Although some venture capitalists, such as Andreessen Horowitz cofounder Marc Andreessen and Union Square Ventures cofounder Fred Wilson, have been interested in Bitcoin for some years now, the latest trend in the industry is to focus on the blockchain technology that underlies the peer-to-peer digital cash system.
Over the past year, entrepreneurs and investors increasingly tout the use of blockchain technology without the need for an underlying token (such as Bitcoin). Many are convinced that the blockchain is going to cut costs and make the entire financial system more efficient. But what’s really behind venture capitalists’ interest in this new technology?
Wall Street Has Made Blockchain Investments Acceptable
One of the main reasons it has become acceptable to invest in blockchain startups is that all of the largest financial institutions in the world now have some sort of blockchain-related strategy. Although most of Wall Street originally dismissed Bitcoin a few years ago, the traditional financial sector is now interested in at least experimenting with the network’s underlying technology, because of its unprecedented potential for transactional efficiency and transparency, which could be worth billions.
Of course, Wall Street’s interest in Bitcoin (the currency or commodity) is still quite low. The industry views of Bitcoin were summarized quite well by JPMorgan Chase CEO Jamie Dimon during the recent World Economic Forum in Davos. He stated, “Bitcoin, the currency, I think is going to go nowhere. . . . The blockchain is a technology which we’ve been studying, and yes, it’s real.”
Many have compared the Bitcoin vs. blockchain debate to the Internet vs intranet debate from the 1990s. Some of Bitcoin’s loudest proponents believe the majority of people interested in blockchain technology will eventually come back to Bitcoin’s open, permissionless platform. Only time will tell if this prediction holds any weight in the real world.
Actual Use Cases Are What Matter
Of course, as with the early days of the Internet and many other technologies, there are also plenty of startups focusing on use cases of blockchain technology that may not turn into commercially viable products. At the end of the day, real-world use cases of the technology are what matter most.
Yang Ventures Founder Terrence Yang and Blockchain Capital Managing Partner Brock Pierce are two individuals who have been talkingpublicly for the past year about the need for Bitcoin and blockchain companies to focus on gaining actual users. To investors like Pierce and Yang, the technology underlying the specific product or service is not important. As Pierce has noted in the past, consumers care more about finding a service that is faster, better and cheaper than their current options. The creators of Abra may be the perfect illustration of this viewpoint, as they were able to win the 2015 Launch Festival startup conference without mentioning Bitcoin once throughout their entire presentation.
Venture capitalists are excited about blockchain technology’s promise in areas where it appears to make immediate sense, such as financial settlement transactions and global supply chain applications. Any new investors in the space will want to be wary of startups who are pitching the benefits of blockchain technology above and beyond what they can actually provide to potential end users.
Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, NASDAQ, RT’s Keiser Report, and many other media outlets. You can follow @kyletorpey on Twitter.