The biggest recent news in the crypto world is that China issued a ban on ICOs, swiftly followed by South Korea. Japan is also rumored to be considering a similar ban. The U.S. SEC has also issued a warning against “pump-and-dump” ICO schemes, and is evaluating whether some offerings were not disguised securities following the DAO case.
The above raises questions about the meaning of money, securities, and might help “correct the market”. Some of it is reminiscent of China's ban of digital currencies for use in the "real world" way back in 2009 -- especially Tencent's. The case came down to mundane definitions of legal tender and sovereignty.
Away from arcane definitions, two recent news stories were noteworthy, as they connect crypto to the physical world.
Bitmain Is The First Hardware Crypto Unicorn
This title wouldn't have made sense for most before 2013, but here we are. If this is a gold rush, we need shovels. We might forget that all this crypto fun runs on very tangible equipment: miners, specialized computers designed to solve a formula to “mine” Bitcoin. The first big news is that a Bitcoin mining equipment operator has just become a unicorn.
Established in 2013, the Beijing-based Bitmain makes, operates and sells “bitcoin miners”. It just raised $50M from top-tier venture capital firms Sequoia Capital and IDG Capital Partners, at a valuation “in the billions” according to Bloomberg. It is now considering an IPO.
Interestingly, many of its 25,000 miners are located in Inner Mongolia, where cheap electricity makes the operation very profitable. It basically arbitrages CPU, electronics and power costs.
And if you’re not sure where Bitcoins come from — not from the FED, Mars or Venus — here is what a Bitcoin miner looks like:
Lampix – The First Hardware ICO
Away from the deep end of crypto-generation and the world of unicorns, there is another remarkable startup: Lampix. This startup makes physical products and just sold for over $14M of tokens associated with their service. It is the first hardware ICO.
What is Lampix? It makes special projectors, and is building an image database. By projecting images of objects onto a table or wall, it allows users to manipulate them in a natural way. But for this, it needs properly tagged images. Lots of them.
Reaching out to George Popescu, the serial entrepreneur CEO of Lampix, he explained that “to enable Lampix to reach its full potential, we need to build a billion-picture-and-description database.”
The company had a few early customers for its devices, and less than $200,000 in initial funding from private investors. Cash was hard to come by, so they took two months of intense preparation to “tokenize” their service model, write the white paper, and launch their ICO. 12 days later, they had sold for over $14M of their PIX tokens.
“The PIX tokens sold during our ICO will be used as a form of payment to picture data miners, voters, or to purchase a Lampix and cloud computing. We want to put a Lampix in every room, office, shop and factory, and make the PIX database the ‘Amazon of data for A.I.’,” adds Mr. Popescu.
ICOs Might Help Finance More Real-World Companies
We've now reached a point where ICOs have become a new form of financing for startups - and a potential threat to traditional venture capital. The latest data shows ICOs outgrew early-stage VC funding in June and July 2017.
Interestingly, Asia plays a big role in crypto and ICOs. This is due to the large number of miners and their accumulated token wealth, as well as the numerous platforms for trading currencies. Some act as backers, promoters or "market makers," comparable to what underwriters would do with IPOs. Lampix's CEO confirmed Asia played a key role in his ICO.
Of course, ICOs have pros and cons. Among the biggest pros is that tokens generally represent sales of future products and services rather than shares. As such, they are taxable and do not dilute the ownership of founders.
All investors should be hyped up about ICOs as they might benefit under-capitalized sectors such as hardware, but each new company launching an ICO must work hard to find an “angle”. Lampix seems to have succeeded thanks to a mix of augmented reality, machine learning, computer vision, and huge database ambitions. Time will tell if others can follow suit.
And finally, to get truly meta in the crypto world, maybe we could get Bitmex, an SOSV investment who runs a platform to trade Bitcoin derivatives (with up to 100x leverage), to ICO?
