"Internet vs Blockchain Revolution" Series 4: New Concepts, Valuation and Timing
Eight-Dimensional Research InstituteEight-dimensional blockchain
Mark Twain once said: "History doesn't repeat itself, but it does rhyme". In 1994, Kevin Kelly, the editor-in-chief of "Wired" magazine, wrote the book "Out of Control: The New Biology of Machines, Society, and Economy", which is a "prophet" about social evolution, especially the development of the Internet. A must-read for the stars of The Matrix. 25 years later, 8D Capital tries to capture the parallels between the Internet and blockchain revolutions to help people better understand the technology life cycle and the future of the blockchain industry. We will publish a series of articles in the next few weeks, welcome to subscribe to our WeChat official account.
foreword
Mark Twain once said: "History doesn't repeat itself, but it does rhyme". In 1994, Kevin Kelly, the editor-in-chief of "Wired" magazine, wrote the book "Out of Control: The New Biology of Machines, Society, and Economy", which is a "prophet" about social evolution, especially the development of the Internet. A must-read for the stars of The Matrix. 25 years later, 8D Capital tries to capture the parallels between the Internet and blockchain revolutions to help people better understand the technology life cycle and the future of the blockchain industry. We will publish a series of articles in the next few weeks, welcome to subscribe to our WeChat official account.
part5: Are we in 1994? What's the next step?
Internet and blockchain revolution:
part1: Early successful products
part2: The origin of disruptive companies
part3: Early challenges
part4: new concept, valuation and timing
part5: Are we in 1994? What's the next step?
Original by Bawei Research Institute, please indicate the source for reprinting
Author: Remi Gai @ Eight Dimensional Capital
Compilation: Bawei Research Institute
Original by Bawei Research Institute, please indicate the source for reprinting
This article is the fourth part of the entire series:
Emerging technologies enable new concepts and business models that were previously impossible or impractical. These new concepts and business models often take time to validate and require new methods of evaluation. As with the Internet revolution, timing is critical to the success of these new concepts and models in emerging markets.
Emergence of new concepts
New concepts emerging with the development of the Internet and blockchain
New technologies have the potential to create new concepts and business models from which new markets can emerge. For example, the Internet has allowed new concepts such as "unlimited choice" (example: a bookstore that sells all books from all over the world - Amazon), or the concept of "instant gratification" (example: movies) that sells rentals of all movies from all over the world Store - Netflix). The Internet made these new models possible, and companies like Amazon or Netflix understand that consumer expectations are changing and are focused on changing their models to meet these new demands. Some other concepts include "search engine", "real-time information", "instant messaging", "social media", "digital advertising" and "streaming media". Although we now take many of them for granted, many of these concepts started as an idea and took time to test and prove. For example, in the early Internet era, Jeff Bezos had the idea of an "everything store" from the beginning, but at first thought it was too exaggerated, so he chose to sell books as a proof of concept to verify "e-commerce" business model. Books were chosen because they are the most similar to merchandise where buyers know what they are getting and the margins are relatively high. Once Jeff Bezos proved that "e-commerce" was a viable business model for books, Amazon would soon expand into other verticals.
Evolution of the entertainment industry as new technologies emerge
In the blockchain space, a new challenge concept that emerged at the end of 2017 with the launch of Cryptokitties is "digital scarcity", which allows you to own Cryptokitties on the blockchain. Full ownership of digital assets was not a viable idea before blockchain and was a major pain point that has forced the traditional entertainment industry to change its business model over the past 30 years. Before the Internet era, the business model of the entertainment industry relied heavily on the sale of physical products such as CDs, tapes, and DVDs. With the advent of the Internet, new types of files such as MP3 and MP4, and peer-to-peer protocols (1999), piracy began to flourish and files were freely available online. Lacking digital rights protection and file ownership tools, the traditional entertainment industry had to pivot to an experience-driven model as we know it today, offering services such as Blockbuster, Netflix, and Spotify. If blockchain technology had been around 10 years ago, the way we consume digital media today might be different. Some other new concepts brought about by the blockchain include "immutability", "finality", "cryptocurrency", "utility tokens", "token curation register (TCR)", "decentralized financial system (DEFI) )” and “Decentralized Autonomous Organization (DAO)”. These concepts are currently being explored by many exciting space and time projects that will prove their worth in the world.
