This article appeared in Forbes on Aug 26, 2019.
If we start to talk about significant enterprises buying into blockchain, and even Bitcoin for that matter, it is hard not to start with the online discount store, Overstock. Formerly led by Patrick Byrne, a libertarian with a Ph.D. in philosophy and a great belief in the revolutionary power of this space, Overstock became the first major retailer to accept bitcoin in 2014.
A lot has happened in blockchain, Bitcoin, and at Overstock since 2014. The business has two sides to its corporate coin now; Overstock.com Retail, and Medici Ventures. The former remains the retail part of the business, with the latter the blockchain side of things.
However, it goes deeper than that. Medici Ventures, Overstock’s wholly-owned blockchain subsidiary, has under it a family of companies which it labels as a Keiretsu’ – a Japanese term describing companies with interlocking interests.
Currently, 18 companies work together and to find synergies between one another under Medici Ventures, attempting to use, and grow, new technologies, such as blockchain.
It is an interesting business model, not only for the blockchain space but more so for a traditional enterprise business too. Many companies have recognized the benefit of cryptocurrency and blockchain, and are starting to get onto the bandwagon; a bandwagon that Overstock has long been on.
But, the question is: with Overstock’s experience in the blockchain space and its traditional business arm ready to fund its blockchain ventures is the company is onto something with its ‘Keiretsu’? Is Overstock pioneering a new era of integrating blockchain business that goes beyond the usual consortia and internal private blockchain development we are so accustomed to seeing?
A new avenue
In recent blockchain advancements on the enterprise level, there have been some pretty familiar steps taken, albeit from some of the biggest companies. Many companies feel the need to use blockchain to increase efficiencies in certain areas and have reached out to companies who can provide such solutions.
For example, companies using supply chain somewhere in their operations have been flocking to join several IBM’s blockchain initiatives. From Trade Lens, FoodTrust, and even recently with Trust your Supplier. These blockchain networks allow companies to join the consortium, receive IBM’s expertise, and help to grow the technology in the selected nice.
Of course, some companies have big enough clout that has allowed them to decided to build their blockchain offerings. JPMorgan has their cross-border cryptocurrency built on a permissioned blockchain; Nestle is working to develop a public chain for its supply chain; the list goes on.
However, there are not many companies doing what Overstock are doing. To continue as a retailer, the tried and tested model, while also building up an entire blockchain subsidiary – which encompasses 18 other companies – is a move that offers quite a few advantages over the traditional blockchain means.
The companies in Medici Ventures’ Keiretsu are as varied as they are innovative. tZERO is probably the flagship company, is an alternative trading system (ATS) for security tokens. Then there is Bitt, which currently issuing a central bank-backed digital currency for the Dutch Caribbean island Curaçao and the Netherlands constituent country Saint Maarten. The list goes on, but what is quite clear is these businesses have that innovative startup feel, which is so essential in the blockchain space.
Additionally, these companies benefit from being protected and backed by a major enterprise like Overstock, even if it is through their blockchain subsidiary Medici Ventures. However, along this line, these Keiretsu companies also get to lean on the experience of those at Medici, and in turn, also get the experience of a blockchain-forward parent company like Overstock.
Is it working?
The question is, does this seemingly pioneering approach to utilizing and building blockchain work? Recently, the company released its Q2 2019 financial results, which spelled notable losses. The report revealed a 23 percent decrease in revenue and a 19 percent loss in gross profit, but these figures don’t paint the whole picture.
In fact, tZERO also reported losses of $10 million, but that is not what it is all about, according to Jonathan Johnson, president of Medici Ventures.
“We are proud of the progress tZERO has made this year as it has achieved the promised milestone on its 2019 roadmap, most recently allowing non-accredited investors to trade the TZROP token on the tZERO platform,” Johnson explained to me. “As tZERO continues to launch products and expand its business into new industries, we expect the revenue to increase.”
“On our Q2 earnings call, we highlighted three of the other keiretsu companies: Bitt, Medici Land Governance, and Voatz. Bitt recently graduated from the regulatory sandbox of the Central Bank of Barbados after testing its blockchain-based fintech products, services, and business models in a controlled environment testing risk associated with Bitt’s products.”
“This is a major stamp of approval for Bitt! Medici Land Governance is set to launch its blockchain-based land registry products in Lusaka City, Zambia, and Liberia to bring individuals into the global economy.”
“MLG also completed the recording of all land records going back to 1996 in Teton County, Wyoming. Voatz is piloted blockchain-based mobile voting in Utah’s second-largest county, Utah County, for military members and dependents living overseas. That election was two weeks ago, and it went well – really well.”
The thing is, while the results point to a decrease by most metrics, Overstock has returned to a positive adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization for the first time since Q2 2017. There is progress being made, and that progress is critical for Johnson.
“Medici Ventures is dedicated to building a tech stack for society that democratizes capital, eliminates middlemen, and re-humanizes commerce through accelerating blockchain technology in areas such as identity, land governance, money and banking, capital markets, supply chain, and voting,” added Johnson.
“We hope as our companies continue to bring blockchain-based products into production and as more companies and individuals adopt blockchain technology, the things we’ve understood for years will become normalized and mainstream.”
This is still the first steps towards a goal Medici Ventures is eyeing out that could have far-reaching implications.
“Our ultimate goal is to provide a simple Government as a Service (GaaS) product built on the transparent and immutable backbone of blockchain that will allow governments to easy pick-and-choose from the menu of products offered by the Medici Ventures Keiretsu companies.”
Bringing it back to crypto
Another factor to consider when looking at how Overstock is going about it blockchain journey is to note that their drive is not wholly blockchain-based – there is a big drive for cryptocurrencies. A lot of enterprises believe that blockchain, rather than Bitcoin, is the future of the technology. However, for Medici Ventures, they sit far on the other side of the fence.
“As blockchain and cryptocurrency adoption expands, many other companies are beginning to recognize the benefits of the technology and begin to build a blockchain side to their business. Facebook is an excellent example of this. Walmart is another,” mused Johnson.
“Overstock has been a pioneer: it started as an e-commerce company and was one of the first major companies to explore blockchain technology. In 2014, Overstock began accepting bitcoin as a form of payment. We saw accepting cryptocurrency as a way to explore blockchain technology and quickly realized cryptocurrency is blockchain’s first “killer app” – but there is so much more blockchain technology will be used to change the world. That’s why we’ve put so much human and other capital toward Medici Ventures.”