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How to spot a dark horse amidst the blockchain craze

The blockchain industry witnessed an explosive rise in late 2017 and well into 2018. But with all the hype around it, the industry is still in its infancy where underlying infrastructure is in development and more use cases are being explored.

Ella Zhang, CEO of Binance Labs, spoke about the current state of blockchain industry, the ecosystem, and how to identify promising blockchain projects in the midst of hype on the Main Stage at TechCrunch Hangzhou 2018.

Binance Labs is the world’s largest cryptocurrency exchange Binance’s venture incubator. Binance Labs recently launched a new $1 billion “Social Impact Fund” to support top blockchain and cryptocurrency entrepreneurs, projects, and communities.

How to spot a dark horse?

When asked how to filter out the fluff when evaluating and investing in new blockchain projects Zhang named a few qualities that she pays notice to: rebellious but righteous, independent, and sensible. They are technical hackers that believe technology can change the world. They refuse to follow the crowd, conform to rules, and, at the same time, they hold a long-term vision. They don’t want to solve the small problems, rather they want to tackle very difficult ones—once they solve the problems, the entire world will change.

Zhang said when evaluating a new blockchain project, she asks three questions. “First, necessity. Why does it need to be solved with blockchain technology? Can it be solved with non-decentralized technology? Second, decentralization. Decentralized infrastructure design, consensus mechanism, how to cultivate community engagement, the token economy design etc. Third, founding team’s intention and motivation. Why is the team committing to this project? We believe the original intention is something that will continue to support and drive the team through market fluctuations and difficulties.”

Ella Zhang, CEO of Binance Labs, at TechCrunch Hangzhou 2018

Tackling the fundamental challenges

Binance’s current focus is on solving some of the biggest challenges fundamental to the development of blockchain technology and posing limitations to applying blockchain technology on a larger scale. Zhang named five existing challenges: first of all is to improve the performance of the public blockchain specifically the aspect of privacy protection and security issue. Second, a truly decentralized exchange is not yet a reality, Zhang said, in the meantime, centralized exchanges are still dominating the space. Third, the applicability and security of gateway are not yet guaranteed.

“For example, there are frequent cases of hacked accounts. Also, there are still no suitable financial service gateways in countries in poverty-stricken regions such as Africa, South Asia, and the Middle East.” Fourth, digital currency’s instability. “As the measure of value, Bitcoin, can be influenced by policies and rumors and, in turn, sway the overall prices.” The fifth problem yet to be solved is that “the blockchain industry is still in the adjustment period with the regulatory environment, so exchanges are still exploring on the fringe of compliance,” said Zhang.

The blockchain industry is changing rapidly. Policies and regulations are trying to keep up, while investors and blockchain startups constantly feel like treading on thin ice. How can Binance Labs help support blockchain projects when there are not yet comprehensive guidelines in place? Zhang said they first approach countries and regions that embraced blockchain technology and take the initiative to communicate with local regulatory authorities. Zhang added that Binance is currently working with Uganda and the local communities to promote cryptocurrency and blockchain projects and explore opportunities for collaboration.

The road has twists and turns, but the future is bright

Many compare the on-going blockchain craze with the dotcom bubble in early 2000. When will we start seeing more innovative projects emerging? Zhang noted that any emerging industry is vulnerable in its infancy. “The current state of the blockchain industry echoes the time when dotcom bubble was close to bursting in 2000, but once the market reaches a state of equilibrium, it will come into senses,” Zhang added that as someone with a traditional VC background, she’s not scared of rock bottom. “Non-believers will exit when the industry hits bottom and true believers of blockchain will remain.”

As for the future of blockchain, Zhang never had doubts: “I truly believe blockchain technology will change the world, the quality of human life, and the how people perceive economic distribution and private data ownership.” Zhang believes that blockchain applications will be ubiquitous. “One day, cross-border payments will not be charged with 10% transaction fees. One day artists and IP holders will be protected and not have to lose 70% or 80% of their earnings to intermediary content distribution channels.”

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