VC’s Bitcoin BooBoo

Note from the Publisher:  One would have to file this under “op-ed” since it’s coming from a blockchain industry insider, but the analogy is well taken.  Many VCs invested in bitcoin years ago, but the exchange “tracks” they laid for that digital currency are now being used by many other new currencies.  Cryptocurrencies and blockchain technology are anamazing, transformative new technology, but not for the faint of heart, and not without investor risk, as this piece notes. 

“Of the over $1 billion venture capitalists have invested in blockchain businesses, that funding has focused primarily on bitcoin, since for years that seemed like the only option. But with the arrival of Ethereum, and a surge of alternate coins and tokens such as Zcash into the market, the landscape is looking very different from what those investors signed up for.

Significant investment in bitcoin startups began in 2013, the year the value of the currency crossed the $1,000 mark before suddenly plummeting. With some wariness, investors returned and put $299 million into bitcoin companies in 2014 and $474 million in 2015……

Alot of capital has gone into the infrastructure for bitcoin to exist. In the venture world, this is typically used as an argument for bitcoin’s staying power as the premier cryptocurrency. But on the blockchain, this traditional business logic doesn’t stand up to scrutiny.

Instead, the infrastructure built for bitcoin can increasingly be co-opted for use by new tokens. These new tokens don’t necessarily add any value for the venture capitalists who originally invested in bitcoin. To illustrate what is happening: Imagine if a railroad company in the 1800’s spent millions laying tracks, only to see a second (and third, and fourth) railroad come along and use the finished tracks for free, to ship more cargo in faster and safer cars.”

Source: Consensys Media