“People often say that ‘blockchain will change the world with dot-dot-dot.’ Now everybody needs to figure out what ‘dot-dot-dot’ is, and build it.”
That’s how Jonathan Johnson, president of Overstock.com’s Medici Ventures, describes the blockchain-focused venture fund’s goals for 2019. He told CoinDesk that, for Medici’s 19 portfolio companies, the focus of the coming year “should change from coming up with new ideas to executing on those ideas.”
Since 2014, Overstock has invested $175 million in Medici’s portfolio companies, a list that includes the security token trading platform tZERO, enterprise tech provider Symbiont, voting app Voatz, lending startup Ripio, data managing platform Factom, and others.
Although it began as an investment arm, Medici may soon become the publicly traded company’s core business, as founder Patrick Byrne is seeking to sell the flagship online retailing site by February. If all goes according to plan, the sale would leave the company with “Medici, it’s assets and a bag of cash,” according to Johnson.
But while he said the management team views blockchain as a long-term investment, they are aiming to see some preliminary results soon.
“We want our portfolio companies to focus on having their products in production,” Johnson said, going on to explain:
“When you have a product, it starts to open up the creative juices, [people start] asking ‘how we can use it’ and it changes the discussion. When it’s mostly about technology, people want to talk about the Merkle tree, mining, nonces… All that talk gets confusing and in the way of progress.”
Medici’s chief operating officer, Steven Hopkins, agreed that delivering a product shifts the narrative.
“We need to do more than just explain what blockchain applications can be,” he said in an interview. “We need to show people how amazing blockchain is by launching blockchain products. When people can use a product, they are half the way up the learning curve of what blockchain is. And now they actually care how it works.”
By way of example, Johnson added: “I don’t know if my mother-in-law cares if a voting app uses blockchain. She would say: ‘Wait a second, is it a safe and secure way for me to vote? And I don’t have to go and wait in line at a junior high school for three hours and wait two weeks until I know who my congresswoman is?’”
In fact, that example is more than theoretical – Johnson cited Voatz as an early success in the Medici portfolio.
The blockchain-based voting app was piloted in two West Virginia counties this year during the primaries in May, when only 13 people used it to vote. Then during the midterms in November, it was rolled out for 24 out of 55 counties. According to the official state data, 144 voters in 30 countries used the app to vote. The pilot was open to West Virginians who live overseas, a group that includes members of the military serving in foreign countries.
It’s worth noting that Voatz has been widely criticized this summer, with journalists and cybersecurity analysts questioning the quality of the solution, its security and the very notion that the app in its current state is a blockchain-based system.
Those criticisms aside, Medici considers the early results promising.
“Voatz’s debut in West Virginia went really well,” Johnson said. “It was really limited, and I think the way Voatz and the state rolled it out over the primaries, and then during the general election, was wise. I looked at some letters that came to Voatz from the military folks that said things like: ‘You finally made me like to vote.’”
As it stands, people have to rely on quite a lot of links in the chain to make sure their vote was counted as cast, Johnson went on. Even if those carrying out the voting process are reputable and highly trusted, he claimed, blockchain gives a voter an unprecedented opportunity: to log into the system after the fact and check if their vote was really counted.
This approach can radically revamp trust in the whole institution of elections, Johnson believes, so that people can “trust the system and not worry about Russian hackers.”
After the overseas voters, the next testing wave for Voatz should include disabled voters, then absentee ballot casting, Johnson believes — and then anyone should have an option to vote via the app if they want to.
Playing the long game
Despite Medici’s drag on Overstock’s bottom line – the unit lost $39 million in the first nine months of the year, contributing to a total net loss for the company of $170 million – Johnson said the plan to sell the retail business and focus on blockchain is supported by patient investors who believe in Byrne’s vision.
“Our shareholders are interested in the blockchain business, and when you look at our last earnings call, it was slide 23 when we started talking about our retail business,” Johnson said. “The Overstock team makes decisions based on what’s best for the long-term value for the company, not what’s best for the Q4, Q1, or whatever quarter we are reporting.”
Another priority in the coming year for Medici will be launching tZERO, the regulated exchange for security tokens that Byrne has long touted as a solution to Wall Street’s inefficiencies and lack of transparency.
Technically, the Overstock’s Alternative Trading Platform has been open for two years, only trading tokens representing preferred shares in Overstock. However, activity has been light, with only 10 trades taking place between mid-December 2016 and March 2018, according to a public filing.
The secondary trading platform for tZERO security tokens will be up and running in earnest in January, according to Johnson, and its first additional asset will be the tZERO equity tokens that the platform sold to more than 1,000 accredited investors in August, raising $134 million.
While uncertain and still-developing regulatory regimes remain a significant impediment to effectual deployment of the technology, Medici-backed startups see working with governments directly as a critical step toward tackling that.
This is what Medici-backed startups are doing outside of the U.S., like Barbados-based fintech startup Bitt talking to central banks in the region about issuing central bank digital currencies (CBDCs), or Medici Land Governance working with the Zambian government on a digital land registry.
All this helps “going from an over-regulated world to, maybe, a clearly regulated world, then to a less regulated world and to a decentralized world,” Johnson believes.
Noting that the U.S. government is “the biggest middleman” in the country right now, Medici leadership believes that the regulatory environment can be changed step by step.
“If you look at travel agents and the internet — we didn’t get rid of them overnight, we just showed that they are less and less useful for us,” Johnson said, adding:
“So, we take incremental steps in this way, we see the middlemen less necessary, we see the regulation maybe unnecessary, and we get to a point when everybody can agree with it.”
Jonathan Johnson (right) and Steven Hopkins image via CoinDesk archive