Fintech eliminates middlemen. Financial products and services that have historically been the realm of entrenched legacy institutions are migrating to mobile devices and software platforms, which allow customers to execute transactions effortlessly and on a peer-to-peer basis. Fintech startups raised $17.4 billion in funding in 2016 and are on track to exceed that amount in 2016.
The most dramatic developments in this space have been the introduction of cryptocurrencies and initial coin offerings (ICOs). The first cryptocurrency, Bitcoin, was conceptualized in 2008 by an anonymous person or group known as Satoshi Nakamota and implemented in 2009. In his white paper on Bitcoin, Mr. Nakatoma also conceptualized blockchain, which serves as the core component for the technology underlying most cryptocurrency transactions.
Since its introduction, Bitcoin has increased in value from less than a penny to a recent high of over $20,000, spawning the introduction of hundreds of other cryptocurrencies.
Arguably, the cryptocurrency market, and Bitcoin specifically, has evolved in a direction that runs counter to Mr. Nakatoma’s original intent. Mr. Nakatoma’s paper, spawned by the economic crisis of 2008 stated that, “I’ve been working on a new electronic cash system that’s fully peer-to-peer with no trusted third party.” In other words, Bitcoin was supposed to be a way for individuals to pay for products and services while circumventing the existing financial establishment and middlemen. Unfortunately, that vision never materialized in any significant way and the currency has become a speculative commodity that has attracted the inevitable middlemen (Coinbase etc.).
When the current fervor corrects, and it will, many, if not most, of the current cryptocurrencies will be washed away. Hopefully, some will survive and thrive, as did many of the Internet companies after the burst of the Bubble. I am a firm believer in the value of cryptocurrencies, free of governmental and institutional control, as a medium of exchange. It will be interesting to see if our governmental authorities allow this to happen on a long-term basis. Personally, I am pessimistic.
The initial coin offerings (ICOs) are very interesting. They are essentially a crowdfunding mechanism for startups and other businesses to raise funds without giving up an ownership interest. The “coins,” which are more accurately referred to as “tokens,” generally give their owners the right to future services and products. As with the cryptocurrencies, there is an aftermarket that trades the tokens. Quality-wise, the tokens are a mixed bag. Some are funding legitimate projects; some will crash and burn; and others are outright scams.
The fact that the ICOs are not offering ownership stakes is important. According to the SEC, if the companies selling tokens offered ownership stakes they would have to comply with securities laws. There have been hundreds of ICOs this year, which have raised over $4 billion.
Initial coin offerings are crowdfunding campaigns on steroids. My quote. Feel free to use it, with attribution, of course.
SI already has a board that does a good job discussing cryptocurrency trading on a daily basis. I envision using this board to discuss cryptocurrency issues in a more general fashion and to drill down on specific investment opportunities in the fintech and ICO arenas.
This board was originally created to discuss LendingClub Corp., the first peer-to-peer lender to complete an initial public offering.
Cryptocurrency market caps: coinmarketcap.com
Initial coin offerings (ICOs) market caps: coinmarketcap.com
Satoshi Nakamoto whitepaper (Bitcoin: A Peer-to-Peer Electronic Cash System): bitcoin.org
Related SI boards
Bitcoin: Subject 59173
GBTC: Bitcoin Investment Trust (not an ETF): Subject 59732
IOTA (which does not use a traditional blockchain technology): Subject 59917
Blockchain: Subject 59919