By Casey Hynes
Updated on May 16, 2018, 12:45 PM

The View from Silicon Prairie: Blockchain Comes to America's Midwest

Blockchain Comes to America's Midwest.jpeg

On a Wednesday afternoon in Fairfield, Iowa, the coworking space Fairfield CoLab is hosting its first cryptocurrency and blockchain meetup. Only six people attend, but their enthusiasm is palpable. The conversation ranges from cryptocurrencies as speculative investments to cryptocurrencies as a force for social good. Before the group breaks up, people discuss topics for future meetups, suggesting that this meetup is only the beginning.

The gathering may not sound like a remarkable event. But for a town of just over 10,000 nestled in rural southeast Iowa, it’s impressive that there’s such a meeting at all. It’s also a testament to the allure of blockchain and digital currencies outside of well known communities in cities like New York and San Francisco.

Two hours away in the state capital, the Des Moines Bitcoin & Blockchain Group gathers regularly to discuss the opportunities inherent in the technology. A search for cryptocurrency and blockchain meetups in the Midwest reveals similar activity throughout the region: the Chicago Blockchain Center, the Blockchain Development Group in Omaha, and multiple meetup groups in places like Minneapolis and Columbus.

The excitement has even spread to university campuses. Ohio State University appears to have a cryptocurrency club, and one of Iowa’s most avid blockchain and cryptocurrency advocates, Cameron Schorg, graduated from the University of Iowa this May. Schorg began investing in cryptocurrencies as a high school student. Although he still had to take out student loans for college, he says his earnings have given him the freedom to travel and buy a car more easily than solely working regular jobs. He’s also been working with a Swiss cryptocurrency company for the past two years. Schorg is holding most of his crypto earnings -- ie not converting them into dollars -- as he is making a long-term bet on digital money.

"More broadly than just looking at the Midwest, I do think Bitcoin or another cryptocurrency will replace the U.S. dollar,” Schorg says. But first, he predicts, blockchain and crypto will need to become more user-friendly – and ubiquitous – outside of tech hubs and youth-centric tech circles.

From Flyover Country to Blockchain Country

The Midwest isn’t exactly the first place one thinks to look for blockchain innovation, and Silicon Valley investors have largely been reluctant to back startups in the middle of the country. However, interest is growing, as evidenced by the “Comeback Cities” tour several Silicon Valley investors embarked on earlier this year.

During the two-day trip, they visited places such as Flint, Michigan, and Youngstown, Ohio, to observe firsthand the business opportunities there. Although TechCrunch’s editorial manager Danny Crichton derided the “Rust Belt Safari” as poverty tourism and noted that the itinerary excluded a number of thriving tech hubs, the trip seemed to signal a shift in awareness. An earlier sign of this shift occurred last December when AOL founder Steve Case and “Hillbilly Elegy” author J.D. Vance launched Rise of the Rest, a seed fund backed by tech luminaries such as Jeff Bezos and Eric Schmidt.

Nonetheless, no one mistakes Chicago or Columbus for the country’s top tech hub. Despite a spate of criticism, Silicon Valley still firmly holds that position and likely will for some time to come. But innovators and enthusiasts in the “Silicon Prairie” believe that flyover country could become a hub of blockchain disruption – if entrepreneurs and evangelists can break down geographic barriers.

Blockchain is still a very new technology, and most of the interest in the United States is concentrated on the coasts,” says Tanner Rogers, an IT professional who serves as the lead event coordinator for the Des Moines Bitcoin & Blockchain Group. “In Iowa, the battle is educating people to the point that they are interested enough about the technology to come learn more. We are constantly working to spread the message to more Midwesterners.”

As is often the case, many of the people who gravitate to the group’s meetups learned of blockchain technology through an interest in cryptocurrency. In the past two years, blockchain technology has emerged as a potential solution to far-ranging problems, including enhancing cybersecurity and improving agricultural supply chains. The public, however, mostly often associates blockchain with cryptocurrency. Rogers says teaching people to distinguish between the two is important for long-term blockchain literacy.

Something we see a lot in our group is people trying to make a quick buck off the cryptocurrency craze,” he says. “We want them to actually understand the technology they are investing in. Many of us believe this technology can and will change the world. Making money is a side effect of the benefits it will provide to society.”

Karen Kvederis, an administrator with the Des Moines Bitcoin & Blockchain Group, believes those benefits can take root in the Midwest. She and Rogers noted that in industries such as insurance, which has a strong presence in Des Moines, blockchain offers significant opportunities, which include improved claims processing and fraud detection.

