In a sunlit lobby at 800 Wilshire Boulevard, downtown Los Angeles, members of the blockchain community gathered together to see panels and presentations, as well as network during the State of Digital Money 2017 conference. In attendance was fundraising disruptor, CEO of Crowdfunder and CoinCircle co-founder Chance Barnett. ETHNews seized the opportunity to get his take on the current state of the ecosystem in which blockchain technology is evolving.
Barnett explains that he first became interested in the internet and software business because he saw them as an exciting means of democratic participation and collaboration. "The web has grown to be an incredible place for that. Whether it’s people sharing housing over Airbnb, or people doing finance more collaboratively," said Barnett. "Cryptocurrency has taken that [democratic participation] and made it truly decentralized, and in a lot of ways, truly private."
Barnett acknowledged that over time, the internet has become less centralized. "The internet that I grew up around – that I was excited about, that was being built – has changed; and that's a little bit disappointing." While he admits that some of the changes are made to benefit consumers, from a more open-web standard, the current state of affairs represents a shortcoming.
At Crowdfunder, Barnett took a hands-on role working with regulators at the SEC. "I actually ended up participating pretty intimately in legislative and regulatory initiatives to help pass the JOBS Act." He was part of a small group working in Washington DC and booked the first meeting with SEC on behalf of the crowdfunding industry. On April 5, 2012, President Barack Obama signed the JOBS Act with bi-partisan support; legislation designed to encourage small business funding by easing securities regulation in the US. "From a regulatory standpoint we did a 180 degrees from traditional securities law, which is investors should be protected; everyday people should not have access to them. I think that was an important development.”
Barnett believes everyday people should have the opportunity to take part in projects and that they shouldn't need to raise money from large foundations as venture capitalists to participate. He speaks of a larger collaborative model for investors. "What that ends up doing," said Barnett, "is actually distributing opportunity and wealth over time."
In the same vein, Barnett doesn't think large banks need be the only place a consumer can turn to for lending, which he said operate similarly. More lending opportunities means more entrepreneurs can start companies, which Barnett sees a lot of value in. "I love starting companies. I love seeing entrepreneurs start companies and I think the moment of help and participation from taking a product from nothing and creating value out of thin air is the most exciting thing you can do in business, from my perspective."
When people think about the emerging market of token offerings, they see it as a disruptor to the traditional venture capital beat. Barnett, having witnessed the change of pace in the crowd funding surge which took place in years prior, is no stranger to disruptions in the finance market. He said that the new landscape is altering the way people see funding for their startups. According to him, the upside is an incredible abundance of value being created for those whose projects create a useful token. "There's a lot of people hoping that they have a useful token and trying to do a token sale to wish that into existence. Just like the traditional startup in the venture backed community, a lot of those won't work."
He said that the prevailing tokenized economy has given rise to entrepreneurs who are considering new business models in light of the nontraditional financing now available. The shift in thought has reflected a desire to make use of the blockchain and properly leverage a token within a business model, according to Barnett. "It's fundamentally altering the types of companies that people want to build." He also mentioned that while token offerings are prevalent, not every company needs to run a token offering as a business model, because it doesn't always make sense.
Barnett said there are two types of token sales. One offers a utility token inherent to the running of the business. He gave the example of an internet service provider that might mint a token to represent bandwidth, and could allow people to use that token to pay for services and access. He said that such utility tokens are not securities, which is an opinion recent Securities Exchange Commission (SEC) rulings might not agree with. Barnett goes on to describe another class of token sales which he said "arguably might not be true utility tokens and could be considered securities." One such token is Orocrypt, which tethers its value to precious metals but has no other function. Barnett said some people actually do securities offerings via token sales as well. Of the two choices, he said both have detractors and merits, although he expressed more enthusiasm for utility tokens and the scalability of companies built around them.
Barnett's opinion on regulation, given his wealth of experience with it, falls along the lines of what he believes will be a most likely outcome for the United States. He doesn't think that a no-holds-barred open market that allows any investor to invest in any type of crypto-asset will occur.
"What we're going to likely see is traditional methods of KYC and accredited investors if you want to do a US-based securities token." He said this model would more closely align with Title II of the JOBS Act, which allows companies who file with the SEC to generally solicit the public for crowdfunding.
As the ecosystem continues to evolve, participation from experienced players like Barnett speaks to the efficacy of the decentralized movement and the value it brings to the greater public.