Interview with Charlie Morris, Co-Founder of CMCC Global – one of Asia’s first venture capital investors focused solely on blockchain technology.
For educational purposes, please explain to our readers what Blockchain is exactly.
Blockchain is a database technology that underpins Bitcoin, cryptocurrencies and digital assets. To understand the brilliance behind this technology, it helps to understand that the world runs on databases that are owned and controlled by individual entities. For example, your bank runs a private database that says how much money you have in your account. If you want to transfer money to a friend, you must instruct your bank to update their database, decreasing your balance and increasing your friend’s balance. In a blockchain network (like Bitcoin), there is no single owner of such a database. Instead anyone can join the network and can take part in running the database. When I want to send Bitcoin to a friend, I update the database directly and there is no middleman to take a fee. So, in summary, a blockchain is a ledger that is shared by many people. It is structured in a way that the more people there are using the ledger, the more secure it becomes. As a result, popular blockchain networks like Bitcoin and Ethereum are incredibly secure.
While the Internet has been very good at transferring information between people, it has been very poor at transferring value. By contrast, blockchains are excellent at transferring flows of value in a digital setting. As a result of this, blockchain technology is becoming the backbone of “web3”, an internet that can handle both information flows as well as value flows.
Blockchain technology is still in its early stages and the most popular use of it today is in sending value online through the use of cryptocurrencies. However, the application of this technology stretches far beyond cryptocurrency payments. It can also be used for a wide range of applications, from storing identity to tracking products in a supply chain.
How has this digital asset class evolved over the years?
Bitcoin was released in 2009 and for the first few years it was a niche experiment being used by a handful of enthusiasts. Other cryptocurrencies started to emerge in the early 2010s, but most of these were copies (also known as forks) of Bitcoin, with little innovation. In 2015, Ethereum burst on to the scene. This was the first “smart contract” platform and it differed significantly from Bitcoin. Bitcoin allows users to send bitcoins to each other, but that’s about it. On Ethereum, users can create complex contracts with conditional logic. As an analogy, you can think of Bitcoin as a pocket calculator, whereas Ethereum is a desktop computer.
One of the features of Ethereum is that it allows people to mint their own tokens on top of the platform. In 2017, a large number of new digital assets were created on Ethereum and a lot of attention was drawn to the space. The market capitalization of all digital assets rocketed from around USD20bn at the start of 2017 to USD800bn a year later. This coincided with a large amount of capital entering the space to fund new projects.
The digital asset markets cooled off significantly in 2018 as investors realized that the promise of blockchain would not be fulfilled over night, but rather is a process that would take a number of years. Throughout history when new transformational technologies such as the Internet, the telephone, electricity or the steam engine, emerged, we have seen similar boom and bust cycles in the early years. People initially get over excited by the promise of a new technology but later realise that the process of adoption is slower than expected. What all of these boom and bust cycles have in common is that meaningful financial capital enters the space during the boom, attracting talent and finance R&D. Similarly, with the blockchain industry, despite a fall in market prices, many blockchain projects were well capitalized in 2018 and 2019, leading to continuing technological advancements.
Today, we are seeing the emergence of highly scalable blockchain platforms like Hedera Hashgraph and Solana. We are also seeing protocols like Cosmos and Polkadot emerge, that are looking to connect blockchains to each other to create an internet of blockchains. As the technology improves, we are seeing an increasing number of established financial institutions offering access to digital asset markets and using blockchains internally. From a regulatory perspective, we are seeing governments become better informed as to how the technology works and China is leading the way in creating a digital sovereign currency.
Finally, we have seen an evolution in the types of investor interested in the space. Blockchain is a frontier technology that speaks to investors with long time horizons, like family offices. These investors understand that frontier technologies have the potential to radically shape and disrupt the status quo, impacting their existing businesses. As a result, they are looking to learn about these technologies and gain early exposure to them. Indeed, many of the largest family offices in the world have invested in Bitcoin, through vehicles like our Liberty Bitcoin Fund, and are looking to gain further exposure to the growth of this ecosystem.
What is the disruptive economical / social impact of Blockchain?
Many industries rely on trusted middlemen to connect transacting parties. For example, if I want to send money from Canada to Hong Kong then I need to use banks to do this for me and they will charge a hefty fee. Similarly, Uber is a middleman that connects a driver to a passenger and takes a portion of the fee. Blockchain has been termed a “trust machine” as it can take the place of these middlemen and offers peer-to-peer transactions. Industries that make money by verifying the identity of transacting parties and acting as the transaction bridge are in danger of being disrupted by blockchain technology.
