Initial coin offerings (ICOs) may be holding back the growth of the bitcoin ecosystem, with market research reflecting a huge skew towards non-bitcoin investments by venture capitalists (VCs) over the past five years.

Speaking with Cointelegraph’s Joseph Hall at the Lugano Plan B summer school in Lugano, Switzerland, Blockstream CEO Adam Back highlighted the contrast between the lack of venture capital funding in Bitcoin (BTC) and the dominance of the cryptocurrency’s total market capitalization.

Adam Back with Joseph Hall from Cointelegraph Switzerland. Source: Cointelegraph

Back—the inventor of Hashcash, the proof-of-work algorithm of Bitcoin is derived from Hashcash—he mentioned the market research published Trammell Venture Partners details the influx of VC money into the ICO boom in the years following the launch of Ethereum and smart contract functionality.

Back said venture capital spending on ICOs has dwindled in recent years after an initial surge in attraction to “early-stage liquidity,” saying:

“You know, buying discounted tokens, waiting for the companies they invest in to do some marketing, and then selling the discounted tokens to retail investors before the product comes out.”

Back added that ICOs bring in a lot of money for investors, but the phenomenon doesn’t necessarily bring products to market that people can use and value because “incentives are not aligned.”

Related: What Is Bitcoin and How Does It Work?

Trammell Ventures’ report examines market data and shows that 97% of venture capital investment in the past few years has flowed into “cryptocurrencies,” rather than bitcoin. Back highlighted that ICOs, altcoins, discount tokens and other projects are all attracting investors:

“It’s kind of shocking if you think about it, because the real real world uses stickiness. The transaction volume is the opposite, 90% bitcoin or more.”

Back said that while such investors are underfunding the bitcoin space, builders within the ecosystem “generate more innovation and more product value than “crypto” ICOs, which attract the majority of venture capital spending. “.

The failure of FTX and the collapse of decentralized finance projects such as Terra/LUNA may also have played a role in the shift in VC behavior. Investment in non-Bitcoin crypto products has not increased, while Bitcoin startups have seen renewed interest, Back said:

“I think, especially in the early stages, the investment in bitcoin-related startups has doubled in the last year. So that’s a positive.”

Meanwhile, Twitter co-founder and bitcoin proponent Jack Dorsey donated $5 million to bitcoin developer support nonprofit Brink.

Back’s Blockstream and Lightning Labs are considered important resource contributors to the ongoing development of the Bitcoin protocol, with both employing eight developers each dedicated to the excellence of the cryptocurrency’s maintenance.

This interview is part of an upcoming Cointelegraph documentary about what it’s like to attend Bitcoin school. Subscribe here (https://www.youtube.com/@cointelegraph) to watch.

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