72. Blockchain Investing, Part 2 (William Mougayar)

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Today we cover Part 2 of Blockchain Investing with William Mougayar of Virtual Capital Ventures . In this segment we address:

  • Mougayar blockchain startup investingWhat are your thoughts on what the future looks like in a much more decentralized environment?
  • What industries in particular are most at risk of being disrupted b/c of the blockchain?
  • What do you think is most often misunderstood about the blockchain and/or the impact it may have?
  • How have you seen some of the better startup investors approach early-stage investing in companies w/ a blockchain focus?
  • Is it fair to think that there will be a killer app for the blockchain?
  • As a startup investor yourself, what advice do you have investors interested in the blockchain?
  • Is there anything else we haven’t covered that you’d like to touch on w/ respect to the blockchain?

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Key Takeaways:

1- Destruction vs. Construction
William described how it is the tendency for big business to use the blockchain, or any new technology, to strengthen what they already have. Most large power and profit centers are incented to raise entry barriers, consolidate and make things more difficult for competition. Everything ties back to their existing business model, which limits the scope of things that they can do. As an innovator, one should be wary of this. While, partnering with a big bank can provide a lot of opportunity, William talked about how this can be restrictive and put the startup in a box. Those elements that help the entity optimize their existing business will be welcomed, while everything else will be killed. Clearly, innovation is not a zero-sum game; but there are winners and losers. Value construction for one may mean value destruction for another; but at the end of the day, those being served (ie. the customer) should always be receiving more value.
2- Intermediaries & Sharing Economies
William made the point in today’s interview that the blockchain is a force for decentralization and enables peer-to-peer transactions in a way that disrupts existing intermediaries. He provided the example of the internet and how it created a whole new class of intermediaries, such as e-commerce players like Amazon and ebay that were replacing old brick-and-mortar e-commerce giants. Similarly, b/c the blockchain enables consumers to transact directly in a trustworthy, secure and efficient manner, intermediaries may not only be disrupted but, in some cases may be removed all together.
3- Not a One Trick Pony
Some people see the Blockchain as a one trick pony w/ a single application. And, while certain applications may become the killer app, it enables much more. The Blockchain is a value-exchange network. Blockchain enables Bitcoin but Bitcoin is just one application. A major reason why it works well for cyrptocurrency is that it solved the double spend problem. An asset can now be transacted from one person to another, like existing fiat currency. Whereas in the past, technologies would keep a copy of the asset on both ends of the exchange. Here William cited the example of pictures that people share. With existing digital technologies, both users have a copy of the asset, once it is shared. With the blockchain, assets can be sent from one party to another where the sender no longer retains a copy. William cited four major areas enabled by the blockchain of which this belongs to the first category;
-An Exchange of digital assets: W/ regards to this category, for many existing asset exchanges there is currently a transaction delay for settlement and clearing. The blockchain can speed up the transfer of assets and also solves the double-spend problem.
-Verification of assets: Can be used as a way to timestamp a particular asset. Can not be changed, once stamped, it can only be verified.
-Smart Contracts: This refers to business logic and terms. If two parties agree on terms, like a wager on a sporting event, it could be created in a smart contract on the blockchain that will execute the asset transaction upon the result of the future event. Essentially you can have a bunch of ‘If this then that’ rules w/ execution of the desired outcome.
-Authentication: Related to smart contracts, William talked about authentication and multi-signature. With the blockchain, one can have a third party that must authenticate transacted assets between two other parties, almost like an escrow service, but instead of holding the asset as a third party, they can handle the authentication of the transfer.

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