Best Blockchain Startups 2018
Rather than focusing on the day-to-day hype around cryptocurrency valuations, this report takes a 1,000-foot view of the blockchain landscape. It includes a brief overview of the nascent industry, potential risks, and a list of three of the best blockchain startups currently in existence.
However, we should establish some ground rules.
- Invest with caution. There is a lot of debate about which blockchain startups to invest in for 2018. Everyone is so excited that they forget startups are risk-capital investments. Remember to think carefully before investing, because some people have lower risk tolerances than others.
- Don’t fall for scams. If you receive a social media alert claiming that Vitalik Buterin (or anyone else, for that matter) is raising money, don’t immediately empty your bank account. Double check the information. Fraudulent operations are popping up all over the place, stealing the identities of successful blockchain entrepreneurs in order to trick investors into sending them valuable cryptocurrency. Don’t fall for it.
- Do your homework. Some investors make decisions based on gut feelings. Others wait for a chatty friend to dispense investing advice. I personally like to do my homework. You should do the same because cryptocurrencies are more than numbers flicking across a computer screen. Some of them are backed by real, honest-to-god companies.
Not all cryptocurrencies are grounded in politics, desperate to overthrow the existing financial order in the vain hopes of establishing a techno-libertarian utopia. Some of them are real businesses, with real customers, cash flows, and products.
A Primer Blockchain Applications
If you’re skeptical about blockchain startups, consider what happened in the late 1990s. The Internet was just hitting its commercial success. Meanwhile, investment in web sites and Internet applications was overflowing.
This led to the infamous 1999-2000 dotcom crash. Most people focus on that stock market crash as proof of an Internet bubble, but they fail to see the big picture. Some of the best investments of all time—Google or Alphabet Inc (NASDAQ:GOOGL), Amazon.com, Inc. (NASADQ:AMZN), and Apple Inc. (NASDAQ:AAPL)—came out of that bubble.
Likewise, a handful of blockchain applications could emerge from the current frenzy in the cryptocurrency market. And when they do, investors could make unbelievable returns, much like early investors did on Google or Facebook Inc (NASDAQ:FB) stock. In fact, some analysts believe these blockchain applications will one day replace the likes of Google and Facebook.
“The future Internet will be decentralized.” said Polychain Capital CEO and Founder Olaf Carlson-Wee. (Source: “The future is a decentralized internet,” TechCrunch, January 8, 2017.)
“When decentralized blockchain protocols start displacing the centralized web services that dominate the current Internet, we’ll start to see real internet-based sovereignty.”
To be clear, leading cryptocurrencies like Ethereum and NEM are not blockchain applications in and of themselves. They are protocols. Developers can build applications to run on top of those protocols, much in the same way that smartphone apps run on “Android” or “iOS” software.
In other words, Ethereum is the app store and blockchain startups are supplying individual apps that investors might want to use.
There are all sorts of applications. Some relate to finance, others to energy and identification. We have compiled our favorites into a blockchain companies list, as seen below.
Our Blockchain Companies List
This startup—established by Ethereum co-founder Joseph Lubin—is widely respected in the blockchain space. It is completely different from most other firms because rather than focusing on one business line, the company acts as an incubator for new ideas.
It has a hub-and-spoke business model. This means that innovative products are spun into their own subsidiaries. Gnosis and Civil are two examples of blockchain powerhouses that have emerged from ConsenSys.
Moreover, ConsenSys is respected by regulators and Fortune 500 titans. It is partnering with Microsoft Corporation (NASDAQ:MSFT) and has an exclusive relationship with the European Commission, making it the leading blockchain startup in Europe.
It’s hard to find someone that trusts the news media. But that is partially our own fault. Most of our news is free, courtesy of advertiser-funded content. This business model has decimated the ability of news outlets to generate meaningful content, which is why they’re always grasping at straws or shooting at strawmen. Brave is working to solve this problem.
The company has taken THREE important steps toward its lofty goal:
- It created a web browser designed specifically for news. This browser, called “Brave,” is apparently twice as fast as “Google Chrome,” and up to eight times faster on mobile.
- It wooed news outlets onto its platform. Prestigious publications like The Guardian newspaper have agreed to share content on Brave’s browser, in part because it lowers their hosting costs. However, Brave’s true innovation is the “monetization of attention.” The longer a reader spends on an article, the more money it rewards to those news outlets. This is a paradigm shift for online publishing, and consequently, for all publishing in the 21st century.
- Brave released a cryptocurrency called Basic Attention Token (BAT). This token will be the common currency between readers, advertisers, and media. Since it is woven into the browser software itself, fractional payments will be easy and almost without friction.
In other words, Brave realized that online news delivery is a broken system. By adding micropayments to its browser, it is essentially updating news delivery to fit the Internet.
Of all the blockchain applications in finance, none have been more successful than Ripple. Its native token, XRP, was the most lucrative cryptocurrency investment of 2017. Investors who bought in at the start of the year would have made 36,000% returns.
For those unfamiliar with Ripple, it is a blockchain application in banking. Unlike Bitcoin, its main focus is to improve the cost and speed of international money transfers, not simply to burn down the existing financial order.
While Bitcoin’s cost per transaction is skyrocketing, XRP remains fluid.
Ripple works hand in hand with financial companies. Near the end of 2017, it opened a payments corridor between American Express Company (NYSE:AXP) and Banco Santander, S.A. (BME:SAN). Transactions going from one company to the other pass through this corridor via Ripple’s “xCurrent” software.
Other companies—like Moneygram International Inc (NASDAQ:MGI), MercuryFX, and IDT Corporation—use Ripple xRapid software to settle transactions, which means they are actually using XRP tokens for live transactions.
How to Invest in Blockchain Startups
Startups were not typically the province of retail investors. Anyone interested in buying shares had to go through the hassle of becoming a “licensed investor,” or else had to prove they earned more than $200,000 per year, or that their net worth exceeded $1.0 million.
That’s not the case anymore.
Title III of the Obama administration’s Jumpstart Our Business Startups Act (JOBS Act) made it possible for anyone to invest in startups, although some restrictions are still in place. (Source: “Updated: Crowdfunding and the JOBS Act: What Investors Should Know,” FINRA, last updated May 17, 2017.)
If you make less than $100,000 a year, you can invest either $2,000 or five percent of your annual income, depending on which is higher.
If you make between $100,000 and $200,000, the cap increases to 10% of annual income.
However, we’re talking about blockchain startups. Not your average “started out of the garage” enterprises. There’s an important difference between the two.
Normally, investors buy equity or debt in a company. They own shares or bonds. In the case of blockchain startups, you might be able to take this route on crowdfunding websites like AngelList. But for the most part, your way of betting on the company’s future is through cryptocurrencies.
Some blockchain companies, like Ripple and Brave, have their very own tokens. Investors bullish on these companies can speculate on XRP and BAT in the hopes of selling them at a higher price. It is a risky strategy, of course, but one that could take you from rags to riches.