Blockchain companies need to bridge the gap between hype and utility
A version of this article by Airfox CEO and co-founder Victor Santos was previously published on Mobile Time in Portuguese
It’s become popular in certain circles to compare the cryptomarket of 2018 to the tech bubble of the early 2000s, when wishful propositions like Pets.com were showered with capital and lauded as innovative only to burst in the blink of an eye.
But measured against the hype surrounding blockchain, the tech bubble comes up short: The gap between hype and utility is far wider now than it ever was then.
The realities, in fact, are alarming.
Blockchain companies across the world are raising millions of dollars in ICOs despite having neither a product or a plan to show for it. And the people investing in those companies are mostly everyday citizens — dentists, doctors, and teachers who often know little about the token they’re investing in.
Outside of a few big players, most tokens with high-market capitalizations don’t possess any intrinsic value whatsoever — let alone a strategy for gaining utility. They’ve created inflated value off of nothing but speculation. And to make matters worse, many of those companies are focusing the funds they’ve raised into more marketing and brand development — tools for further inflating their own hype.
Instead, blockchain companies should be working more purposefully to bridge the gap between utility and hype. Those who don’t will suffer the same fate as the internet darlings of yesteryear.
Focusing on short-term gains is a poor business strategy.
Companies issuing ICOs with the intention of capitalizing on short-term hype might make some money over the next few years. But the real money will go to companies with both a sustainable product and a practical business strategy.
Some tokens mask the fact that they lack a product by promoting a mission that sounds sexy but is ultimately unrealistic. These are the outfits proclaiming their intent is to create a world-wide decentralized bank or a world-wide decentralized internet.
Their founders might have deluded themselves into believing these missions are practical, but in reality, they’re just trying to lasso investors. And that is not a sustainable business strategy.
The companies that will succeed are those focusing on achievable goals that actualize modest utility. Google is one example from the days of the tech bubble that supports the model for this kind of practical planning.
The company started as a search engine. Google did not set out to build digital assistants, or self-driving cars, or even enterprise applications. It focused the initial business model on solving one problem really well and capturing a specific segment of the market. The real money came later.
Of course, there might not be a blockchain company that becomes the next Google. But those that don’t build their business in the same purposeful fashion aren’t even giving themselves a chance.
Companies focused on short-term gains will crash and burn.
Blockchain companies focused on building out an ecosystem of decentralized applications will be the only ones to find long-term success.
They will also be the only blockchain companies that simply survive. This is because the very real crypto bubble is going to pop — and when it does, companies with feeble foundations will fall.
When the internet bubble popped back in 2000, the companies that survived — think Amazon, Google, Netflix — were those with business models focused not on speculation, but on sustainability. They were the companies with real products that solved real problems and created intrinsic value. And they’ve flourished.
Beneath the hype, there are blockchain companies with real products out there today. These are organizations that conduct themselves like they are the start of something, instead of the answer to everything — they have rational business models and are focused on building sustainable futures for themselves.
Outside forces will force bad players out soon.
If companies without tangible products or sustainable business plans don’t fade on their own, forces outside of their control will choose their fates for them, as broader industry is beginning to adapt to their malpractice.
Rules and regulations to more purposefully prevent companies from capitalizing on crypto-hype are already being put in place. The CFTC, for example, now treats cryptocurrencies like normal commodities.
And the market, itself, is also becoming more efficient.
News of investors getting burned on ill-planned ICOs or losing money on hacked exchanges is surfacing. As a result, they’re getting smarter — demanding proof of a tangible product before investing in a token or partaking in an ICO.
White papers are starting to carry less weight than they used to.
At the end of the day, hype is just that: hype. It’s not tangible and it doesn’t last and staking a business on it is akin to building castles made of sand.
If blockchain companies want to realize their innovative potential and survive the impending bubble collapse, founders would be wise to focus on utility and perfecting actual products, as opposed to scrambling for short-term gains.
Aim to be the next Google, not the next Pets.com.