Chapter 3: A REAL REVOLUTION IN PRACTICE
Last year, the blockchain got “too big to ignore”. This year it will be “too big to fail”. While the establishment is trembling — or simply shoving their heads in the sand — the agile and globally dominant players are getting ahead of the game. Google, Amazon, Paypal, they’re all investing deeply into this new technology. Because they, and we, know that this rocket is heading in only one direction.
Following his new book on digital strategy How To Become A Digital Marketing Hero, Rufus Lidman is now translating all his knowledge to the most revolutionary field in the world. A field in desperate need of a digital strategy. In a series of articles, we will get an upclose view of this new mind-blowing market, seen through the eyes of a digital strategist.
Looking back on the first ripples
The world of blockchain and cryptocurrencies is moving at the speed of light. With that said, this market has also shown to not be all gold and glory. Though we do have some payment protocols, such as Ripple, which have proven a more substantial purpose — they might be used for a particular financial end and have the potential to be the established norm within its niche. But apart from this, crypto is thus far not a particularly efficient means of transactions. Each and every Bitcoin transaction can take four to five hours to complete and the Bitcoin network is only capable of handling seven transactions per second (TPS). Compare this to, for instance, PayPal at 115 TPS, or Visa at 4000 TPS, and IoT’s (Internet of Things) with TPS ranging in the hundreds of thousands.
At the same time, only a few thousand large or medium-sized companies accept BTC in exchange for goods and services. It’s an approved means of payment only in certain digital networks, such as Dish Network, Overstock.com, Shopify.com, as well as in Microsoft and PayPal. On the flip side, we today have only 10 million users of cryptocurrency worldwide. Meaning only a tiny fraction of the global population use or own any kind of cryptocurrency.
As a counterpoint to this, there are today Altcoins that have solved this problem. The new currency IOTA can manage between 500 and 800 transactions per second, inching closer to Visa’s standard and reaching far beyond PayPal. The related cost per transaction has also been an issue. A single Bitcoin transaction has a cost of 28 USD, whereas the new spin-off “Bitcoin cash” is so far holding at a penny per transaction.
Of the 1360 cryptocurrencies in existence today, only 350 are valued at over 10 million USD. Not even 30 of them have a combined value of 1 billion. The market value for all cryptocurrencies combined is in total “only” 500 billion (February 2018). That is less than Apple’s market worth or the Swedish BNP. While some would argue a better comparison would be the gold market, where people place their capital to avoid currency crashes. The gold market is still worth around $8,000 billion USD today — leaving the cryptomarket woefully short either way.
And even if the evolution of ICO’s is brutal, there is a historic lack of regulation. In its infancy, it therefore turned into a Klondyke for reckless projects and scams, that would otherwise not have survived in the capital market.
Also, we’re still talking about a small chunk of the cake. Even if the ICO market is growing rapidly, these companies only make up less than 2 percent compared to the capital raised by IPO’s and not even 1 percent of all the value of the combined exchange markets (in excess of $80,000 billion USD).
What we’ve seen so far are thus only the first ripples on the surface of what is to come.
A mob of applications to wash over us
But while Bitcoin and certain Altcoins can be seen as speculative (this being where the gold has to be taken into account), the blockchain is nothing other than a revolution — and I’ll say this only once: Whoever doesn’t understand that, hasn’t understood anything at all.
We have in truth been swamped by a variety of outright brutal applications, which give us an indication for how the blockchain will destroy area after area of inefficiency in global and local transactions. This will encompass anything from entertainment to deadly serious affairs. Looking at a few of the ”lighter” applications, the company CryptoKitties have over quarter of a million avatars that 180 000 registered users bid on. And this is not just for fun and games, but has generated over $25 million USD in transactions, with 10 digital ”kitties” that have sold for over $100 000 (!) a piece.
Impressed? Great! So how long do you think it took CryptoKitties to work up a user base of that size, and revenue that impressive? Yeah, it was a long and arduous process of… 1 MONTH!
If we’re looking at it purely from a business perspective, it becomes apparent how ”play becomes work”. But even then, the serious-minded may question if the blockchain is good only for such lighthearted concepts. The honest answer? The exact opposite. CryptoKitties is just one of the first apps of its sort, and it happens to be a blockchain game. Most of what we’ve seen last year have been deadly serious affairs, with far reaching consequences for companies, nations and even you as an individual.
