From left to right: Michael Capellas, Adam Ludwin Jim Robinson IV and Barry Silbert.
Blockchain is frequently compared to the Internet and other disruptive technologies that have created upheavel in industries and sparked new business models. While parallels certainly exist, there is a lot of discussion on how blockchain might differ from other disruptive technologies, particularly from an investment perspective and how it gets integrated into the fabric of the financial services industry.
Blockchain and the Lifecycle of Disruptive Technologies
During a panel discussion on the topic, moderator Michael Capellas, Founder and CEO of Capellas Partners, kicked off the conversation talking about blockchain as an investment. In 2015, venture capitalists invested approximately $500 million in about 75 projects of which roughly $200 million of came directly from banking institutions.
“You have an inflow of capital from venture capitalists, major end customers involved, the open source movement, strategic technologies moving in, and a consortium of the industry. So, clearly, the momentum is there,” Capellas said. “The actual investment is a huge multiple of it. So, all we can say at this point is the movement is underway.”
He further explained that a technology’s development phase is usually about five to seven years. After that, the technology hits an inflection point, and 18 to 24 months down the line, the technology develops to the point of no return. He cited both the Internet and cloud infrastructure as examples, both of which were initially met with cynicism. A few years down the line, however, these technologies became the infrastructures of choice.
In this regard, blockchain technology is theoretically similar to other disruptive technologies, given the fact that it has developed as a fundamental technology, is gaining attention and will hit an inflection point to echo the lifecycle of other technologies.
Jim Robinson IV, Co-founder and Managing Partner of RRE Ventures, explained that developing technologies tend to “travel in cycles and they absolutely rhyme if not repeat in terms of adoption.”
Expounding on the evolution of the Internet from 1991 onward, Robinson said that blockchain would follow a similar model of development due to its usability.
Adam Ludwin, Co-founder and CEO of Chain.com, referenced Voice over IP (VoIP), which provided voice services over the Internet and enabled technology companies to develop more services. He said that the concept of blockchain technology is similar in that it is digitally transmitted currency.
Barry Silbert, Founder and CEO of Digital Currency Group, explained that history has proven that money is what society decides it is and that transactional volumes in bitcoin, are currently over $6 billion.
“The amount of investment dollars flowing into [bitcoin] is at an all-time high. The number of investors in the space is at an all-time high,” Silbert said. “So we have to not dismiss the idea that the world is ready for a decentralized digital form of money that, frankly, has the same characteristics as gold.”
- Michael Capellas, Founder and CEO of Capellas Partners (moderator)
- Jim Robinson IV, Co-founder and Managing Partner of RRE Ventures
- Adam Ludwin, Co-founder and CEO of Chain.com
- Barry Silbert, Founder and CEO of Digital Currency Group
Projected Rollout of Blockchain Technology
How blockchain technology will be rolled out across the financial industry over the next few years was a key component of the panel discussion. As new investment continues to be brought into the blockchain arena, panelists noted that the market is trying different approaches to implement the new technology in different areas of the industry.
Silbert cited Decentralized Autonomous Organizations (DAOs) as an example, where anybody can become a stakeholder by buying digital tokens, which serve as shares of the company. “It’s a very crazy concept, but we’re seeing real sums of money being raised,” he said.
Robinson noted that by 2020, the market could see some major changes after a period of trepidation. “Between now and 2020, you’re going to have three to five sovereign currencies that are floating around with this [digital token] that are major,” he said.
Ludwin spoke on network effects and how the technology will integrate into the infrastructure. “The technology will appear modest for a while, but the very important thing to remember about a network is that it has network effects,” he said. “And the first movers or smart early movers tend to accrue the most value over time.”
Is America Falling Behind?
Discussing macroeconomics, Capellas mentioned that distributed ledger technology growth in Asia is between 5%-6%, lower in the U.S. at 2%-3% and just 1%-2% in the Eurozone, which includes 28 countries. China currently has 800,000 registered Bitcoin users, representing 70% of the global volume. Judging from these numbers, America may possibly be falling behind in blockchain technology growth.
Silbert said that there is exponential growth in transactional volume in countries such as Mexico, India, Philippines, Kenya, Nigeria and Indonesia. These are countries with high mobile device penetration rates combined with being at the receiving end of money being sent “back home.”
“We’re going to see markets emerge where people don’t have bank accounts, but they have a mobile device. If you have a mobile device, you have access to basic financial products,” he said. “We’re now starting to see businesses that are building products and services on top of that infrastructure.”
He also mentioned that governments in those particular countries are supportive and the regulatory landscape is less stringent.
Robinson reiterated that he has observed that, due to America’s restrictive regulatory environment, innovative technologies see a larger boom in other countries before they make it big in the U.S. In those countries where the industries are still developing and monopolies or oligopolies don’t currently exist, they provide better opportunities for adoption and growth. He cited China as an example, where checking accounts do not exist.
“China doesn’t have checking accounts. They’ve never been legal…. They never will. They’re never going to adopt last century or two centuries ago paper-writing technology,” he said. “So, a lot of these systems that we’re talking about allow you to do things in a better way. And if there’s not an extant series of industries to block them, they become those new, in some cases, monopolies or oligopolies.”
Ludwin said that politics of certain countries add to the attractiveness of blockchain technology for their citizens. In countries where it is illegal to move money outside the borders or to donate to certain political campaigns, people value the anonymity that blockchain technology provides.
“Having a quasi-anonymous digital mechanism for transacting and living in that economy is a boon,” he said. “You see Bitcoin thriving in markets like China and in other markets for that reason, for that sort of digital gold property.”
As the panel came to a close, the message was clear: the financial marketplace is evolving. As more organizations accept digital currency, the network effects will propagate the growth of blockchain technology through the industry, possibly changing the financial landscape, particularly in countries with lesser developed economies, over the next few years.