블록체인 및 암호화에 대한 진지한 인식

There are major disruptions and so much noise happening in the crypto/blockchain industry, but now the real serious players are starting to rise to the top. They are openly talking about where we stand, where the pitfalls are in the industry, in the technology, and where the strategic focus and legitimate investments in this industry need to be centered to move forward. They are actively working on tangible solutions that address industry challenges.

The Institute for Innovation Development has committed to a thought leadership article series which started with our recent interview with Marshall Hayner CEO of Metallicus entitled Behind the Scenes of Blockchain and Crypto and continues with this article. Our commitment to reporting on this industry was reinforced by a recent Fortune Business Insights report that projected the global blockchain technology market to reach $469 billion in 2030 with a CAGR of 59.9% during the forecast period of 2023-2030. With such rapid blockchain industry growth projected, it is important to dig deeply to understand how to approach this still relatively nascent industry.

To that end, we were thrilled to be introduced to and have a discussion with Gary Cardone CEO of Card1Ventures – a leading St. Petersburg, Florida-based venture capital firm focused on disruptive technologies. Gary has become a major thought leader on the blockchain and crypto industry and offers a very strategic investment approach to the industry.

 Hortz: As a serial entrepreneur, early-stage investor and venture capitalist, how did you come to blockchain and crypto?

Cardone: I have been fortunate enough to be at the right place at the right time. Maybe it’s a little luck. Maybe it’s really, really good observational skills. They say in the military that “he who has the greatest situational awareness wins the game”. I started by being a part of a successful startup in the energy business which became a Fortune 30 company and helped transform the manner in which power and natural gas trade around the world, then moved to the payments industry. Observing all the friction in payments and the structural shift made with the advent of the internet and then the effects of COVID which fundamentally and forever changed the way consumers behave online and also stressed the payment rails. Successfully exiting those two firms and being inquisitive, I began studying Bitcoin, read the original white paper, became fascinated, spent 700 hours really studying blockchain and invested in a company last year called Node40 – a leading blockchain forensics, accounting and tax software solutions provider focused on complex digital investments – which brings us up to date.

Hortz: Tell us about Node40 and what was behind your decision to invest in their company?

Cardone: Node40 is a big data firm; a forensics fraud accounting, tax tracking, and tracing tool designed to track, trace and financially quantify or “tell the story” of a digital asset’s journey across social security numbers. Say Bill buys a Bitcoin in 2016 and then gives it to his daughter in 2023. His daughter then puts it in a trust for her child. And in 2080, the grown-up child sells that Bitcoin and it is worth, say, half a million dollars. There is a whole tracking/tracing history that the tax man will want to know, the regulators will want to know and the daughter will need for the audit she will undoubtably undergo. And these are the things that were missing in the crypto industry until Node40 launched to solve those problems.

Hortz: How have you and other investors been responding to recent crypto disruptions and scandals?

Cardone: To illustrate, I was at the recent Bitcoin conference and it was 60% smaller than it was the prior year. There were no $10 million parties, no big yachts. Ever since Celsius, FTX and bank collapses of Silicon Valley Bank, First Republic and Signature Bank – by the way, the largest bank collapse in the history of the United States – the mood has changed and everybody was talking about it. Mathematically those three bank failures did more damage in three weeks than 2008 and 2009 combined.

Nonetheless, I think that has drawn the attention of a lot of serious players who have been sitting on the sidelines studying this market. You know, the biggest companies in the world like BNY Mellon, Fidelity, Goldman Sachs and others. I saw a quality at that conference that I have never seen before. I saw more gray headed guys, pension funds, accounting and tax firms, billionaires investigating, further studying the market and formulating a digital strategy. Serious players are coming to the table and are beginning to put money into the space, slowly but surely. But first comes the study and the research and a better understanding of this market.

Hortz: What is your perspective of where we are in this industry and what compelled you to invest at this time?