Fact is, when you add up the 235 biggest ICO’s over the past year, only 10–11 percent have been concerned with gaming, gambling, music or other forms of entertainment. Among the top five categories (which together represented 80 percent of all major ICO’s worldwide), we find only one single ”lightweight”. Instead they all dealt with serious matters, such as infrastructure, trading, finance, data storage, healthcare and pharmaceuticals.
A rude awakening
All of the developments above have been happening so fast and given every indication of momentous change, that the establishment can’t help but tremble. That is, if they’re smart. Of course, some aren’t and opt to ignore the way the wind is blowing and just stick their heads in the sand. A pity for them. Luckily a few have the forethought to try to get ahead of the game, lead the way and embrace the inevitable future, rather than fight it.
“Google is already this year’s second biggest investor in blockchain technology.”
It’s been claimed that during 2017, the blockchain got “too big to ignore”. During 2018, it will get ”too big to fail”. Some of the smarter players have realized exactly this. Google is already this year’s second biggest investor in blockchain technology. In the end of 2017, Amazon too entered the arena, by tying the knot with tech company R3, to let Corda be one of the first distributed ledger technologies on Amazon Web Services. Even PayPal founder Peter Thiel has publicly declared that Bitcoin is what he wished PayPal could have been and is now investing heavily in it.
Others brainiacs like AngelLists founder Naval Ravikant, is knee deep into the ocean of blockchain and has spoken about it extensively: “Money is just code. And code is just speech — a speech written down in a way the computer understands. So you cannot really have free speech and constrained money — they sort of run against each other”.
A slightly older comeback-kid Bill Gates, in turn, sees the obvious potential in Bitcoin, but above all, in the underlying blockchain technology, which he claims will be one of the greatest breakthroughs of the decade, if not the century.
As for the rest of the world, we can plainly see it as more of a rude awakening.
The west slowly adapting
In the United States, cryptocurrency is viewed upon as a raw material, comparable with gold. In the end of 2017, the US government supervisory authority CFTC therefore approved public trading with terminals for cryptocurrency on the stock market in Chicago.
“Both Sweden and Iceland have become increasingly attractive for “miners” who are drawn to the cold climate, low cost of electricity and stable political climate.”
The EU, on the other hand, considers Bitcoin as a direct currency. In Germany they have taken actions to give the cryptocurrency a more formal status. No matter what the financial elite of Wall Street say, public interest among professional investors and stock markets alike has blown up to a massive scale, with hundreds of hedge funds investing in Bitcoin today.
And it doesn’t stop there. Authorities in the UK started testing blockchain technology over a year ago and Spain is keeping momentum with tax incentives for companies and investors in ICO. Both Sweden and Iceland have become increasingly attractive for “miners” who are drawn to the cold climate, low cost of electricity and stable political climate. And most important, the so-called ”crypto valley” happens to be in Europe (specifically Zug, Switzerland). It is therefore likely that the epicenter of what is to come will be here in Europe. The real action will be elsewhere though.
Go east — that’s where you find the true party
The frenzy is definitely in Asia. Places like Dubai are launching blockchain technology to “save the environment and 25 million man hours”. Malaysia is taking it a step further, creating their own regulatory bodies for cryptocurrency transactions and positioning themselves to surpass the western world in the field.
Still, for historical reasons, more than 70 percent of the ”mining pools” for Bitcoin are located in China. Not too long ago, the Chinese market made up 90 percent of all cryptocurrency ownership in the world, before banning exchanges of local currency for Bitcoin.
Now the market has therefore shifted from yuan to yen, where half of all trading in BTC worldwide is based in Japan. Interestingly, 80 percent of traders are 30 to 40 year old Japanese men. Japan is also the first country to recognize 17 different cryptocurrencies as a valid form of payment. Half of all Japanese Bitcoin traders have used the currency to pay in restaurants and shops. This is also the first nation with an employer paying in cryptocurrency. Here we see less and less hackers, and more housewives and working parents engaging in the field. Not far behind we find South Korea and Vietnam, both countries with widespread internet access.
Simply, Asia is the place where things are really buzzing right now. It may very well have been written in the stars that one of Asia’s biggest companies and my former employer for over ten years, Samsung, is first in line to produce the chips to be set behind all ”mining” operations worldwide. So unless the heavyweights of the rest of the world wake up from their slumber, this is where most developments will continue to occur.
Follow me along, when I tell you exactly how this will happen.