Puritans, history tells us, often are early movers into unexplored spaces where there are no written rules.
That’s very much the case with cryptocurrencies. Bitcoin, most notably, was established on a basically 100-percent “pure” ideal — a completely decentralized marketplace structure, and “management,” such as it is, really has no control. People buy it on pure speculation.
However, this is changing before our eyes as market forces propel cryptocurrencies and other blockchain-based vehicles toward what we’d view as traditional regulation or governance structures.
What’s happening and why? There are a few parallel forces as work.
To date, cryptocurrency markets have seen over 1,000 initial coin offerings (ICOs) worldwide, but fewer than 10 would be considered “fully-regulated” (according to CoinDesk, ICOs so far have raised over $7 billion, most of which has been generated since the middle of 2017).
Looks, Acts, Walks Like a “Duck”
More recently, as the crypto markets grow and mature, we’re seeing an accelerating trend toward something that’s fair, practical and transparent, and includes some incentives for the original owners.
From the practicality side, you need something where you can manage and build your product and drive your crypto-economy in such a way where you don’t have to constantly go back to your community to vote on every single little issue. You want something that “looks, acts and walks” like an equity duck –something with which you can make transactions, buy products or services, or use as a “loyalty” card.
You can include other governance features as well, such as shareholder meetings or votes, which would be built into the coin or token, which in turn is right inside your wallet.
From a transparency standpoint, this is where regulation is kicking in, efforts to establish a common or shared set of rules that everybody has to follow. For outside investors, the rules and stipulations are clearly laid out, and they know there’s an enforcement or governing body to ensure rules are indeed followed.
Follow the Money
Up to this point, the crypto model was effectively puritan in spirit and practice: decentralized and foundation-based with all decisions made by the community. It reflected a utopian view of what bitcoin and other cryptocurrencies should be.
But that’s changing as the market gravitates toward regulation.
We’re already seeing some examples. Ethereum, for instance, occupies a spot somewhere in the middle of the spectrum, with a governing foundation that owns a bunch of coins and exercises some control. The foundation answers to the community, operating like a board of governors or trustees. But the operational decision-making power for the most part is made at the board level, not the community level.
Ripple takes governance even further, because its foundation has an unlimited amount of coins it can issue/purchase, and management owns 80 percent of the coins. So they effectively have total control. Another example: tZERO, which launched an ICO in January, is organized as a corporation, runs its coin structure as such and has a board of directors.
As regulatory structures develop and evolve, larger and larger amounts of capital will congregate. Markets may be less decentralized and ownerships may gain greater control. It’s fascinating to watch: despite this arena’s puritanical, decentralized origins, expanding pools of capital are nudging it toward regulation.
“Follow the money,” as a wise person once said. In the fast-moving crypto story, that’s a critical plotline.
Cameron Chell is the founder of ICOx Innovations and co-architect of KODAKCoin, a recently-launched cryptocurrency designed specifically for photographers and their agencies. Cam has 25 years of venture capital and entrepreneurial experience and has founded or co-founded several ventures, including Business Instincts Group, RaptorRig, ColdBore, FutureLink, Slyce and UrtheCast.
“The information contained in this article is strictly for educational purposes and is not intended to be legal advice or to be relied upon by anyone without doing their own research and consulting their own legal counsel.”