A Tale of Two Business Models

As a lawyer admitted in a Common Law jurisdiction, one can’t avoid enjoying the art and work of Charles Dickens. Especially “Bleak House” which allows you to experience the horrors of the court of Chancery and “A Tale of Cities” which tells us the story of two different but famous places (London and Paris) during the French Revolution.

The punch line “A tale of two [Insert something here]” has become almost a franchise in the western culture every time we try to compare two dysfunctional and completely opposite concepts.

So here I am.

The two sides of the coin that I would like to contrast for you today are the two completely different approaches to support and fund technology taken by two of the largest economic clusters in the world. The United States of America and the European Union.

Before starting with the model of the European Union, I would like to mention something. The main driver behind my choice between the two models which will become obvious as you read through the following lines is Sustainability.

But not sustainability in the Buzz word sense of ESG which by the way I fully support. But in the Economic context.

Yes, sorry to ruin your utopic start of the week but in the real world, business ventures must not only be suitable in the environmental and social aspects but also, they must be economically viable in the long run. Otherwise, there won’t be a long-lasting impact on what we are trying to influence.

With all these housekeeping thoughts out of the way, I will proceed therefore to summarize the approaches taken by the two largest western powerhouses in the development of the Crypto and Blockchain space.

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We have in one hand Europe where the development and growth are sought through government grants given to Think Tanks and University researchers (most of them in Tenure FGS!).

The flaw with this approach is that most of the grants are Public and funded by taxpayers’ money. Well, I hope that you can see how this is not going to work in the long term.

Why is that? Because to sustain an aggressive expenditure level, you need to reduce the marginal tax rates and expand the taxpayer’s base. And thanks to the latest legislative developments (Does the self-hosted wallet circus ring any bells?), that’s exactly the opposite of what the EU is doing.

In fact, what they are doing is forcing a large percentage of business to pack their suitcases and take a plane to elsewhere, leaving the staying put citizens with a large tax bill. Unsustainable.

And to close my thoughts on the European model, let’s hoop on into the democracy bus. No matter how convinced I am that Blockchain is the future, I must accept that to a lot of people, this is still not the top priority. What I am trying to say here is that when the government grants money to a Blockchain Research Think Tank, they are directing public funds that could be deployed in initiatives such as increasing the number of hospital beds, reducing the number of students per school class to name a few.

And to add insult to injury, the decision making in the allocation of grants and the enforcement of the accountability in the recipients is in most of the cases, in the hands of Unelected Bureaucrats.

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The other way to do these kinds of things is by funding projects and enterprises directly by Hedge, Private Equity and Venture Capital Funds.

This vilified (by society) model has the following advantages to society:

1)    The funding is completely private; hence no public funds are diverted from the real needs in Health and Education for example,

2)    No matter how remote it might be, in the first step of the food chain, the funds in the hands of the investors are post tax monies.

3)    If the Venture do well, gains can be differed yes but at some point, they will be taxed,

4)    If the Venture goes under, there won’t be any public funded rescue programs to cover the losses. The public won’t pay that bill.

5)    The accountability of the project team will be enforced by specialized professionals that will keep the teams honest and will increase the chances of success and hence, producing tangible benefits for society.

I am not here to throw rocks at anyone. I just want to raise awareness of the fact that governments must do only what their mandates say and leave the private sector to take informed and calculated risks.

Legislation should be designed with that end goal in mind.

Yours in crypto