Cardone: I look at spaces that are emerging, somewhat developed, but early stage. I look at Bitcoin/crypto and I think we should look at it as an entire industry, rather than a product. We should look at it as a technology, not so much as a currency. The Bitcoin community has articulated this story poorly to the fiat and legacy political world. I think they tried to do too much, too quick and that has been too polarizing to the legacy, analogue world. Bitcoin and blockchain is basically a 14-year-old industry, and it is behaving like a 14-year-old. It is not unnatural what is happening. This is very, very normal that we would see excesses, hubris, waste and blow ups. Like any space, buyer beware, do your research and  go in slowly.

I am extremely comfortable with the space. I like this. The industry getting beat up right provides a really good entry point for me if I am just buying the underlying asset, BTC. But more importantly, it allows me to invest in companies today and not have to compete with this 20-year-old Palo Alto view of build a company on zero cost of capital, then sell everything you have for free on a subscription model, distill the knowledge of the consumer and sell that data. That has been the model for the last 20 years. In a marketplace that is undergoing stress like it is, where cost of capital is 8% or 10% , companies now need to make money and most do not know how to deploy successful strategy and tactics to do so.

I only build businesses that can become EBITDA positive. The Node40 business will take three years to cash flow, but it will be a real cash flow business and very large with sustainable CAGR. I personally love the fraud and forensic space in any vertical because fraud and forensics are always needed and receive the highest multiples. It is irrelevant whether the cost of a Bitcoin is a dollar or a million dollars. You need fraud and security and forensic tools that make regulators comfortable. And it also makes large players like the Goldman Sachs of the world want to come in. They want clear regulations so they can manage their risk and to-date our politicians and regulators have not performed well.

Hortz: Can you share more about your investment approach and strategy with Card1Ventures?

Cardone: Card1Ventures searches for picks and shovels type companies that can do so in a risk adjusted fashion. My base thesis is that we will in my lifetime and yours have a fully digital economy. I seek out and find intelligent people with good ideas and/or technology that is already built or being built to support this digital future. The problem with the digital world is that you do not have systems that are set up to manage a digital world.

For instance, if you wanted to track the lifespan of a digital coin (or piece of digital art) moving between you and I, that is a vastly different method of accounting and tracking than you buying and sitting in a house for 20 years with one deed. Another example is taking cryptocurrency as payment in exchange for your services. Over years, it is hard to nearly impossible to know what your cost base is. The tax man comes knocking on the door and none of the accounting and tax people you reach out to can handle your digital currencies. I see this as a computer science problem, an AI problem. In the end, this is all going to be done with AI. The entire financial industry has to be reconfigured to account for all of these digital transactions.

I look at the digital asset industry as $100 trillion space that needs to be served. Let me give you some really interesting statistics of how young this industry is. There are more than 50 million Americans who own crypto, or 20% of the adult population, per a recent survey commissioned by Coinbase. Only an estimated 1.62% of cryptocurrency investors declared their crypto to tax authorities in 2022. So, there is a huge gap between those that are holding digital assets and those who have accounted for it and filed it on their tax form. I would say less than 10% of the people that have filed taxes in the United States on digital assets have done it correctly, because it is such a vastly different approach.

There is a different methodology used to track crypto and that means all crypto, whether that’s DeFi projects, NFTs, smart contracts, or Ethereum, Bitcoin or any of the other obscure altcoins. What we are really talking about is a whole industry that needs to get built around the digital asset world, including the metaverse. The problem is we do not have it built even a little bit, like when we introduced the first automobile and we did not have any roads, any highways. We did not have seatbelts, helmets, stop signs, stop lights, or even have a maximum speed limit. And, if you go back, you will see how much of a big fight that was. Safety belts and speeding limits were a monster fight. We were never going to give up our right to go as fast as we wanted. Today, we have speed limits and police officers that enforce that and even digital apps that track your driving behavior.

I can make the case that all industries are built exactly the way Bitcoin and the crypto world is being built. You first create the product and then you build the rails and the regulations and the processes by which to track all this behavior, but always AFTER the Initial Idea is launched, ChatGPT is a good example. GDPR in Europe around data sharing and credit card processing was introduced less than 10 years ago in a market that’s 70 years old. All guardrails get put up after problems are discovered. They do not get put up prior to a market being in place.

