Blockchain is perhaps the most exciting technological development since the internet. It is also, through the use of tokens, an investment vehicle. This has created an unusual paradox. Are companies issuing tokens to help finance blockchain technology, or are they simply capitalizing on blockchain speculators hoping to catch the next bitcoin at $1?

The simple answer is both. As Frans Tjallingii, CEO of Vancouver, B.C.-based First Coin Capital (currently acquired by crypto investment bank Galaxy Digital) explained: “We’re very selective about our projects. Companies who want to raise capital by raising a token, it comes down to the type of company they are trying to build. Is there a use case for blockchain and a token, as opposed to equity?”

He gave the example of a token based on an Airbnb-type startup. “So hosts use blockchain to avoid double booking, and issue guests tokens,” he continued. “It creates an ecosystem that has its own system of exchange and an incentivized token.”

Tjallingii added that Galaxy Digital, besides its listing on the Toronto Stock Exchange (TSX), the company will also be listed on the Bloomberg Crypto Exchange. “[The] crypto exchange creates more transparency,” he said. “The fact of the matter is, paper certificates are a thing of the past, digital certificates are the way of the future, so you can increase functionality a lot, both for traditional securities and tokens.”

“When we advise our clients, we tell them they need built-in resiliency, but transparently,” Tjallingii added. “And it needs to be done very early in this economy, resiliency for your customers and your company.”

Beier Cai is co-founder and chief technology officer (CTO) at First Coin. He was with Hootsuite for 10 years before jumping to what he calls the blockchain space, which he has defined primarily as users owning data. He noted Facebook can never learn from other platforms, but a decentralized blockchain-based social media network could expand across platforms and be constantly modified based on an individual’s user experience, not by company developers in Silicon Valley.

Tjallingii added: “This is the movement for me; it’s a user experience issue. Facebook is no longer the most popular platform used by youth, and I think youth are less concerned about the privacy issues. There is, I think, a growing desire for a decentralized blockchain Facebook.”

Tjallingii said the blockchain industry is still in its early days.

“While there is a great deal of developer activity, developers are still building on top of the technology stack,” he continued. "What accelerates the development of blockchain technology is, unlike the early years of Silicon Valley, when reverse engineering was the order of the day, blockchain are all open source projects, with a great deal of cooperation within the industry.”

Where there’s imagination, there’s possibility, Tjallingii noted. “We’re seeing more novel computational solutions and more efficient mining, making it harder to do a 51 percent attack. We’re seeing more specialized algorithms.”

Blockchain is a truly global industry, Cai added. “A lot of really smart Ph.D.s who previously worked in the academic space but couldn’t monetize their work, can in the decentralized blockchain space. Actual creators can monetize, unlike Steve Jobs or Bill Gates who monetize off of their developers. Now really smart people are incentivized. This is happening in Europe, China, Japan, Korea and the U.S.”

Cai also stressed that a great deal of blockchain activity is occurring in China, both in terms of talent and capital. Considering its scale, this will be hard to replicate elsewhere.

“Especially from a capital perspective, and this is all happening with restrictions from the government, imagine if they lift some of the restrictions.”

Both say the general expectation within the blockchain industry in China is that the government will slowly, but steadily allow more projects.

“At the end of the day, this is something [China] doesn’t want to miss out on,” said Tjallingii.

Michael Conn, CEO of Ether Capital in Toronto, said he is equally bullish about North American prospects for the expansion of blockchain-based technology and companies. Positioning Ether Capital to be a bridge between blockchain and finance, he noted that 95 percent of tokens will either fail or are scams.

Nonetheless, in 2017, investors raised $5.6 billion USD through initial coin offerings (ICOs), according to data from Fabric Ventures and Token Data. Halfway through 2018, investors have already completed $10 billion in ICOs.

“We’re going to see a regulatory regime that protects developers, but keeps out bad actors,” Conn said. “Venture capitalists want blockchain to be successful.”

Conn added that the decentralized nature of blockchain may scare the Securities and Exchange Commission a bit, but ultimately accredited investors and private equity firms will be assured.

One of the great advantages of tokens, as opposed to traditional securities, is the ability to make liquid, illiquid assets. Real estate is a prime example. A security token can be created based on real estate holdings and traded freely without the underlying asset being brought to market. Of the ICOs that have failed, Conn said aside from outright scams, which plagued the early days of blockchain but are rare today, the reason is mainly a failure to launch. “A lot of tokens have strong developers; they just don’t know how to execute,” he added.

This is where Ether Capital comes in, as they find qualified developers with viable projects, and bring them together with investors who want to invest in ICOs. “Asian accredited investors just don’t have access to stable high return investments,” Conn added. “If you give people the ability to invest in it, [blockchain] will continue to evolve.”

Conn says developers at various blockchain events across North America have been excited, and even inspired by Ether Capital’s bridge proposal between them and investors.

Conn conceded that the greatest impediment to a larger market for tokens is stability. However with crypto exchanges, regulation and greater transparency will change. “Going forward, where you’ll find most value will be in properly excited stable tokens,” Conn added.

Some governments are looking or have attempted issuing tokens as a way of circumventing hyperinflation affecting their own currencies. Venezuela was the first to make the attempt, but as Conn said, Venezuela is far too corrupt and opaque to encourage any serious investor interest.

He considered Argentina and Brazil to be plausible government underwriters for tokens, going as far to say that Argentina could entirely replace their flat currency with tokens.

That begs the question – if the core concept behind blockchain and blockchain-based tokens is decentralization, then how decentralized can a government-issued token be?

Conn said he feels the process is the same, whether the developer is government sponsored, an institution or an entirely private entity. From an investment perspective, what matters is stability and transparency, and what the token is incentivizing.

“All the decentralizing ideas eventually hit a bottom line, does it increase efficiency or not?” Conn questioned. “You can use hard assets to collateralize tokens. I would compare it to a real estate investment trust (REIT), except REITs charge high fees. The question is what happens to the underlying asset, but a token also decentralizes risk.”

Ultimately Conn said it is early days for blockchain. “I’m curious to see what will happen in just the next year, we’re pretty excited about it,” he concluded. “I think as more traditional players enter, that will help.”