One of the founding fathers of blockchain technology, W. Scott Stornetta, has joined new Australian investment management firm First Digital Capital as its chief scientist, aiming to offer investors a way to get access to blockchain technology gems amid the minefield of initial coin offerings and volatile cryptocurrencies.
Dr Stornetta is credited as being one of the first to have created blockchain as a system of trusted information transfer in 1991, alongside colleague Stuart Haber while working at Bell Communications Research (Bellcore).
At First Digital Capital his role will involve doing due diligence on investment opportunities and “deep dives” on the technology of proposed companies.
The investment management firm – which counts the co-founder of aerospace and defence manufacturing company Quickstep Deryck Graham as its chairman – will have offices in Australia, New York, Geneva, London and Hong Kong. It promises to give investors exposure to blockchain, without them needing to dabble personally in ICOs or cryptocurrencies.
Mr Graham said the firm was born out of a need for a professionally regulated, hedge-fund like investment company specialising in blockchain.
“We want to see the government correctly regulate the market and when that happens, we believe more investment money will come into it from all around the world,” he said.
“As a fund manager in this space, we’re already communicating with big institutional investors and they’re keen to get involved. In 12 months’ time some of the big foreign investment funds and superannuation funds will have put a small percentage of their funds into blockchain. This is already happening in other countries.”
Dr Stornetta said he had not imagined how many uses the technology would have when he first developed it. However, he said even in the 1990s computer scientists were already discussing how to create a digital currency.
He now owns a portfolio of cryptocurrencies, but would not go into detail on his favourites, and advised punters against investing in cryptocurrency unless they were experienced investors.
“You can now buy various cryptocurrencies at 1200 newsagencies across Australia, but I’d like to suggest that unless you’re a sophisticated investor that would not be the best way to approach this market,” he said.
“First Digital Capital provides a team with deep international exposure and experience and that’s what people need at a time when we’re just at the beginning of this space.”
After creating the first blockchain, Dr Stornetta, alongside Dr Haber, created Bellcore spinoff Surety, which was the fist commercial deployment of blockchain.
He has also been a consultant on the commercial potential of emerging technologies, working with universities, commercial research labs and venture capital funds.
Dr Stornetta, who has a PhD in physics from Stanford, said digital transformation in industries from blockchain would come about in waves and tipped one of the biggest short-term changes to occur in the logistics and manufacturing space, where blockchain is helping prevent counterfeit goods.
He was also confident that cryptocurrencies were here to stay and said in the long-term, they would be a legitimate challenger to cash.
Mr Graham said First Digital Capital, which is recruiting former hedge fund managers internationally, would treat the blockchain industry like an economy.
It does not intend to invest more than 5-10 per cent of its funds under management into any industry sector and will invest across blockchain protocols, middleware and applications, in addition to industries.
“I have spent 12 months visiting conferences around the world and deciding that this is an extraordinary space, but a risky one to invest in, and have been working out how to de-risk the investment,” Mr Graham said.
“To begin with, we’ll have funds under management and in due course we’ll announce how regular investors can enter into First Digital. The intention is to be a platform that provides a true hedged investment in this space.”
Dr Stornetta and Mr Graham warned investors to treat ICOs like any other startup investment and assume more than 90 per cent of the ventures would fail.
However, Dr Stornetta said while there were some cowboys in the space, he was pleased to see traditional venture capital firms being challenged.
“I’m just a fan of competition and for the first time in memory we’re seeing the VCs feel some competition from ICOs and that can’t help but improve the situation for startups,” he said.