The world of cryptocurrencies seems to have one step further towards becoming legitimately recognized by the financial industry after the news that billionaire investor and venture capitalist Tim Draper is planning on investing in a new digital currency. Draper is famous for investing early in both Skype and China’s Baidu, both of which saw him earn profits, and he is hoping that his newest investment will potentially allow him to again reap similar rewards.
It’s not all that surprising that Draper is interested in digital currencies since he has been a strong proponent of bitcoin and blockchain technologies since the early beginning. However, in a recent interview the venture capitalist stated his intent to take part in the ‘Initial Coin Offering’ (ICO) for Tezos, a new blockchain platform that is set to launch in late May.
ICOs are a somewhat controversial method that many start-up technology companies are using to finance their blockchain platforms. The problem is that the majority of major investors have so far been staying away from these initial coin offerings, in part because they feel that there is too little oversight to make the investment safe. This makes Draper’s announcement quite significant, as he will be the first prominent venture capitalist to throw his support behind an ICO.
These ICOs have begun to become more common over the past year or so, mostly driven by the huge success that the original cryptocurrency, bitcoin, has seen in recent times. The problem is that these ICOs are unregulated, as they basically involve a blockchain start-up creating and selling its own tokens or currency. As everything takes place online, the entire thing can be done without the need for support from venture capitalists or private banks.
One major problem is that the majority of venture capitalists are actually prohibited from investing in overly risky tech assets, and cryptocurrencies perfectly fit the definition of high-risk. Of course, with high risk also comes the chance of high reward, which is obviously what Draper is hoping for. Luckily, the contract his investors have signed gives him discretion to in pretty much whatever he wishes, and in fact, his firm even specifically sets money aside for non-traditional investments such as this newest venture with Tezos.
Tezos was created by husband and wife team Arthur and Kathleen Breitman, who both have extensive experience working in hedge funds and on Wall Street. The basic idea of Tezos is similar to bitcoin and other blockchain platforms. However, there is one major difference in that the Breitman’s platform allows for automatic decentralized updates, which should help it overcome some of the issues facing most other digital currencies. As well, where most previous ICOs have had a cap on the number of available tokens, there is no cap on the number of Tezos tokens that will be available during the ICO.
Even with Draper and his massive hedge fund behind it, there is no guaranteeing whether Tezos will be successful enough to compete with bitcoin or if it will quickly fade away like so many cryptocurrencies before it. Still, the new and improved blockchain technology is uses could end up revolutionizing digital currency as we know it if Tezos is indeed a success.