Global perspectives for start-ups
*The author is a professor at the Department of Bio and Brian Engineering at KAIST.
What caused the exceptional hype and fervor over cryptocurrency and its underlying blockchain technology in South Korea? Is it because Koreans have innate gambling genes? Or is it because the people of one of the world’s most wired societies tend to be responsive to the newest and challenging innovations? The answer is actually more simple and down-to-earth.
The so-called “Hell” generation that struggles in finding regular or decent-paying jobs and have entered society deprived of income and opportunities found hope in virtual wealth. They dream that the virtual coins can provide a way out of their struggles in the real world.
The older generation shakes their heads at the young people wasting their youth staring at screens watching virtual coin trade movements. But they are in no position to criticize the young as they are partly to be blamed for the society these young people struggle in.
Can cryptocurrency and blockchain be their savior? Unfortunately the answer is no. Most of the digital tokens will likely vanish, and their creators may go under with them through initial coin offerings. The overall future of cryptocurrencies may be bright, but many of them will become useless. The future of blockchain technology is immense, but the success rate of businesses starting their own coins is very low. We are just at the fledgling stage of the novel concept of blockchain. The new technology requires years of trial and error to be secure enough for a lasting business. The concept behind open ledger blockchain and its output of virtual coins is wondrous. The technology is built on existing innovations and therefore does not require much investment and infrastructure.
The Korean start-up community’s naïve infatuation with blockchain is, however, worrisome. In a country where high-risk, high-return investments in the 10 billion won ($9.29 million) to 50 billion won scale is rare, ICOs can seem appealing for cash-hungry Korean start-ups. They launch businesses on blockchain even if their services are unrelated to peer-to-peer trade and the invention of new coins.
So why don’t Korean investors take risks with start-ups? It may be because they don’t have much experience and have not built a systematic mechanism for discovering promising enterprises. It also may be because they are not used to investing in highly volatile assets and taking chances.
Moreover, Korean start-ups mostly target the small market at home. Start-ups born in the United States, Israel and Europe envision products and services that can sell in the global market, whereas Korean entities mostly come with business ideas customized for Korean consumers. A business model targeting a market of 500 million people is bound to look pitiful against one aiming a market of 7.5 billion people. So why do Korean start-ups restrict their eyes to the Korean market? Why can’t they build a bigger and wider dream? First of all, they have been schooled and trained by society that way. Their language limits also restrict them to the market of their mother tongue. Their logic and creativity have been shaped and restricted to ideas for the Korean people and market.
Moreover, public and private investors prefer safer investments when reviewing start-ups. It is easier to get investment by building a business upon ideas already proven successful at Silicon Valley. A pitch of a business idea of customizing a service that created a splash in the United States for Korea can hit home with investors.
But Silicon Valley investors prefer entirely novel ideas and experiments. They lose interest if a business is modeled after an existing one. The returns for a latecomer will be smaller and therefore reduce the appeal for risk-takers. The lack of patience is another factor that dissuades investment in new ventures in Korea.
Korea has already become a hotbed for cryptocurrencies and blockchain. Korea has earned the opportunity to make a mark in the global financial market. But one piece of advice for young entrepreneurs and investors: You are alone out there. The government, banks and credit card issuers all wish to safeguard their prized centralized authority and establishments. The retailers who profit from intermediary trade and fees are fearful of peer-to-peer blockchain technology. They do not want a decentralized world and a new industrial breed built upon it.
But in the future, genuine inventors must take home bigger rewards and consumers must benefit from cheaper costs and wider choices. Privacy must be protected, but data should be transparently shared. We must live in a society where the process of creation and trade can be openly traced and clearly explained.
Look at the possibilities of virtual tokens and blockchain technology that is still nonexistent, but has the potential of turning into assets. Instead of dreaming of becoming rich through trading virtual coins, focus brains and creative resources on bettering innovation and technology. Devote your youth and skills to make universally useful and appealing products and services for the global community. Then the future is yours.
Translation by the Korean JoongAng Daily staff.
JoongAng Sunday, May 5-6, Page 34