new valuation method
Fat and Thin Scenario (concept from USV, via Joel Monégro)
Often, the value of new concepts and business models is difficult to grasp at first. In the early days of the internet, investors weren't sure about valuing dot-com companies because many of them didn't have significant revenue and didn't "own" any physical assets (buildings, trucks, equipment, etc.). For example, many investors ignore the fact that eBay EachNet derives its value from its community rather than traditional valuation methods, and similarly, today's largest Internet companies derive their value from the user data they possess. In the blockchain world, most startups do not have any cash flow, where some traditional valuation methods like DCF or P/E do not apply. Furthermore, the disintermediated nature of DAPPS fundamentally does not allow the application layer to capture much value from its users, and often pushes value from user data to the protocol layer (back to the Fat and Thin Protocol concept).
Wired magazine's hotwired.com was the first website to display banner ads (1994)
The viability of a new business model is not always clear at the outset. In the early days of the Internet, many companies started with a "paywall" business model and then gradually shifted to an advertising model because it proved to be effective. The discovery and promotion of digital advertising business models is discovered and promoted by Wired. In 1994, Wired copied their traditional advertising model from their magazines to their new online magazine (Hotwired), which had never been attempted online before. Interestingly, in the early days of the web, there were very few sites that made people like to click on advertising banners, just to browse other pages. Once this new business model proved to bring in significant revenue, many companies followed this path, especially upstart search engines like Yahoo, which had previously struggled to find ways to monetize. In 25 years, the market size of digital advertising has grown from zero to $270 billion in 2018 (Statista).
In the cryptocurrency space, we see interesting new models related to token economies. For example, protocol and utility token developers can create value for themselves by retaining some of the initially generated tokens. Revenue then depends on token price changes based on market adoption, demand, and speculation. While this model makes sense from a decentralization perspective, where the opportunity for middlemen to capture value should be removed or minimized from the system, the risks these projects carry are considerable because Their success will be entirely dependent on the success of their "one-off" minted tokens, with no opportunity for major business model changes after deployment. Some other interesting new business models include the one pioneered by the exchange FCoin, which attempts to solve the exchange's liquidity problem by rewarding tokens for transactions (i.e. "transaction-as-mining" model), rather than They charge fees like social media platform Steemit and allow them to get relevant information when users use their tokens. Overall, we are excited to see new tokens and business models emerge in this space.
UTXO Analysis and Market Cycles (Source: Delphi Digital)
To assess the price of cryptocurrencies, we have seen new valuation methods such as the Network Value to Transaction (NVT) ratio, which measures the dollar value of crypto asset trading activity relative to the network value (popularized by Willy Woo and Chris Burniske), Or utxo analysis (concept from Unchained Capital), which is related to unspent output from bitcoin transactions to price. Both of these approaches are ways of providing a new framework for explaining the value of Bitcoin during bear and bull cycles. However, many questions remain regarding the proper method of valuing protocol tokens. Should the value be based on the number of DAPPs built on top of the blockchain and their respective user bases? Or should it be based on the total computing resources they provide (e.g. GAS in Ethereum could be considered computing power provided by miners, or, in the case of FileCoin, storage power)? In general, since we are still in the early cycle of the blockchain revolution, there is no standardized framework for assessing the value of blockchains, DAPPs, and cryptocurrencies.
opportunity
The Internet Revolution: The Evolution of Markets, Infrastructure, and Companies
Looking back at how the major apps of the internet age were launched, the pioneers of new technologies rarely survive long enough to dominate their categories: more often than not, it’s still the imitators we have today: the Google of search, and the Google of search. Not Altavista or Yahoo; the Facebook of social networking, not Friendster or MySpace. In the tech world, the ultimate success of a new idea depends largely on timing. The success of Mosaic, the first internet browser, came at a time when it became an early mover in the field. NCSA's fast computers and Internet connections allowed Mark Andresen and the other kids in the basement to perfectly catch the wave of the web before it took off.
