock ticker token.
In reality, a large percentage of blockchain companies do not hold ICOs. They raise money more traditionally through venture capital, or via a security token offering.
At Chronicled, my co-founders and I chose not to do an ICO for several reasons. For one, ICOs at that time conflated the idea of a utility token with a security token. If you offer a pure utility token that’s used on the blockchain system to meter the usage of the network, you use a wallet. You can see how much people are using and invoice them based on that, or you can facilitate micropayments. That’s pure utility, and you can’t sell that token, because if you do, it becomes a security and there is speculative value. This combination of utility didn’t work for us.
What’s more, there are no specific regulations for ICOs in the United States. Depending on how the coin is classed, your ICO may or may not fall under the Securities and Exchange Commission (SEC). This regulatory ambiguity is another reason many companies sidestep an ICO and rely on more traditional funding.
3. You can use blockchain technology to build an ecosystem.
A major problem with the ICO model is that companies will try to build the protocol or use some fancy token economics to incentivize an ecosystem. They think that alone will be enough to create a viable ecosystem.
In reality, it should be the other way around.
First, you need a group of people united by a common goal or incentive. That’s your network — that’s who you should build the tech for.
Take online marketplaces like eBay or Etsy, for instance. Etsy succeeded by catering to do-it-yourself crafters and stay-at-home moms selling to people who wanted handmade goods. Initially, eBay tapped into the existing secondary market for limited edition or hard-to-find objects and collectibles. This was just a two-sided marketplace. Think of the difficulty in aligning a multi-sided marketplace as we see in the blockchain world.
But those networks existed before technology allowed them to grow and thrive.
Even when it comes to enterprises, there still has to be some sort of driver binding different parties together. In the pharma industry, that driver is the DSCSA regulations. Everyone in the industry has to abide by the new regulations, which creates a common issue that blockchain technology can solve.
People underestimate how hard it is to build and maintain an ecosystem. And building a blockchain solution won’t magically create an ecosystem that doesn’t already exist.
Misconceptions can arise in any industry, but they’re especially prevalent when the space is new or difficult to understand. Blockchain is no exception, but I’m confident that as time goes on, more of these misguided ideas will fall by the wayside.
Thanks for reading!