The Crowdstart Capital Vision – An Incentive Scheme For The Blockchain Ecosystem

We at Crowdstart Capital are strong believers in blockchain technology. We have been working on blockchain projects at Datarella GmbH since 2015 – with leading índustry players and organisations. Since we are platform-agnostic, we have worked with Bitcoin, Ethereum, Hyperledger, IOTA, and other blockchains.

One key takeaway of two years of blockchain experience is, that – in the fall of 2017 – most blockchains are still quite immature and a lot of work has to be done in order to make them industry-ready. We see a huge demand for development and investment in not only blockchain-related projects but also in the core blockchain protocols. The key development challenges in 2018 will be to significantly improve the scalability, the stability and the security of blockchain platforms.

As digital organisms fed by communities of developers, blockchain protocols evolve through changes in their code, i.e. either by changes to the original code or through adding a new microorganism – a side chain – by forking the original chain. Both, changes to the original code and forks, could be combined by creating a forkless blockchain with specific rules in the protocol that are created by other rules (see: the Nomic game ). This way, forks would not be needed anymore since rules could be changeable by other rules.

Most industry blockchain projects are developed using side chains. First, that’s to eschew the disadvantages of public blockchains, s.a. PoW, and then, it’s because of the lack of industry-grade conditions in public blockchains. Most, if not all, industry-led blockchain project teams would love to use public chains if they could be used in a reliable way.

Tragedy Of The Commons

That said, strong evolutionary processes in blockchains are needed. But, where’s the incentive for developers to invest resources into the core protocols? The only way to benefit from working on core blockchain protocols is mining tokens and profit from a potential increase in value or joining on elf the blockchain’s foundations and getting paid by them. This imbalance of having no incentive to work on a core technology which everybody would like to see well developed is called the tragedy of the commons: the economic reward for a developer improving blockchain technology is low.

Funding work on core blockchain protocols and thereby the creation of incentives for developers could be provided by private institutions, s.a. Venture Capital (VC) firms, and by public funding, e.g. through a public crowdfunding initiative: the Ethereum foundation could sell Ether through a crowdsale to the developer community working on a specific update in Ethereum’s evolutionary process. For the blockchain’s foundations that would be straightforward thinking.

VCs, however, would have to make sure that their assets, i.e. portfolio companies, profit from an investment in the core blockchain protocol. This could be done indirectly, if blockchain projects don’t need to develop certain functionalities which are already woven in the core protocol, and therefore minimize their efforts and streamline their roadmaps to exit. It can be questioned if that’s an adequate benefit from the VC‘s perspective.

CSC dedicates tokens to the blockchain developer community

CSC’s goal is to foster blockchain core technologies and applications. CSC wants to contribute to helping blockchain evolve into an enterprise-ready technology. In order to lay a basis for a cryptoeconomic incentive scheme to support the development of blockchain-related projects and to provide incentives to developers to dedicate their work to blockchain‘s core protocols, XSC tokens will be dedicated to the active blockchain community.

Developers committing code to key blockchain projects can opt in to receive XSC tokens for every line of code that is accepted for the respective projects. CSC will set up a smart-contract-based system that will pay out the tokens according to the commits. This incentive is meant as CSC’s contribution to the blockcahin developer community – there will be no further obligations, i.e. CSC does not demand any return for this.

Technologies to be supported by these incentives include the core protocols of leading blockchains, s.a. Ethereum. Also, all projects that participate in the CSC acceleration program are supported. In a second phase it is planned, that members of the community will be able to suggest projects to be included in the incentive scheme. Which project should be included will be voted for by the community in token-based ballots.

We know that we won‘t achieve our goal over night. And we know that we might adapt our plan when necessary.  Finally, the most important factor is the blockchain community itself. If we can successfully motivate blockchain developers to join the scheme, to use the XSC tokens and to spread the word to their respective communities – then we can potentially crowdstart something new: an efficient incentive scheme for the evolution of blockchain technology.

Crowdstart Capital acceleration program and innovation

Innovators and people talking about innovation.

How can companies go from talking about innovation to innovating?

There is a strong trend, especially in larger organisations, to try to further innovation by appointing Innovation Directors (mind the capital letters), Heads of Innovation, Innovation Evangelists etc. While the intention is good, it is simply very difficult to pinpoint how successful innovation can be introduced and integrated into a very long tradition of doing things by the manual. Does that mean that more innovation is happening? Do the people responsible for spurring employees to “think outside the box” actually change culture or do they one day find themselves playing cajón in a giant drum circle of executives wearing black turtlenecks? (Note: from a real life situation, without the turtlenecks).

We at Crowdstart Capital don’t pretend to know the answer to these burning questions, but we can say that the need for innovation is not receding. It’s more likely rising exponentially with the emergence of new technologies and concepts such as convergence or game theoretic advances, which require a new understanding of the future of society. By changing perspective, applying concepts from other fields to problems previously unsolved (like game theory in Bitcoin or physics to evolutionary biology) or simply taking a moment to recognise already existing ideas, groundbreaking innovation can be achieved.

The hard selling point for many investors in our digital token sale is how we develop companies and promote innovation better than corporate incubators or accelerators. There are two reasons why I believe in our investment hypothesis: 1. Our well-developed and customisable acceleration process, and 2. Our direct connection to and understanding of corporate needs. Below we will outline the five steps of our acceleration process:

Phase 1. Selection
Based on industry criteria, CSC sources and selects startups in the following industries: 

  • Industry 4.0 (IoT, Automation, Supply Chain)
  • Energy (Solar, Wind)
  • Legal Tech (AI, Compliance)
  • Healthcare (Data Accessibility, Security)
  • Space (Earth Observation, Satellites)

Our selection is based on three parameters:

  1. Product – feasibility, innovative-ness, market-need, location, etc.
  2. Team – vision, expertise/competence, “coachability”, i.e. communication and cooperation skills, diversity, etc.
  3. External factors – current CSC portfolio, industry needs, legal aspects, etc.

Phase 2. Onboarding
Aligned with industry requirements, we onboard the new startup into our acceleration process. We make an in-depth assessment of the technology, vision, financials, etc. in order to accurately adapt the following steps of the process.

Phase 3. Product Development
As a response to Phase 2, in close collaboration with the startup team we develop the product using agile methods. Collectively, we have decades of experience of developing scalable products from scratch. This experience will be put to work for and taught to each startup. The product development is constantly being correlated with strategy and vision of the future exit partner.

Phase 4. Matching
As a final reality check, we match the needs of our corporate partners with the product developed during Phase 3. If needed, we go back to the drawing board and adapt, if not we proceed to Phase 5.

Phase 5. Exit 
In the guided sales process, we leverage our experience in private equity, venture-funded firms and as investors to create the maximal value for all parties. 

Using this process, we attempt to leave innovation in its natural environment, the entrepreneurial and curiosity-driven world of startups. Without altering the habitat or motivation for startups to realise their vision, our goal is to aid them in their hard work.