From a social perspective, billions of people in emerging markets lack access to bank accounts and basic financial products. However, many of these people do have access to smartphones. Blockchain technology will enable large numbers of people to create their own digital wallets and gain access to financial products like credit, insurance or simply a wallet to hold and transact digital currencies (whether sovereign or decentralized) for the first time.
How is Blockchain changing consumers?
Blockchain has the ability to give power back to consumers in a digital setting. One particularly powerful example of this is in digital identity. In the physical world it is easy for an individual to prove their identity as trusted centralized bodies, like governments, issue physical proofs such as passports and driving licences. These forms of identification can be used to prove credentials such as your name, your age and whether you are eligible to drive. In the physical world, there is one copy of this ID and it is held and used by the owner at their discretion. In the online world, this is not the case. User credentials are stored in data silos all over the Internet, sold to third parties and often get stolen. Blockchain technology is re-inventing online identity.
For example, in the future, when a user visits a website, they will be able to prove credentials (like the fact that they are over 21) without directly disclosing the credential itself. This is done by the user first getting an entity, like a bank, to verify their date of birth by showing the bank an original document like a passport. The bank can then state on the blockchain that this user, with a corresponding private key (known only by the user), is over the age of 21. Going forward, when the user is asked to prove their age online, they can sign a message using their private key. This message will prove that the owner of the private key (the user) has previously been verified by a bank to be over the age of 21. The user does not need to reveal their exact age and can have much greater control over personal details that they reveal.
What cannot be tokenized?
In theory, most things that you can think of could be tokenized. People have tokenized their houses, time and NBA contracts. However, while it is easy to make a digital representation of something physical, this does not mean that the legal system will uphold that the owner of the token is the owner of the asset it represents. For example, if I were to tokenize my house in Toronto and sell all the tokens to someone in China, it is unclear whether that person could fly to Canada and legally claim ownership of my house. At some point in the future the deeds of my house could be digitized and incorporated into my house tokens, but we are still a few years off this.
Your fund’s HQ is based in Hong Kong. Why is Blockchain especially popular in that area of the world?
The first killer use case of blockchain technology is in transacting value online, which is sorely needed in Asia. India, China and the Philippines are three of the top five remittance recipients globally, receiving almost USD200bn in remittances annually. At the same time, almost 80% of Filipinos remain unbanked and are forced to use expensive middleman companies. Blockchain technology helps Asian countries gain access to the financial markets that they sorely need.
Amongst other things, our Titan Fund focuses on companies that are removing the middleman and disrupting existing industries. There are many opportunities to do this in Asia, where financial markets are still quite nascent. As an example, 4G mobile infrastructure was deployed faster in emerging countries, like Kenya, than in mature economies where fixed line internet was prevalent. Similarly, blockchain applications may take off faster in Asia where there is high mobile phone penetration, but immature financial markets, than in developed markets that have deep-rooted financial infrastructure.
What is the focus of CMCC Global? How do you differentiate your fund from other Blockchain venture capital firms?
We were one of Asia’s first venture capital investors focused solely on blockchain technology. We offer our investors exposure to the growing blockchain ecosystem through our diverse investment products. These include our digital asset funds that invest directly into smart contract platforms and blockchain protocols, our Titan Fund that invests into the equity of blockchain businesses, and the Liberty Bitcoin Fund that gives accredited investors direct and insured access to Bitcoin.
At CMCC Global we believe that blockchain technology is bringing about the next era of the internet, which will facilitate the movement of value rather than just information. Our core thesis is to invest in “core technical and social infrastructure” that will power this new Internet of Value. We are long-term investors and believe that value will be captured through finding early stage investment opportunities with technological differentiation.
In terms of differentiation, CMCC Global has offices in both Asia and North America. As a result of our global network, we see deal flow from around the world. Our bridge between East and West has proved particularly valuable for our portfolio companies who are often looking to build communities in both regions. This regional focus also helps us to get into more competitive deals as we offer unique global relationships that our portfolio can leverage.
What is the future of Crypto?
Blockchain technology is a backend technology for the Internet of the future. In the future, billions of people will be using crypto products without realizing that they are using them. Viewers of this article have no idea what hosting provider is powering this website. Similarly, in the future, people will not realise that they are using blockchain technology when they send money, sign contracts, login to websites, pay their taxes, etc. It will just become a part of the fabric of the Internet.
Terra, one of our portfolio companies in South Korea, has done a great job in creating the Chai mobile app. This has over 1 million monthly active users and hardly any of these people realize that they are using a blockchain network to settle payments. All they know is that the solution works effectively and is cheaper than other online payment methods. This is the future of crypto.