Two Bit Idiot is one of our favorite Bitcoin commentators, and when he discusses on “crypto-equities” it seems a bit like he’s potentially a bit confused about the relation to “cryptoequity,” a term we’ve pretty much invented and popularized.
Let’s set the record straight. “Cryptoequity” is not “crypto-equity” as Two Bit Idiot means it. A “crypto-equity” is an equity equivalent that is issued on a cryptographic ledger. “Cryptoequity,” conversely, is an umbrella term that covers various applications of cryptographic ledger offerings.
These can include:
- Product presales in which the token serves as a coupon redeemable for a real world good (i.e. the Comic Book sale done via Swarm)
- Product sales in which the token is redeemable for some service in a decentralized network (i.e. Storj or Ethereum)
- Product sales which serve as a “subscription” or membership to some decentralized network (i.e. Swarm)
- Token which serves as a license to use some type of intellectual property, potentially with an attached legal contract (i.e. sales being conducted in the Swarm 5th of November launch)
- “Shares” serving as stock equivalent for organizations that have no legal entity (i.e. BitShares)
- Shares serving as stock for legal entities (i.e. Overstock/Medici)
The relative benefit of many of these is that it solves a interesting problem related to the near zero marginal cost of software distribution. This near zero distribution cost has allowed things like the free and open software movements, as well as technology like Linux and Bitcoin.
In this case, the fixed scarcity of a good or service allows the market to determine the appropriate price point for a product, rather than the determination of the issuer/vendor or simply making it free. This is, effectively, the idea of an “AppCoin,” as Joel Dietz noted in March (http://evergreenthoughts.quora.com/Bitcoin-crowdfunding-Naval-and-Fred-step-up-to-bat), and there are several interesting variations on this theme.
The most important aspect is that the market determines the price of the good. While Two Bit Idiot might think that VCs do a pretty good job at determining the value of things and essentially states that the current system is working just fine, there’s a strong case to be made that democratic access produces more accurate pricing models than restricting access to the “sophisticated” investor.
This is particularly the case in any sort of technological project which supposedly “sophisticated” investors do not understand. I’ve had the sad opportunity to pitch VCs in which I was asked to explain Bitcoin and why it is important. As a former software engineer and architect, that’s a total waste of my time. “Over-eager” open source enthusiasts are actually far more sophisticated about the nature of these technologies and related opportunities than traditional investors.
Not only that, this gap is widening. Not only is crowdfunding continuing to grow in such a way that it may displace VC as the primary funding method for early stage ventures, it engages the people who actually care deeply about the project’s success. Moreover, the current measure for “sophistication” that the SEC currently employs is simply how much money you have. If you have $1mm you are sophisticated? If you don’t you aren’t?
Seems like a bad joke being played on the people of the United States, a bad joke that is killing off innovation and stifling the job creation that could come with the introduction of a more streamlined process for funding that engages the people who know the most about the subject area and who care the most about its success.
Part of that is also applying crowdsourced due diligence, as noted in this CoinTelegraph article, which allows people not to participate naively but to actively engage in a review process that is itself decentralized and participatory.
This fits into a broad literature on the possibilities of decentralized networks, from swarm intelligence to the evolving literature around user agent modeling and cryptoeconomics. It’s a new paradigm and it’s a shame when people comment without familiarizing themselves with it.
If those new possibilities excite you, you probably should be at the world’s first decentralized demo day:
And remember, remember, the 5th of November.