On Identity, Blockchain, and Token Offerings
With Civic’s recent sale of 33 million worth of tokens, I thought it important to share my thoughts about identity, blockchain, and token offerings (I’ve shared some thoughts about blockchain and identity here in this post).
The Civic token sale is an interesting point to start given the amount of money raised for the company and the recent, spectacular rise of ICOs (Initial Coin Offerings). To contribute value, an identity platform needs to have scale in three key areas to establish network effects: organizations that issue identity, organizations that need to consume identity, and related attribute providers that add enhanced value to the network. For example, Visa’s platform needs scale on the bank side of the platform to turn bank customers into cardholders, the merchant side of the platform so their cards are accepted everywhere, and partnerships like Southwest Airlines and Chase add enhanced value to the network by tailoring value to market segments.
According to Alexa.com, Civic, which was founded in January 2016, had virtually no user traffic prior to the traffic driven by the token sale.
This isn’t to say that the Civic team isn’t talented — they are very talented — or that they won’t be successful with the 33M in sold tokens they just generated, it just means that they are starting with no visible network effects or sustained growth. Given the eye popping amount of money raised, it’s hard to call that anything other than speculation. And the speculation problem appears linked to ICOs in general rather than Civic specifically: Status.im just raised over 270 million in three hours through an ICO while Status.im’s more established competitor, Coinbase, targeted a 100 million raise on the back of sustained, excellent performance.
If you think of tokens like bitcoins, then Civic is essentially issuing their own “identity currency” and buyers are buying at the value Civic set in the hopes that demand for the tokens go up faster than supply of the tokens increases thereby appreciating the value of the token so they can sell it later. The problem of course is that 27,000+ buyers, while impressive for a pseudo-investment/revenue event, is not nearly enough to make the network credible to a government agency or a bank in terms of credentialed users. If the hype fades and there is an absence of significant adoption of organizations that wish to use the service and no substantial growth in the user base, then Civic will be back right where they were before the ICO albeit with a lot more runway.
The main takeaway for me is that Civic would have been an extreme to impossible long-shot to raise 33 million from sophisticated institutional investors and that the speculation in the ICO space is out of control.
