Analysing The Macro-Environment of Blockchain
Analysing environment in the blockchain industry in important because it will provide an organisation the means to survive. The success of a product or service may create additional jobs or further market opportunities. Bitcoin, for instance, was meant to solve the problem of global foreign exchange and create a unified currency for all. However, the invention of bitcoin has led to the expansion of distributed ledger technology, and now, organisations such as Ethereum and NEO are creating rich opportunities for innovators from various market verticals. The macro environment consists of broad environmental factor, which can be analysed using PESTEL framework.
PESTEL Analysis
PESTEL combines the major factors of the business environment into one framework. In practice, blockchain technology can be analysed using this framework in the following way:
Political
Political factors describe the role of politics as a direct economic factor. If a company is operating in the VR/AR industry, evidently, it would be less influenced by politics. Blockchain technology is highly influenced by politics and decisions made by the people governing their countries. For instance, the ban of cryptocurrency and initial offering by blockchain startups had a major influence in shifting the dynamics of the growth of the blockchain technology. In fact, until the technology matures and majority of the users of the internet starts adopting blockchain based application, politics would be one of the most influential factors that shifts the dynamics of the industry.
Economics
Economic factors relate to how Foreign Exchange and global economy affects a market. Blockchain technology is highly influenced by stock traders and movement of the global markets. An example would the price of bitcoin in Venezuela. The crash of their national currency pushed the prices to a premium in 2018 and helped increased the adoption of the technology.[i]
Social
Social factors include socioeconomic, cultural and demographical effect. Changing behaviour can have a direct impact on a technology and organisation operating within its boundaries. For instance, the movement of gene editing and widespread use of cheap CRISPR kits forced the state officials, governments, scientists around the world impose restrictions with germline editing.[ii] Blockchain is still slightly influenced, as the adoption of the technology depends on the sentiment, cultural values, as well as demographics.
Technological
Technological factors include the influence of new and existing technologies, for example, how nanotechnology or artificial intelligence can have an impact on the industry. Many analysts anticipate that the convergence of artificial intelligence and blockchain could lead to a megatrend.[iii][iv]
Ecological
Ecological factors include factors such as green energy. Blockchain industry’s growth is affected by ecological factors, such as energy consumption. Bitcoin and other networks operating on a PoW consensus consumes a significant amount of energy. This impact forced Ethereum and many other organisations to evolve and adopt energy friendly measures. PoS would allow Ethereum protocol to operate without wasting significant amount of energy to keep the network alive, by cutting their consumption by 99%.[v]
Legal
Legal factors include governing laws, regulations, and rules imposed by various governments around the world. Once again, blockchain industry is heavily influenced by legal aspect. If a startup is planning to issue shares of a properly using tokens, they will be required to follow existing protocol to obtain permission before operating in the market. Furthermore, companies such as Coinbase who are selling cryptocurrency obtained e-money licenses from Irish authorities ahead of Brexit.[vi]
It may be difficult to interpret the interconnections among all the factors. however, there are concept that would assist in clarifying the focus on change. These following concepts are important because, similar to the industry, it will have a direct or indirect factor on a product or service.
1. Megatrends: These are large scale changes in the industry affected by all the factors. For instance, the price shift of bitcoin and reaching USD 1000 in 2013 created a megatrend, bringing millions of new users into the market. Similar incident was triggered in 2017, when bitcoin broke it’s price record, leading to a global surge in prices of cryptocurrencies and widespread discussion about the technology.
2. Inflexion: These the points when a major shift started to occur. If the history is analysed, one of the inflexion points will be between February to April 2017, and the other one would be November 2017, when the price of bitcoin reached almost USD 20,000. Bitcoin is so influential that this event had a direct impact almost every other operating organisation or startup in the industry. During this time, state governments, politicians, financial experts, environmental analysts, lawyers — everyone got involved. It is important to understand these points because an organisation can either — take advantage to push adoption or take defensive measures against a predicted decline. Coinbase has now become a source of inflexion, because if their app stops working, it would lead to significant changes in the price.
3. Weak signals: These are signals identified by finance and business analysts to forecast an inflexion point. It’s also imperative to keep track of these signals and differentiate the signal from the noise. Weak signals results in sudden hype, or decline, which could lead to either adoption or rejection.
References:
[i] Alloway, T., Weisenthal, J.. (2019). Here’s How People Are Using Cryptocurrency in Venezuela. Available: https://www.bloomberg.com/news/articles/2019-07-29/here-s-how-people-are-using-cryptocurrency-in-venezuela. Last accessed 2 February 2020.
[ii] Amelan, R. (2019). UNESCO panel of experts calls for ban on “editing” of human DNA to avoid unethical tampering with hereditary traits. Available: https://en.unesco.org/news/unesco-panel-experts-calls-ban-editing-human-dna-avoid-unethical-tampering-hereditary-traits. Last accessed 5 February 2020.
[iii] Marr, B. (2019). Artificial Intelligence And Blockchain: 3 Major Benefits Of Combining These Two Mega-Trends. Available: https://www.forbes.com/sites/bernardmarr/2018/03/02/artificial-intelligence-and-blockchain-3-major-benefits-of-combining-these-two-mega-trends/#76739a1b4b44. Last accessed 5 February 2020.
[iv] Perez, Y. B.. (2019). Blockchain and AI could be a perfect match — here’s why. Available: https://thenextweb.com/hardfork/2019/02/05/blockchain-and-ai-could-be-a-perfect-match-heres-why/. Last accessed 15 February 2020.
[v] Fairley, P. (2019). Ethereum Plans to Cut Its Absurd Energy Consumption by 99 Percent. Available: https://spectrum.ieee.org/computing/networks/ethereum-plans-to-cut-its-absurd-energy-consumption-by-99-percent. Last accessed 21 February 2020.
[vi] Cant, J. (2019). Coinbase Gets E-Money License In Ireland, Expanding European Foothold. Available: https://cointelegraph.com/news/coinbase-gets-e-money-license-in-ireland-expanding-european-foothold. Last accessed 1 November 2019.