Even seemingly great ideas may not deliver on their promises because the underlying technology or infrastructure is not yet mature enough to support its adoption and viability. For example, media streaming was a popular idea in the early days of the Internet, where broadcast.com (the Internet radio company founded by Mark Cuban in 1995) found success, but other companies trying to provide video-related services at the time It failed. YouTube (2004) took off, necessitating the development of broadband internet connections, adopting both consumer video and cell phone cameras, and the lessons of copyright infringement following the failure of Napster (the first peer-to-peer file sharing service shut down for copyright infringement), which almost happened After 10 years. Facebook (2004) also got the chance to adopt smartphones, providing a more personal and connected internet experience anytime. If the iPhone didn't start the smartphone revolution, where would Instagram, Snapchat, Twitter and Uber be? It is the perfect tool needed for social media consumption and production. Some argue that social media eventually became mainstream because smartphones became mainstream at the same time — and the two complement each other in due course. In the blockchain space, mainstream adoption of DAPPs will largely depend on the maturity of the technology and infrastructure that can allow for the viability and scalability of some use cases. Some ideas may be feasible and practical within the next few years, while others may take 5-10 years.
Cross-border financial technology platform Pandaq officially released
postscript
Mark Twain once said "History doesn't repeat itself, but it does rhyme". We have attempted to draw some parallels between the internet and blockchain revolutions to help the public better understand the life cycle of the technology. Please leave your thoughts and comments, hopefully this series of articles will provide some valuable perspectives on the industry.
Sources:
https://www.statista.com/statistics/237974/online-advertising-spending-worldwide/
https://coinmetrics.io/nvt/
https://www.delphi digital.io/utxo
http://www.usv.com/blog/fat-protocols
English version: Internet vs Blockchain Revolution Series
Introduction
Mark Twain once said, “History doesn’t repeat itself, but it does rhyme”. At 8 Decimal Capital, we are attempting to find similarities between the Internet and Blockchain revolutions, to help the community better understand technological life cycles and the future of the Blockchain industry. The Internet Revolution facts are based on the book “How the Internet Happened”, written by Brian McCullough. We will be releasing a series of articles over the next couple of weeks. Feel free to subscribe to our medium channel to stay up to date with our new posts, in which we will regularly share our findings and insights.
Article Series:
Internet vs Blockchain Revolution:
Early Successful Products (Part 1)
Origins of Disruptive Companies (Part 2)
Challenges in the Early Days (Part 3)
New Concepts, Valuations, and Timing (Part 4)
Are We in 1994? What to expect Next? (Part 5)
New Concepts, Valuations, and Timing（Part 4）
Author：Remi Gai @ 8 Decimal Capital
Edition:8 Decimal Research
This article is the fourth part of the Internet vs Blockchain Revolution Series.
Emergent technologies enable new concepts and business models that werenot possible or practical before. These new concepts and business models oftentake time to be validated and require new methods of valuation. As the InternetRevolution has shown us, timing is very important for these new concepts andmodels to succeed in emerging markets.
The Emergence of New Concepts
New concepts that appearedwith the development of the Internet and Blockchain
New technologieshave the potential to create new concepts and business models, allowing for newmarkets to emerge. For example, the Internet allowed for the emergence of newconcepts such as “unlimited selection”(ex: a book store that sells all the books from around the world - Amazon), or the concept of “instantgratification” (ex: a movie rental store selling all the movies from around theworld - Netflix). The internet madethese new models possible, and the companies such as Amazon or Netflixunderstood that consumers’ expectations were changing and focused on shiftingtheir model to satisfy these new demands. Some other concepts include “searchengine”, “real-time information”, “instant messaging”, “social media”, “digitaladvertising” and “streaming”. Although we take many of them for granted nowadays,a lot of these concepts started as an idea and needed time to be tested andproven over time. For example, during the early Internet, Jeff Bezos had the idea of the “everything store” from thebeginning but thought it was too grandiose at first and chose to focus onselling books as a proof of concept to validate the business model of“e-commerce”. Books were chosen because they are most similar to a commodity,in which the buyers knew what they would be receiving, and had a relativelyhigh margin. Once Jeff Bezos hadproven himself that “e-commerce” could be a viable business model with books, Amazon quickly expanded into otherverticals.