Kvederis adds that blockchain could vastly improve agricultural supply chains, which would be of interest not only to Iowa companies but to the agricultural industry throughout the Midwest. Seven of the U.S. top agricultural producing states are in the Midwest. Iowa alone grows 18.1 percent of the country’s corn supply, 13.3 percent of its eggs, and nearly 35 percent of its pork. Corn and soybeans – the U.S.’ two largest crops – are mostly grown in the Midwest. The opportunity for blockchain innovation is substantial here.

Solutions from the Heartland

The Midwest is also home to several key manufacturing states, with manufacturing being an industry that is especially ripe for blockchain disruption. One of those key manufacturing states is Wisconsin, which is where the blockchain company SteamChain is based. Operating out of Milwaukee, SteamChain uses smart contracts and blockchain ledgers to help large industrial machine manufacturers, specifically those making packaging machines, acquire and operate their equipment in more efficient and cost-effective ways. They see blockchain enabling new business models, which aligns interests between end users, equipment manufacturers, and lenders according to SteamChain co-founder and CTO Tom Tichy.

For instance, a startup that needs industrial machinery to scale production may not have the capital or credit to make a significant down payment on equipment. But its potential partner could work out an arrangement through which it gets paid a percentage of every item produced on the machine, explains Tichy. He adds that using blockchain and smart contracts allows manufacturers and their clients to create payment and rental models that make sense for different contexts, since everyone can see exactly what the performance numbers are.

But SteamChain isn’t simply trying to ride the current wave of blockchain popularity. “We just look at blockchain as a tool we use to get to the goal we have to accomplish. We don’t use blockchain for blockchain’s sake,” he says.

It’s an important point for the company because some clients have expressed initial skepticism when they hear about SteamChain’s value proposition. Tichy says he hears from prospects who are reluctant to adopt the technology because it still seems more like a trendy buzzword than a proven tool. But Tichy says that once he explains the logic behind the system, they usually come around.

Omega Grid is another Midwest company building on blockchain. Launched in 2017, Omega Grid operates out of Chicago and is building a peer-to-peer clean energy platform. The company uses blockchain to streamline utility grid balancing and settlements. Though it’s based in the Midwest, Omega Grid has its eye on national reach and currently has a pilot program underway at a California winery. It plans to deploy its consumer-facing options in Illinois. Omega Grid CEO Killian Tobin is realistic about both the opportunities and drawbacks of running a blockchain startup in this part of the country.

“In the Midwest, we have [a] culture of doing, and I think that’s valuable, especially in an emerging technology where there’s a lot of hype and not as many people getting down to business,” Killian says. “The flipside of that is that it is conservative from an economic standpoint [and] from a cultural standpoint.”

Kvederis also spoke to the double-edged nature of Midwestern culture. She moved to Iowa from California more than a decade ago and praised the down-to-earth environment of the region. “The people are the best and the culture is right out of a book. Honest, hard-working folk,” she says. “But in my experience, Iowans are distrustful of change and novelty holds little appeal. I think that’s a good thing in general, but life moves pretty fast, tech even faster. And crypto? Blink and you might miss something.”

Tobin says more early funding opportunities are needed to push local startups forward. Asked what needs to happen for VCs to take the Midwest more seriously, he says, “I think the key is to have successful entrepreneurs invest in other entrepreneurs. I think that’s an important part of the ecosystem.”

Another challenge the region faces is access to blockchain-savvy talent, though Tichy and Tobin say that’s less a Midwestern issue than it is an issue of time. Blockchain is still a relatively new technology, so there’s a natural catching-up period during which there will be a skills gap. Tobin adds that Chicago is ripe with talented professionals, though companies must move quickly to keep them in the area. The best of them are often recruited out to the Bay Area, he says. If businesses can persuade smart young graduates with opportunities to innovate and the oft-touted lower cost of living, they could help more startups flourish in the region.

Kvederis sees support for blockchain and cryptocurrencies as a means for Iowa to retain young professionals and attract corporate. She says she’s particularly passionate about helping women take advantage of the opportunities in the space, but ultimately, she sees the technology as being good for the broader community.

“There is an enormous redistribution of wealth going on right now and I’m desperate for Iowans not to miss it,” she says.

Casey Hynes is an Iowa-based writer who covers fintech, AI and blockchain technology.