I am old. So old that I was working in Silicon Valley during the original dot-com bubble. It was an amazing time in an amazing place. I worked at a start-up then and we managed to get ourselves around US$90 million in venture capital and spend it all in the space of just three years. We tried to force growth in a market that was not quite ready for software as a service application for international trade back in 1999. It did not work.

I did get to watch the stock market up and plunge and live through the aftermath. At the time, I remember a lot of smug people who said the market collapse was proof that "nobody really wants to buy their [insert just about anything here] online". From groceries to shoes to real estate, nearly all the most breath-taking predictions of the late 1990s are real today and have been for some time.

The world of Blockchains feels remarkably similar. In 2017, a massive wave of Initial Coin Offerings (ICOs) flooded the market. Companies raised millions (and sometimes billions) with just a whitepaper and usually nothing more. If anything, the hype felt even more insane than 1999. Back then, if you wanted venture capital, you needed a business plan, a management team, and at least a beta piece of software. In the start-up I joined, we already had product and clients before we took $90 million in VC money.

So far this year, the main measures of the crypto-economy have plunged by nearly as much as we experienced in the peak-to-trough in the late 1990s. At EY, we looked at over 140 different initial coin offerings and found that with just a couple of exceptions, they all fell at around the same rate of the market. A sizeable portion of them (about a quarter) are worth nothing at all.

Almost none of these ICOs are going to come back from that plunge because very few of these companies are real organizations with teams or product. I do not know if they were started with good intentions or bad, but we do know that only about a quarter of the companies that were funded last year have product in the market. By comparison, in Silicon Valley, more than three-quarters of software start-ups would have their first product in the market within a year of funding. 

The ICO as a means for funding start-ups is also unlikely to make a comeback. Utility settlement coins are a step backwards, not a step forward when it comes to a means of exchange. We have been going for fewer means of exchange for centuries, finally getting down to a single, liquid currency in all nations. The economic logic behind that is compelling. More importantly, shareholders and coinholders have an enormous conflict of interest that only shareholders can win.

This does not mean, however, that the token economy is doomed. A new wave of coin offerings is coming. This set of coins will be different: Backed by assets, compliant with Know-Your-Customer (KYC) and Anti-Money-Laundering regulations, and properly registered as securities, these will be lower risk and have clear rights associated with ownership. Most of these coins will be anchored, based on real-world assets and their link to those assets will be attested to by audit firms and other trusted intermediaries.

In addition to a new wave of asset-backed tokens, we will also see a new wave of business applications. Right now, most public Blockchains like Ethereum, have lots of investors and coins, but very few useful applications. The lack of transaction privacy makes public Blockchains unattractive for enterprise users who want to keep the details of their business transactions away from prying eyes.

Over the last year, the maturing of zero knowledge proofs and other tools are making it possible for companies to do real business transactions that are secure and have a full audit trail, but are hidden from view on public Blockchains. This technology is challenging to use as it relies on advanced mathematical proofs, but as tools for building these applications mature, more companies will be able to use them without hiring a team of math PhDs. 

As with the dot-com bubble, the real hard work of application development and service offerings actually took place after the market collapse. Clumsy early offerings matured with intensive work by application development teams and companies with patient investors snapped up the skills and assets of their less competitive peers. The ICO may be dead, but the token economy is just getting started.

Paul Brody, EY Global Blockchain Leader, will be speaking about the future of ICOs and Blockchain at EY's Malta Attractiveness Event, 'Welcome to the Transformative Age', at the Intercontinental Conference Centre on 24 October. Brody will be presenting the results of EY's new ICO study and provide his perspectives on what Malta can do in this space.

Bookings and further information at www.ey.com/mt/attractiveness