Evolution of theentertainment industry with the emergence of new technologies
In the blockchainspace, a new fascinating concept that emerged towards the end of 2017 with theintroduction of Cryptokitties was“digital scarcity”, which allowed you to own digital cats on the blockchain.Having complete ownership of a digital asset wasn’t a feasible idea before theexistence blockchain, and was a major pain point that forced the traditionalentertainment industry to shift their business model over the past 30 years.During the pre-Internet era, the entertainment industry had a business modelheavily dependent on the sales of physical products such as CDs, cassettes,vinyles and DVDs. With the emergence of the Internet, new type of files such asMP3 and MP4, and the peer to peer protocol (1999), piracy started to flourish,and files became free for grabs online. The lack of digital copyrightprotection and file ownership vehicle forced the traditional entertainmentindustry to shift into an experience-oriented model that we know today, withservices such as Blockbuster, Netflix, and Spotify. If blockchain technology appeared 10 years earlier,perhaps the way we consume digital media today would have been different. Someother new concepts that came with blockchain include “immutability”,“finality”, “cryptocurrency”, “utility tokens”, “Token Curated Registry (TCR)”,“Decentralized Financial System (DeFi)”, and “Decentralized AutonomousOrganization (DAO)”. These concepts are currently being explored by manyexciting projects in the space and time will validate their value in the world.
New Valuation Methods
Fat vs Thin Protocol (a concept from USV, by Joel Monégro)
Often, the value ofnew concepts and business models are hard to grasp at first. Back in the earlydays of the Internet, investors were not sure on to put a valuation on dot-comcompanies, as many of them didn’t have significant revenues and didn’t “own”anything physical (buildings, trucks, equipment etc.). For example, manyinvestors missed the fact that the value of eBaywas derived from its community instead of the traditional valuation method, inthe same way, that today’s largest Internet companies are deriving their valuefrom the user data they own. In theblockchain world, most of the startups don’t have any cash flow, in which someof the traditional valuation methods such as DCF or P/E does not apply.Additionally, the disintermediation nature of dapps fundamentally doesn’t allowfor the application layer to capture much value from its users, and oftenpushes the values from user data to the protocol layer instead (going back tothe idea of Fat vs Thin Protocol).
Wired magazine'sHotWired.com was the first website to display banner ads (1994)
The viability ofnew business models is not always clear at the beginning. During the early daysof the Internet, many companies started with a “paywall” business model thengradually shifted into an advertisement model as it proved to be working. Thedigital advertising business model was discovered and popularized by Wired. In 1994, Wired replicated its traditional advertising model from theirmagazines to their new online magazine (Hotwired),which was something never attempted previously on the web. Interestingly duringthe early web period, there were so few websites that people even enjoyedclicking on advertisement banners, just to explore other pages. Once this newbusiness model was proven to generate significant revenue, many companiesfollowed this path, especially the emergent search engines, such as Yahoo, which previously struggled tofind a way for monetization. In 25 years, the market size of digitaladvertising grew from nothing to $270B worldwide in 2018 (Statista).
In thecryptocurrency space, we have seen interesting new models tied to tokeneconomics. For example, protocol and utility token developers can create valuefor themselves by retaining some of the initially minted tokens. The revenue isthen dependent on the price inflection of the tokens based on its adoption,demand, and speculation by the market. While this model makes sense from thedecentralization perspective, in which the opportunity for middlemen to capturevalue is supposedly removed or minimized from the system, the risks taken bythese projects are fairly large as their success would be solely dependent onthe success of their “one-time” minted tokens, without the chance of makingmajor business model changes after deployment. Some other interesting newbusiness models include the one pioneered by the exchange Fcoin, which attempted to solve the problem of exchange liquidityby rewarding tokens for trading (the model of “trading is mining”) instead ofcharging fees like most exchanges, or the social media platform Steemit, rewarding users for the contentthey produce and allowing them to gain exposure on the platform if the usersstake their tokens. Overall, we are excited to see new token and businessmodels appear in the space.
