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Why Many Early Crypto Ventures Failed, and How Others Can Succeed

Lessons learned from Gold that apply to Traditional Finance and Crypto.
Aurus is a blockchain startup that aims to revolutionise the gold industry, using blockchain technology to make gold easier to trade and use, opening it to the masses.
Aurus is a blockchain startup that aims to revolutionise the gold industry, using blockchain technology to make gold easier to trade and use, opening it to the masses.

My name is Stefan Gergely, I co-fouded, a blockchain startup aimed at creating a 100% gold-backed digital currency. I know you’ve probably heard this story before but trust me, it’s not as simple as it seems. My competitors (or lack thereof) prove this point. But that’s not what this article is about. In order to set up Aurus, I’ve had to dive as deep as possible in both the gold and traditional finance world as well as the new crypto/blockchain space. This piece is about the findings I consider to be instructive from my experience in these two worlds.

The crypto space

Throughout 2017, I met and spoke with most of the people who are active in this space, from big players to small ones. It didn’t take three conferences for my team and I to arrive at the conclusion that the crypto space was scary. The amount of people running around hoping to get rich quickly was “too damn high…” There were people with no background in anything solid, who hadn’t created anything, who hadn’t written a single line of code, but were running around selling blockchain technology to anyone who would listen.

I will never forget a conference I attended in Barcelona. It was the networking session, and I had begun a conversation with a traditional fund manager. We were both relating over how shallow the space is when a crypto entrepreneur walked up to us and interrupted our conversation. He told us his name and stated that he’s the founder of _______ Token. (I won’t mention the name, as they’re still active in the space). I thought I’d give the man a chance to pitch, even given his rather rude interruption of our discussion. “What does your token do?” I asked. I swear that this is the answer I got: “It’s a 70% discount, and you can buy now.” That’s pretty much a summary of how this space worked during the hype. I wanted to write more about this but this example sums it up pretty well, as it’s an exact replica of fundamental behavior from within any major bubble we’ve had.

What’s important to take out of this is that what was missing from the crypto hype (not from cryptocurrencies themselves) was a basic understanding of entrepreneurship and business—the simple concept that to make money, you actually have to provide some value to people and that providing value and, hence, making money, is not simple and nor should it be. The entire space was lacking wisdom and is barely now starting to grow it.

Traditional finance?—?knowledgable but old school

The biggest gold conference I attended was the LBMA Precious Metals conference. Most of the big names in gold and traditional finance were there, from Goldman Sachs to the World Gold Council. The first thing I noticed is that people weren’t really discussing the price of precious metals. That was the side conversation of another side conversation (unlike in the crypto space where people were speculating constantly). They were talking about the global financial market, political events and economies. This points in favor of my earlier ‘wisdom’ claim. Everything was much more professional, people were discussing the market truly in depth, everyone was aware of Bitcoin, many even excited by it. The “crypto market” discussion however was where it got interesting. Most people I met at the conference pointed toward the recent collapse of the crypto market and claimed it to be evidence that they were right in not believing in crypto and there was no more to discuss.

Here’s where and why I think they’re wrong: Most of the intelligent or experienced people working in the crypto space knew all along that the bubble would burst, that too many people were focusing on tokens and ICOs, so it did not come as a surprise to us. I think traditional finance people understand bitcoin and crypto in general to about 95% proficiency, which is fine for them. The extra 5% they lack due is to their lack of technical knowledge. I say this after discussing this far and wide with everyone from bank executives to financial regulators to government officials from around the world. They lack the knowledge of how truly decentralized cryptocurrencies are and how big the difference in User Experience is.

From all I learned, I can say that stories of the death of crypto have been wildly exaggerated. Bitcoin began an amazing movement: Separating money from state, a. movement which will make assets more liquid and benefit the little guys. I’m excited for that. We live in a world of instant gratification. T+2 settlement is not good enough, closed markets are not good enough. Young people will find it easier to make a transaction in any cryptocurrency than to send money to a bank in another country. Also, they don’t truly understand the underlying importance of Know Your Customer (KYC) and Anti Money Laundering (AML), and, unless the user experience for these two procedures drastically changes and simplifies, they won’t feel the need to do it.

I’m not saying I agree with how comfortably people want to live. Rather, I’m saying that any opinion about that is irrelevant. Before Bitcoin, it was close to impossible to move value around the world quickly and simply (without going through many complicated procedures). Now you can. What do you think people are going to do? The beauty of being able to move value around so swiftly with a few lines of code is what traditional finance doesn’t seem to be getting.

I believe the crypto market was too money hungry and too naive and that hurt a lot of people (but mostly the market itself). The traditional financial market, on the other hand, lacks the technical expertise to understand the promise of moving value around so easily and how much people are driven to simple user experiences. When these two issues will be solved, when the crypto space will be about providing value to people and when the traditional finance space realizes they also have to cater to user experience needs, some truly amazing things will come out of this space, and I don’t think we’re very far away from that.

If you don't feel that U.S. culture (and much of the world in different ways) is in turmoil, you are not paying attention.
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