How do you Characterize Project Visions?
While there are many different types of cryptocurrencies out there — the latest data shows 2,112 as of October 19th, 2018 — there are most certainly not 2,112 unique project visions in existence. There are broader general categories that each one falls under. Each project tries to differentiate itself from the competition by having its own unique aspects as well as its own interpretation of how to best execute the vision, which is often driven by the personalities and experiences of the team members.
The point of this exercise is to zoom out and take a bird’s eye view. Do we think that the majority of these projects will be successful in 5 to 10 years? Most likely not; we think there will be only select winners in each category. We’re anticipating oligopolies — a few winners that take the majority of market share. Similar to the way Microsoft competes with Apple in the personal computer space or how Goldman Sachs competes with Morgan Stanley and other bulge bracket banks when it comes to capital raising and M&A.
We thought it would make most sense to start at the highest possible level of project vision categorizations. These verticals effectively define a particular coin’s competitive landscape. We’re going to show you some of the project vision types out there, but we’re not going to reinvent the wheel. Take a look the Periodic Table of Cryptocurrencies to see how they’ve neatly characterized cryptos. We think they’ve done a good job with nomenclature, though we’d caution you from thinking this is the only way to bucket peers. Some of the categorizations are more broad (like FinTech, Other, Business & Enterprise, as well as Gaming/Media/Social) than we would like, so for the purpose of comparative analysis it’s not as useful as it could be. One needs to use discretion when determining the cohort or group of peers that most closely resemble a project. It’s better to use a few close peers than a lot of ambiguous ones.
We’ll give you a brief overview of each below:
These are coins that are setting out to fulfill the originally planned value proposition for cryptocurrency, which is to be a digital currency. Many of these coins are considered to be stores of value. Bitcoin is deemed by many to be the equivalent of digital gold. Indeed, digital currency runs on the very same principles that fiat money or gold do. It’s all about trust. If people trust that the crypto token they own can be exchanged whenever they want, at the market rate, then it becomes no different than the U.S. Dollar. In fact, unlike the U.S. Dollar, no one entity can simply decide to abolish the entire currency and start anew. That’s the macro thesis.
*We’ve listed the projects based on how the Periodic Table of Cryptocurrencies has bucketed them. As we mentioned above, this does not necessarily reflect our own view of where certain coins belong. For example, we would argue that Dash should belong in “Privacy Coins”. We will be listing the projects in each categorization exactly as it is presented in the table.
Privacy cryptos are similar in concept to digital payment currencies except they’re embedded with privacy protocols that prevent the respective ledger from being able to identify who the transactor was and in some cases the contents of the actual transaction itself. Not all privacy cryptos are fully private and some (like ZCash) provide a spectrum for users ranging from fully transparent to semi-private to 100% private. The reason privacy coins have perceived value for its users is because Bitcoin ultimately is not fully private. Anyone who analyzes chain data is able to pinpoint certain transactors, and even potentially link them to individuals in real life. This allows people to form fairly accurate assumptions about an individual’s net worth, spending patterns, and other personal financial data. Particularly for firms conducting large transactions, this would be problematic. Privacy coins use a combination of approaches to keep things private, like VPNs for address blocking, mathematical proofs (eg. zk-SNARK), multiple addresses, etc.
Smart contract platforms have a different use case than digital payments (or stores of value). You can write Decentralized Applications (dApps) that self-execute via code with specific instructions when certain conditions are met. These are baked into the code itself and are considered immutable and irreversible. Take a look at the following link, which provides some detail on applications of smart contracts to industries like financial services (banking, insurance, real estate), healthcare, shipping and logistics, intellectual property, and the legal industry.
Computing, Data Management & Cloud Services
Computing, data management & cloud services provide decentralized access to these respective services. These platforms are trying to attack an efficiency problem that often exists in centralized solutions today (i.e. Google, Apple, Dropbox, and Amazon) like idle power and storage. Storage costs and computational power can run pretty high. A decentralized solution transfers power to the data owners who theoretically have more control over their data. The storage providers also earn an income for performing the service. It transfers fees from intermediaries to the users in the system and hopefully provides a mutually beneficial relationship for all.
Gaming, Media & Social
Gaming, media, and social platforms are an interesting use case in crypto. Cryptokitties was one of the first well-known examples of gaming where people could trade digital kittens that were 100% owned by the users themselves and the transactions were stored on the blockchain. These had additional value because no cryptokitty was the same. Media platforms for music and video have applicability to a blockchain-based solution because they provide viewers with what they want, but they also provide the owners of the musical (or visual) creation with complete ownership and monetary proceeds associated with their content. Proponents of social media platforms on the blockchain say that recent security issues around data (i.e. Facebook) provide an even stronger value proposition for a decentralized social media site. Steem, for example, is similar to Reddit but relies on a token economics model where every user gets paid for creating and curating content.
Protocols, Exchanges & Interoperability
Exchanges today have advanced a lot of in the last several years. Some of them (like Robinhood) are exceedingly easy to use and are relatively low cost. So then, the benefit for decentralized exchanges comes into play when it comes to the idea of security. This becomes even more clear when one looks at what happened to users of Mt Gox and Bitfinex, who had a lot of their currency stolen. In a decentralized exchange, the user would be in complete custody of the funds in their personal wallet instead of a third party service that could pose security risk if they were to get hacked. They also allegedly provide privacy and less service downtime. For exchanges operating on platforms that enable inter-blockchain communication, exchanges would be able to validate transactions from other exchanges, making the entire system more secure.
FinTech cryptos can encompass a range of enterprise or business to business solutions as well as consumer-oriented products. Ripple for example is aiming to connect banks and payment providers through a permissioned blockchain. It currently has over 100 customers including American Express, Santander, MUFG, and more. Others like Stellar are more consumer oriented and are trying to provide a similar value proposition for banks and payment providers as well, albeit with a focus on how it benefits the consumers. Consumers can send remittances and benefit from micropayments. For banks, Stellar is aiming to cut costs so that they can serve the “underbanked”.
Business & Enteprise
Business and enterprise use cases span a wide range of industries and use cases. VeChain for example is focusing on supply chain management and smart contracts. Stratis is aiming to provide development, testing, and deployment solutions for enteprises and help them better cooperate and exchange information. Per the website, Ontology is “a high-performance public blockchain project and a distributed trust collaboration platform”. They are essentially trying to build customized blockchain solutions for corporates, similar to what IBM is providing.
Other includes a miscellaneous array of project types ranging from prediction markets (Augur) to decentralized energy providers (Power Ledger) and Internet of Things (Iota). These are some of the most interesting use cases in our example and by nature of their differentiation likely have less direct competitors, at least among the mid to larger cap cryptocurrencies.
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We hope the Periodic Table of Cryptocurrencies and the descriptions we provided have given you a good flavor for some of the project visions out there. Within each, one can perform numerous qualitative and quantitative analyses to understand on an absolute and relative basis the merits, downsides, and general risk factors associated with each project. Nuances or niche demographic targets within each crypto will determine if the category is monopolized by one dominant player or if there are several contenders that are competing within each space.