So, this is very, very natural what is happening. We are at the beginning and what we are seeing now is a significant amount of mature, well-funded people starting to move from the analog world. We have the largest exodus of intellectual capital from Wall Street today moving into the digital asset space. There will be an entire industry built to bridge the gap between the analogue 20th century constructs and the 21st century digital age and I want to play a significant role in shaping the industry.

Hortz: How do you go about finding the right companies to invest in?

Cardone: I am pretty plugged into this space. I mean, one of the things that is remarkably interesting about this space, unlike the analog world, is that you can meet everyone, as it is a very open-minded industry, all looking for great minds and experience they can collaborate with. That is why I go to the big Bitcoin type shows, the consensus type shows, and meet the players.

Hortz: What are the criteria you use for picking the right companies like Node 40 and others? What do you look for?

Cardone: Well, first thing is I look for the people. To me, technology, any technology that you or I would invest in today, we can do all the due diligence we want, but that technology must change tomorrow for it to be relevant. If I perform due diligence on technology today, and it does not change, I am probably buying a dead company. So, I look for people, I look for the ethics inside those people, and what are they trying to achieve? Are they trying just to make a bunch of money or improve conditions? Are they trying to build a really good product that serves other people? Is their operation sustainable and malleable?

Most founders, I have noticed, underprice their product and do not fully understand its applicability. They may be brilliant at building a software solution or technology, but they might not fully understand how to actually get that product into the market and priced correctly or have a too narrowly focused understanding of where it fits in the industry. I look for teams that do not have so much ego that they do not want help from somewhere, from another person, another perspective, someone that has been successful before planting a flag in a large industry that is either being created or being disrupted.

Just because you found an idea does not mean that you are a great executor of a business. Even the greatest athletes in the world need a coach, a trainer. With emerging companies, I search for a team that is malleable and understands that having an idea or building an product is only one part of building a great business; that are open to get help to realize all the things that come with building a company that can shape industries, that can lead the way and create sustainable, important companies. That is when I get excited!

The problem with this particular industry, like most early stage industries, is that the customer does not really know what they need. So, the companies that I look for are companies that are not only building technology, but they can communicate the value of that technology as it relates to that person’s business and pain points.

The examples I use of new customer needs are the accounting firms, the Baker Tilly’s’ of the world, the RSMs, even the Ernst & Youngs and PwCs. These companies are going to serve the digital world and will find the tools that Node40 is building as vital. Few analogue players have spent the past 5 years making investments to serve that digital world. None of these legacy companies are going to build any of this. They are going to buy it. You do not have the time to build any of this now from scratch. It is too late. It does not matter how much money Visa, MC or AMEX has.

Hortz: Any final thoughts to share on how to look at this industry from an investment perspective?

Cardone: This is going to be a great space, an unparalleled space. I like industries and companies that solve the problems that all the politicians are griping about. I want to invest in the companies that help build the infrastructure necessary to make it safe and scale-able. I want to invest to build the rails and guidepost necessary to shape this industry so that regulators eventually conclude that digital assets are the safest place to be, an inevitable future for all humanity. The digital future is a reality, we are not going back to 8 track tapes and paper ledgers, that is for certain, and being a part of building solutions that serve what I think shall be a multi trillion dollar industry, that currently is less than $.5 billion, is the biggest no-brainer, at least for me and the way I look at the world and manage risk and investments.

I am probably for the next year and a half going to focus on fraud forensics, tracking and tracing. We are getting ready to do another raise for Node40 as part of that. Part of that raise is to buy talent, and possibly accumulate other companies that may have key understanding and solutions tangential to ours and are institutional grade. 

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We operate as a business innovation platform and educational resource with FinTech and financial services firm members to openly share their unique perspectives and activities. The goal is to build awareness and stimulate open thought leadership discussions on new or evolving industry approaches and thinking to facilitate next-generation growth, differentiation, and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors — Ultimus Fund Solutions, NASDAQ, FLX Networks, TIFIN, Advisorpedia, Pershing, Fidelity, Voya Financial, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines).