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Initial Coin Offerings (ICOs) may have hindered the development of the Bitcoin ecosystem as market research reflects the massive VC bias towards non-Bitcoin investments over the past five years.
Blockstream CEO Adam Back highlighted the correlation between Bitcoin’s lack of venture capital investment and its dominance in the overall cryptocurrency market cap in a conversation with Cointelegraph’s Joseph Hall in Lugano, Switzerland.
Back, the inventor of Hashcash, from which Bitcoin’s proof-of-work algorithm was developed, pointed to a market study published by Trammell Venture Partners that details the flows of venture capital into the ICO craze in the years following the launch of Ethereum and the functionality of smart contracts.
Back said that venture capital spending on ICOs has declined in recent years after an initial surge in the allure of “early liquidity”:
“You know, buy tokens at a discount, wait for the company they invested in to do some marketing, and then sell the tokens at a discount to retail investors before the product even comes out.”
Back added that ICOs have brought in a lot of money for investors, but the phenomenon has not necessarily led to products on the market that people can use and appreciate because “the incentives don’t match.”
Related: What is bitcoin and how does it work?
The Trammell Ventures report looked at market data that shows that 97% of venture capital investments over the past few years have been in crypto rather than bitcoin. Highlighted back are ICOs, altcoins, discounted tokens and other projects that attract investors:
“It’s a little shocking when you think about it, because the real world view uses stickiness, the exchange volume is the opposite, it’s 90% Bitcoin or more.
Back said that while the bitcoin space is underfunded by this category of investors, builders within the ecosystem are “producing more innovation and more product value” compared to “crypto” ICOs, which have attracted the lion’s share of venture capital spending.
The failure of FTX and the collapse of decentralized finance projects such as Terra/LUNA may also have played a role in changing the behavior of venture capital. Back said crypto-currency products other than Bitcoin have not seen an increase in investment while interest in bitcoin startups has resumed:
“Investment in Bitcoin-related startups, especially early-stage startups, has doubled over the past year. So that’s positive.”
Meanwhile, Twitter co-founder and Bitcoin proponent Jack Dorsey has donated $5 million to Brink, a non-profit Bitcoin developer support organization.
Back’s Blockstream and Lightning Labs are considered to be significant contributors to the ongoing development of the Bitcoin protocol, each employing eight developers each serving a preeminent cryptocurrency.