Blockchain related ICO Investing Principles by INBlockchain
by Li Xiaolai, founder of INB (inblockchain.com)
ICO (Initial Coin Offering) is a means for blockchain startups to raise capital from the public that is somewhat equivalent to an IPO on the stock markets.
Blockchain refers to a public ledger system maintained by a decentralized network that serves as an open and immutable database.
The term "Bitcoin" can be understood in several different ways, which is why people always get confused and often disagree with each other when it comes to discussion of Bitcoin-related issues.
First of all, Bitcoin is the first, most successful blockchain application.
Moreover, Bitcoin is a world bank that is not run by any authority, but instead by a decentralized network.
In addition, this decentralized world bank, Bitcoin, issued a currency that happens to have the exact same name, Bitcoin. Some are more meticulous so as to refer the currency to BTC, rather than Bitcoin.
Even seven years after the birth of Bitcoin (2017), few people have realized that BTC could also be thought of as the stock of the decentralized world bank, Bitcoin.
Since the birth of Bitcoin, thousands of other cryptocurrencies have been issued. Though most of them are already extinct, some of them are still alive, and some even prosperous. Litecoin, for example, is the most famous example of an altcoin, and Dogecoin is another.
At first, many people thought of these cryptocurrencies as "copycats", with no intrinsic value at all. Later on, after witnessing that what they thought to have no value persisted or even flourished, they started using another term, "altcoin". Perhaps the world needs more than one world bank, who knows? And... who cares.
Here is what I think:
In the markets, people are buying two kinds of value: the intrinsic and the superficial. An undeniable fact is: for those who are buying the superficial, it looks exactly the same as the intrinsic.
By MBAcoins, I mean coins issued by Meaningful Blockchain Applications (MBA). By Meaningful, I mean the applications are solving real problems, not problems that have already been solved by Bitcoin.
Honestly, I don't think altcoins have solved any problem that bitcoin didn't. And I hope (not believe), that at the end of the day, one world bank would be enough.
The truth is, the world needs more than one blockchain application. Perhaps the second MBAcoin is Namecoin, a blockchain application trying to offer a decentralized domain service. Ethereum is another successful MBAcoin that is built upon blockchain technology to offer new functions including smart contracts.
At the time of publishing (June, 2017), many MBAs have been running for more than 6 months and are performing pretty well. For example, Sia provides a decentralized storage service just like Dropbox. Steem is another young MBA that creates, discovers and distributes content with a public ledger built upon blockchain technology.
In the past few years, Bitcoin dominated the blockchain world with its single largest market cap. In April 2017, however, Bitcoin's dominance dropped to 52%, although its price had been surging along with other blockchain assets.
This is an important signal that the blockchain world is transforming into a forest, not a piece of land with a single tree anymore. If this is the case, then this prediction might well be true:
In the future, Bitcoin dominance will continuously drop, and even drop to less than 5%...
I'm a large bitcoin holder. Since I think of BTC as the stock of a world bank, it's quite natural for me to spend as little BTC as possible.
Before 2014, we invested in Bitshares, and yunbi.com and I have been personally maintaining bitcoinsand.com, a bitcoin bank, for years. Since the last quarter of 2015, my team and I started to invest in MBAs in earnest, but with a rigorous set of principles. We have invested in Sia, Steem, Zcash, QTUM, EOS and numerous others. Often, we invest both in startup equity and also in the blockchain assets the startups issue. We are actively participating ICOs around the world.
Investment is by far the most risky activity, because every skill that it requires cannot be genetically inherited.
The birth of every true innovation is followed by many copycats and frauds. This is especially true when the innovation comes with inherent financial functionality.
Investing in blockchain startups and their assets is extremely risky in that people are often attracted by the tremendous profits they have heard about, rather than by any thorough understanding of the value that the application creates.
By publicizing our investing principles, we are trying protect ourselves. Ideally, this altruism serves selfish motives: the less fraud happens, the safer we are.
Sometimes asking questions is much more effective than describing principles: by struggling to get an absolute answer to appropriate questions, principles are naturally adhered to. Here are major questions we have asked ourselves again and again before we decide to invest any blockchain startup or blockchain asset:
- Is this truly needed by the world?
- What otherwise unsolvable problem does it solve completely?
- Is decentralization truly needed?
- Is an open ledger truly necessary?
- Can an open ledger truly boost the efficiency of the business model?
- To what extent is it a DAC (Decentralized autonomous corporation)?
- If we decide to invest, what percentage of our fund should we use exactly?
That's all; the simplest questions tend to need the toughest thinking to get to an accurate and concrete answer.
When one looks into the mirror, every thing looks exactly same, but in fact everything is reversed, not only the objects, but also their order. Investment might well be thought of as happening in the "mirror”: every detail in the mirror looks familiar and simple, but naive investors don't know they are in the mirror world—they don't know what they see in the mirror doesn't operate the way it does in the outside world. More often than not, opportunities look like danger, and bait smells like cheese.
Another good analogy is to driving a car. If you are an Australian, and trying to drive in the United States, you will get uncomfortable and often confused, because you are accustomed to driving on the left. You might even get yourself killed if you don’t prepare yourself for the new rules. So, be careful driving on the other side!