Crypto Horses and the Market Cart
Will blockchain’s real-world applications live up to market expectations in 2018?
This past year the broader tech community has become increasingly convinced that the impact of blockchain and “money as code” on society is going to be fundamental. Crypto brings the promise of breaking central banks’ monopoly on money. It threatens to reshape the organization of the workforce. It currently seems like one of the only ways to disrupt GAFA’s oligopoly on the internet (I finally feel comfortable using “disrupt” again…). And the list goes on.
However, it’s still hard to find popular implementations of blockchain-based products that are useful for the non-speculating individual (with just a few exceptions), let alone use cases that fulfill crypto’s grander social promise. A lot of people are betting that crypto’s potential will be realized, while crypto’s real-world applications are finding it hard to keep up with ever increasing market expectations (the crypto market cap is currently around $600 billion, even after this week’s “correction”). There seems to be a gap between crypto valuations and today’s real-world, non-speculative crypto use cases.
This is more apparent in crypto than in past innovation cycles (internet, mobile etc.): the change in expectations with regards to development in crypto is quickly reflected in the market. Unlike past innovation cycles’ VC-backed startups, most “crypto startups” (projects, networks) have cryptotokens that are tradable. Liquidity is fundamentally different than that of a VC that finances innovation and only expects to see a return in 6–10 years. Access too is materially different than in previous innovation cycles, as anyone can come in and attempt to financially benefit from the rise of new emerging technology. They can do so early, before the majority of the value has been realized, and benefit from liquidity along the way.
Facebook was already valued at $104 billion and provided detailed reports of its performance when it went public and first became available for the average individual to invest in, raising $16 billion. Investing in Facebook at that point would give the individual investor a great ~5X return in 5 years. Ethereum’s crowdsale was available for anyone to participate in, raising ~$18 million, at a very early stage in the project’s life with little data. Those buying into Ethereum’ crowdsale saw a whopping ~2,000X return in 3 years for this particularly useful currency. These kind of returns were only available for VCs and professional investors in previous cycles. Now they’re available for all. This democratization of access is a feature of cryptocurrencies, not a bug.
Combine blockchain’s disruptive potential, early access for all (that was never enabled before for financing of technology) and inherent liquidity — and it’s easy to see why money keeps pouring in. It also makes it hard to determine whether the cart is well ahead of the horses like many argue (i.e. the amount of capital poured in is excessive), or we’re simply witnessing the impact of a new phenomenon in the finance of innovation.
Moreover, this substantial capital flow may actually give this once fringe, “anarchist tech” a better chance to become influential and useful, faster. Expectations are clearly very high at this point: 40 coins have become “unicoins” in the past year (valued at > $1 billion sometime this week), while 22 unicorns were born in all of tech in 2017. It’s fair to say that crypto projects reach this status faster than startups in other sectors, and that at this point in time the valuations are rich. This year, I believe we’ll see a number of high quality projects and real-world applications that emerge or evolve, while market expectations will be significantly lowered for many others. Corrections of the type we have witnessed this week are more of a relief than anything else for many of the entrepreneurs and developers in the space, myself included. Every market corrects itself from time to time.
What I am more interested in is whether in 2018 the entrepreneurs and developers working in the space will be able to bring to market useful, real-world applications for crypto? The presence of a solid, growing number of useful crypto applications will help ensure that the blessing of all this capital (which has financed innovation and drawn top-level talent) will continue to benefit the space in the long term, regardless of market fluctuations that will certainly continue. With visible, non-speculative utility created in the space, healthy checks and balances in the form of market corrections will not choke financing. The value-delivering winners of crypto will survive market cycles, just like those of the internet did. But it’ll take time.
“Real-world, widespread applications” can take many shapes. Some believe that we’re a few years away from that, as the infrastructure layer of Web 3.0 is not yet ready for mainstream user applications. I argue that a fully distributed infrastructure layer is not necessary in order to build popular, useful applications for crypto. Many of the building blocks are here, as a result of years of work by determined teams that started working long before the massive capital inflow. Comparing crypto to the internet, it’s been claimed that the tech is at 1994 levels while valuations are at 2000 levels. There’s some truth in this analogy, but Amazon too started in 1994… I believe that widely useful apps can be created on the blockchain today, alongside the continued development of the infrastructure layer.
One promising path to achieve that is to focus app development on specific merits of the blockchain and make some architectural trade-offs that would make it more accessible and suitable for widespread, mainstream adoption. There is no need for an app to be a fully decentralized app (DApp) for it to matter. That’s our strategy at Props, and I hope that we’ll be among the first to introduce a blockchain-based product to millions of mainstream, non-trading users. Regardless of what happens to cryptocurrency prices in 2018, I bet that this year several projects will make meaningful progress towards this goal.