UTXO Analysis and MarketCycles (Source: Delphi Digital)
For assessing theprice of cryptocurrencies, we have seen new valuation methods such as TheNetwork Value to Transactions (NVT) ratio, which measures the dollar value ofcrypto asset transaction activity relative to network value (popularized by Willy Woo and Chris Burniske), or the UTXO Analysis (concept from Unchained Capital), which correlates theunspent output from bitcoin transactions to price over time. Both areinteresting ways to provide new frameworks to explain the value of Bitcoin during bear and bull marketcycles. However, many questions still remain on what would be the right way toassess the value of protocol tokens. Should the value be based on the number ofdapps built on the top of the blockchain, and their respective user base? Orshould it be based on the total computational resources they provide (forexample, gas in Ethereum can be seen as computational power offered by the miners,or storage power in the case of FileCoin)?Generally, as we are still in the early cycle of the blockchain revolution,there are no standardized frameworks for evaluating the value of blockchains,dapps, and cryptocurrencies.
Timing
Internet Revolution: theevolution of the market, infrastructures, and companies
Looking back at howthe major applications from the Internet era rolled out, pioneers of newtechnologies are rarely the ones who survive long enough to dominate theircategories: often, it is the copycat that are still with us today: Google, not AltaVista or Yahoo, insearch; Facebook, not Friendster or MySpace, in social network. In the technology world, the ultimatesuccess of a new idea is very much dependent on timing. What led to the success of Mosaic,the first Internet browser was the timing for becoming an early mover inthe space. NCSA’s fast computers andinternet connections allowed MarcAndreessen and the other kids in the basement to be perfectly positioned tocatch the wave of the Web right before it took off.
Even great ideasthat seem to be the next big thing can fail to deliver on their promise becausethe underlying technology or infrastructure isn’t mature enough yet to supportits adoption and viability. For example, media streaming was a popular ideaduring the early Internet in which Broadcast.com(Internet radio company created by MarkCuban in 1995) became successful, but other companies trying to providevideo related services at the time failed. For Youtube (2004) to take off, it required the development ofbroadband Internet connections, combined with the adoption of consumer videoand cell phone cameras, and the copyright infringement lessons from Napster’s failure (first peer-to-peer file sharing service that was shut down due tocopyright infringements), which almost happened 10 years later. Facebook (2004) also got the timingright on the adoption of smartphones, which provided a more personal andintimate experience of the Internet at any moment. Where would Instagram, Snapchat, Twitter, and Uber be if the iPhone didn’t start the smartphone revolution? It was the perfectvehicle needed for social media consumption and production. Some would arguethat social media finally became mainstream because smartphones went mainstreamat the same time - both complemented each other at the right moment. In theblockchain space, the mainstream adoption of dapps will be very much dependenton the maturity of the technology and infrastructure that can allow forviability and scalability of some use cases. Some ideas could be viable andpractical in the next few years, and others could take 5-10 years.
In conclusion,emergent technologies allow for new concepts, and business models to appear andit’s important to evaluate them from new valuation angles, as the previousmethodologies might not be applicable. Many of these new concepts take time tobe validated, and their adoption are closely tied to timing.
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Mark Twain once said, “History doesn’t repeat itself, but it does rhyme”. We are attempting to draw some similarities between the Internet and Blockchain Revolutions, to help entrepreneurs and investors better understand technological life cycles. Please leave your thoughts and comments below, and hope this article series will have provided some valuable perspectives about the Blockchain industry.
Sources:
“How the Internet Happened”, written by Brian McCullough
https://www.statista.com/statistics/237974/online-advertising-spending-worldwide/
https://coinmetrics.io/nvt/
https://www.delphidigital.io/utxo
http://www.usv.com/blog/fat-protocols
Other research produced by Eight Dimensional Research Institute
Cross-border financial technology platform Pandaq officially released
《Internet vs Blockchain Revolution Series Part 1: Early Successful Products
《Internet vs Blockchain Revolution" Series 2: The Origin of Disruptive Companies
"Internet vs Blockchain Revolution" Series 3: Early Challenges
Detailed explanation of PandaST Protocol, Asia's first compliant and open source smart contract
Medium:https://medium.com/@8DecimalCapital
