In an interview, Alex Reinhardt, a blockchain expert and venture capitalist, one of the top 100 most influential people in Dubai, shared his insights on the goals of blockchain projects, risks associated with cryptocurrencies, and new trends emerging in the industry. The expert believes that blockchain technology has immense potential in combating poverty and inequality worldwide. Additionally, the expert identified new trends emerging in the industry, including the shift towards decentralized services and the increasing popularity of mining opportunities and wrapped tokens.
1/ You have been involved in launching and developing projects for decades, but in recent years, you have focused on blockchain technology. What attracts you to this technology?
I see immense potential in blockchain technology to combat inequality and poverty worldwide. These problems still exist and wait for an urgent solution. According to the International Monetary Fund (IMF), approximately 15% of low-income countries are experiencing debt distress, and another 45% have high debt vulnerabilities. This will inevitably lead to a slowdown in the fight against inequality. According to the World Bank, there are about 1.4 unbanked adult people in the world. They don’t have access to financial services, they can’t open a bank account or order a credit card.
I firmly believe, and I am not alone in this, that businesses should have a social function in addition to their primary objective of generating profits for their creators and shareholders. It is impossible to accumulate wealth without being affected by the overall economic situation in the region or the world. By fighting inequality and improving the standard of living for all members of society, entrepreneurs also reap personal benefits. Their businesses grow at a faster pace than those focused solely on enriching the creators and shareholders.
Blockchain technology is ideally suited for achieving these goals. It actively involves all participants in the system running on the blockchain, increasing the liquidity within the system, and promoting active participation rather than passive expectation of benefits.
In blockchain systems, the opportunity to increase wealth among a wide range of users is much higher than in traditional centralized systems, where the circle of beneficiaries is narrow and has a high entry barrier. This approach to organizing and managing the system benefits everyone. Every year, I see more entrepreneurs realizing this simple truth. Therefore, blockchain systems will continue to grow, especially in developing countries where the problem of inequality is especially acute.
2/ But isn’t there a high risk involved in participating in blockchain projects due to the volatile nature of cryptocurrencies?
Certainly, before getting involved in any blockchain system, it is crucial to conduct a thorough study of the project. It may not be possible to assess every technical and economic aspect since one cannot be an expert in everything. However, users can approach the study of the project and its development strategy using common sense. Asking simple questions such as where the liquidity comes from, why the project creators are counting on new users, why users would use these particular services, and not others, whether the project has a well-thought-out inflation control mechanism, and what calculations the project is based on, can be sufficient.
3/ Even if the project has answers to these questions, there is still no guarantee of its success in the future.
Absolutely. Not all projects can effectively build a competent business model and marketing strategy. In this regard, blockchain projects are similar to venture financing. According to the National Venture Capital Association, 25% to 30% of venture-backed businesses fail. There are risks that need to be carefully evaluated. Studying the biography of the project creators can also help avoid complications. Assessing their competency in launching new projects, their relevant successful experiences in the past, or whether they are talented developers but inexperienced entrepreneurs, can all play a significant role. In fact, it is a common story where a group of developers, inspired and talented, but lacking entrepreneurial experience, attempt to launch a blockchain project and face difficulties. Blockchain systems rely heavily on the number of users. They need to be motivated, retained, and recruited. The community is the primary asset of the blockchain system, and achieving true decentralization is impossible without it. This requires a well-planned marketing strategy for years to come.
4/ What has changed in the blockchain industry recently? What new trends have emerged?
The blockchain industry is still very young, and it’s constantly changing – sometimes even quarter to quarter. There are a few key trends that I’ve noticed recently. Firstly, there’s a noticeable overall increase in interest in cryptocurrencies worldwide. We’ve been dreaming of mass adoption for a while now, and while it’s not happening all at once, we’ve reached a certain level of acceptance that cannot be ignored. It’s a trend that’s been building up over the past five years, and it indicates that cryptocurrencies will likely become a ubiquitous means of payment and a familiar tool in the everyday lives of many users.
Secondly, I’ve seen a lot of user interest in mining opportunities over the past year. More specifically, people want to participate in the creation of new coins in various blockchain systems. However, there’s also some disappointment that this area has been mostly taken over by large businesses that have the resources to buy expensive equipment for bitcoin mining, or the capability to stake large amounts of coins. After the transition of ETH to Proof-of-Stake, a lot of small retail miners entered the market, and they’ve been looking for ways to stay in this market and continue to mine coins. This led to the explosive growth in popularity of services with wrapped tokens, such as Lido Finance, which allows even those without 32 ETH to stake and earn on Ethereum staking. This is partly due to the rapid emergence and development of blockchain systems based on Proof-of-Stake and Delegated Proof-of-Stake. DPoS takes it even further – it allows anyone with a non-zero balance of system tokens to contribute to the operation of the blockchain and receive a reward for doing so. And that’s what my team and I are currently developing and getting ready to launch a Smart Blockchain platform as I see a great potential in DPoS blockchains for their effective incentive approach.
They can then spend this reward in decentralized services operating within the ecosystem. This is a big incentive for user retention and participation in the life of the blockchain, and I see this approach being increasingly used in ecosystems with various services. I expect this trend to mature and grow in the near term.
Lastly, there’s a gradual shift from centralized cryptocurrency services to decentralized ones. These include decentralized crypto exchanges, various DeFi protocols, GameFi, and more. This suggests that users are losing confidence in centralized structures while finally understanding the main essence and meaning of cryptocurrencies – decentralization and its advantages in the form of control over their assets. This also contributes to the improvement of the market, which was teeming with dubious projects five years ago.
5/ You did not mention the current banking crisis in the US. Is there a reason for that?
I did not address the banking crisis in the US as it was not unexpected. From the outset of the economic stimulus program launched to combat the effects of the coronavirus pandemic, analysts predicted that it could result in such a crisis. Therefore, it cannot be considered a new factor that suddenly appeared this year. Experts have been anticipating such shocks for years and have highlighted the need to modernize and rethink the current financial system. This crisis only reinforces the inevitability of decentralization in the global economy.