I was fortunate to be born in the era of the internet. I grew up hearing all the tales of Facebook, Google, Apple, and their founders… and of course, Tencent, Baidu, and Alibaba. As a child, adults often asked what I wanted to be in the future. I could not give an exact answer. So they told me, “why don’t you become an entrepreneur, like Jack Ma?” I thought it was a really good idea. But it wasn’t just me; almost every teenager had the same thought. Then at some point, everyone built their internet startup company, a lot of which got backed by VCs. Experienced as well as inexperienced VCs put their money into good as well as shitty products. The outcome dovetailed with a simple principle in the market economy: The shitty ones were worth nothing so they died, and the good ones survived. “That was a bubble,” people began to whine on the cyberspace, blaming “internet entrepreneurship.”
The Chinese government launched a campaign to promote mass entrepreneurship and innovation. A few of my friends bought the idea so they started their own business on the internet right away after graduation, and most of them did not work well. The problem is, many of them wouldn’t even be able to get a decent job in the career market. When others with better educational backgrounds, more extensive experience, and more professional expertise were struggling with their startups, my friends did not even get a chance to join the game after working for years. However, there were some companies did thrive when Chinese VCs were wasting their money on overvalued products: local ride-hailing app Didi Chuxing beat their US competitor Uber, and food delivery service Eleme became a billion-dollar unicorn. The Chinese startup environment has been turning healthier thereafter as both VCs and entrepreneurs began to understand what makes a valuable product.
Overvalued products are definitely bubbles, but without the trend of entrepreneurship, it would be impossible for investors and entrepreneurs to distinguish the good ones (probably < 1%) from all the others that are shitty.
Today, blockchain projects are facing the analogous problem. Kodak’s stock price skyrocketed as they decided to make its own blockchain product, although nobody knew exactly what the project was. Many people have realized the great momentum of blockchain, yet the vast majority of people do not understand how it works, and only very few people could see what some possibilities are. As a result of this mindset, investors began to make speculations and put large amounts of money on overvalued crappy projects (professionally known as “shitcoins”). So that being said, we are going to invest >99% in overvalued shitcoins, and <1% in good blockchain projects, and we are going to lose money. But the idea isn’t wrong, it’s just that it takes time for us to tell the goods and the bads apart. During another “trend” that took place around 1849 — the Gold Rush — people came to the Sacremento Valley in search of gold, but many people returned home with nothing and only a few people actually became wealthy.
As entrepreneurs, it is also important to realize that strong trends are signals of change. Labeling yourself as a blockchain company will not prevent you from being knocked out, but ignoring emerging technologies is definitely not going to be a smart approach. If Sears had looked into e-commerce in 1993, it would probably have looked different today than getting close to shutting down almost all of their stores throughout the USA.
Edited 1/11/18: An earlier version of this post described Kodak’s blockchain project as a cryptocurrency. Thanks to Gee Law for pointing this out.