A letter to cryptocurrency investors

  • Bot

    We volunteered in this social experiment, exploring the opportunities to improve resources utilization and efficiency

    Written by Allen Li, Chief Architect of Qlink

    Two and a half years ago, while my previous company was in the process of being financed by the HNA Group, I got the chance to understand the group’s history. Chen Feng, the chairman of the HNA Group, delivered a speech during one of their most difficult times. Chen told his colleagues they shouldn’t come to him for money. “Think about how you can find money elsewhere” he said, “the money you are looking for is in the banks, in NASDAQ, and in the stock market.”

    Ironically, the group had just received an investment from the activist George Soros around that time. It turns out that those words have been a big influence on the corporate culture of HNA and how it operates. From my experience working with HNA, especially with regards to making deals and attracting investors, I realized that many of their executives had the same mentality as other similar private equity firms. There were even a variety of investment books scattered around their desks. This left me quite surprised and I felt that the HNA group had a shaky and unsubstantial foundation.

    Dealing with this, especially after just leaving Huawei — a company with solid product and solution was far too problematic and I felt that HNA was experiencing an investment bubble. It seemed as if the foundation of the business was built on top of emptiness.

    However, as I gained more entrepreneurial experience, I realized that HNA actually understands business. Their core value came from the tourism aviation customer resources that HNA owns, which is a rare resource in other industries. The investments it attracted were attached to this core value and from there the capital gained more value.

    HNA prevented itself from becoming a “kite off its string” because it has a core value, and those who invested understood where they were placing their capital. This was a demonstration of Chen’s business pattern “substance + capital”, which is business philosophy that I later agreed on.

    In retrospect, this was during the early days when strategic investments first started to become popular in China’s capital markets, so it was a surprise that Chen had the vision and philosophy to succeed.

    From NHA I learnt that, to attract capital investment, the business must have a strong and solid core value. It is the same for investors — you must identify the core value first before you make a decision.

    This situation reminded me of my previous manager who was featured in the book “The Essence of Huawei Management.” In this book, he outlined that the core value of companies with limited resources is intelligence. It is critical for a company to manifest its intelligence to attract investment.

    My previous manager made this statement back in early 2000. More than a decade later we need to ask ourselves, what is the intelligence he referred to? Smart people? Apparently not. I’ve been thinking about it for a long time and I believe my manager meant intelligence embodied by the usage of technology to solve a problem, as well as fulfilling a demand through improving efficiency.

    As efficiency improves, value increases. A company’s value can be represented as a product, service, solution or brand. All of these things require intellectual input. For instance, the process of turning sand into a silicon wafer embodies the value of intelligence, also manifested during the research, development and testing phases of the process.

    Going back to the original point, I ask again, what is the core value of an organization? Of course, every organization has its own answer to this question. So, what is it for Qlink and the entire cryptocurrency industry?

    In the cryptocurrency world, a project starts from a decentralized idea, then slowly moves towards a blockchain product, endeavoring to reach the implementation stage and then to win a market. As the user base grows, these users turn into a large collection of assets. To begin this process, we must pinpoint a demand for a decentralized and trustless mechanism. During this process, where is the intellectual value?

    I believe that the intelligence lies in what differentiates a project from its peers and the ultimate executive power.

    If a decentralized project is building a closed system with limited market demand and cannot expand, it is attenuative by nature. If it’s an open system, it would be ecologically healthy and can thrive by bringing value to more businesses, more industries and more people. Therefore, cryptocurrency is not a core value. The transformation from low resource efficiency to high resource efficiency can be considered the value. From this point of view, Amazon is a good example of an experiment of moving from inefficient store resources to efficient logistics resources.

    Investors, developers, regulators and traders of all digital currencies are unconsciously involved in the migration. Many people are unconditionally devoted to the pursuit of changing the world through decentralized technology. We appreciate the passion. As early adopters, we need to be rational and reasonable. Firstly, ponder this question. Is there a boundary in this transformation? Yes, there is and we are acutely aware that the boundary is where the low efficiency curve converges with the high efficiency curve. Each cryptocurrency builds their own ceilings and their unique ROI models. For Bitcoin, the boundary is where computing power exceeds the limitation. However, the ecosystem will continue to grow until reaching the boundary.

    The excessive centralized rules of our traditional social systems have polarized the ownership of social resources. Blockchain is the technology with the potential to reallocate resources and build a society where centralization and decentralization co-exist to provide services where they are needed most.

    Price may obscure the value, due to the many different perspectives one might consider when ascribing value. However, because cryptocurrency is still in a phase of social experimentation, this is also an intellectual experiment, and resource utilization efficiency is the ultimate criteria.