foreword
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.
Article series, click to view:
Internet and blockchain revolution:
part1: Early successful products
part2: The origin of disruptive companies
part4: new concept, valuation and timing
part5: Are we in 1994? What's the next step?
Are we in 1994? What's the next step? (part5)
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 fifth part of the entire series:
The Internet and Blockchain Revolution: Evolution of Markets, Infrastructures, and Companies
Are we in 1994?
Interestingly, in early 1994, when Netscape founder Marc Andreessen was in Silicon Valley, he thought he was too late and completely missed the opportunity of the Internet, because the short recession of 1990-1991 hit the technology industry hard. The current stage of blockchain and digital currency is most similar to the Internet revolution in 1994, that year we invented TCP/IP, HTML and FTP, and these technologies were very important to the birth of Netscape (1994) and later Facebook (2004) and The emergence of Airbnb (2008) had far-reaching consequences.
In blockchain, we are still inventing modules and tools that allow us to do distributed computing, preserve privacy, manage identity, improve scalability, etc. - breakthrough dapps are already here and will be in the next few years .
Perez Technology Wave Cycles of Technological Revolutions and Financial Capital
Although there has been a lot of negative news during the digital currency bear market, it is important to realize that we are still in the early stages of the industry, and the main reasons for the premature bubble are as follows: 1) Although many products and technologies have not yet been released, through the initial coin Issuance gained liquidity; 2) The world is now much more connected thanks to the internet and social media, which may have accelerated the spread of hype and created bubbles around the globe like never before. But from a technical point of view, we are still in the "gestation" stage of Perez's technology surge cycle, and the "installation" stage has not yet appeared. Since the previous market frenzy did not push technology into an important turning point, this turning point includes "significant improvement in infrastructure, a replicable business model, and a feasible path for the application of technology" (view from Daniel Heyman's article) .
Growth of internet users vs growth of digital currency users (forecast)
Current user adoption of digital currencies is remarkably similar to the adoption of the internet in 1994, 24 years later, when more than half of the planet's population lives via the internet. We can expect a similar growth trajectory in the digital currency space, possibly at a faster pace as the world is now more connected and new technologies will be adopted faster over the past few centuries. For example, to achieve 25% penetration of the global market, it took 46 years for electricity, 35 years for the telephone, 14 years for television, and 7 years for the Internet. Therefore, we estimate that it may take 15 years for digital currencies to reach the level we use the Internet today.
From a capital perspective, the size of the funds invested during the internet and blockchain revolutions is also quite different, with US$35.6 billion in venture capital inflows into US internet startups in 1999 (according to CNN Money), while Venture capital into global blockchain companies was $1 billion from ICOs in 2017, (according to CBInsights). At the height of the dot-com bubble in 2000, Nasdaq had a market capitalization of about $6.5 trillion (inflation-adjusted), compared to the global market cap of cryptocurrencies at $800 billion in early 2018.
The Internet bubble only happened in the United States. Although the digital currency bubble is global, the capital investment scale of the Internet is larger. This is because: 1) The Internet bull market and the existing long-term stock bull market have mutually promoted each other. Wall Street and retail investors have already Do a good job of "warming up" and enter the new high-return IPO boom. 2) Much of the money comes from the accumulated wealth of the baby boomers. This generation is in their mid-40s, is managing their retirement savings, and doesn't have much memory of the economic crisis.
In contrast, digital currency investors are dominated by millennials, who have less capital than older generations (millennials: 41%, generation X: 24%, baby boomers: 18%). In addition, the amount of capital invested by institutional investors in cryptocurrencies is relatively small, and institutional investors in countries with large populations such as China and India have not participated.
The Blockchain Revolution: The Evolution of Markets, Technologies, and Companies
What's next?
What's next?
Consensys founder Joseph Lubin and Blockchain Capital partner Jimmy Song discussing the adoption of dapp programs
In the current market downturn, the blockchain and digital asset industry needs some success stories to restore people's confidence in the technology. After the dot-com bust, people gradually became willing to trust the internet again, as a new wave of internet startups began to find their footing, and the success of Netflix and PayPal lessened some of the uncertainty, softening the blow of the bubble.
In the blockchain world, we are still looking for successful use cases that can prove the value of blockchain technology and distributed applications (dapps) to help restore confidence in the industry. Joseph Lubin, the founder of Consensys and an outstanding leader in the dapp field, recently claimed, "If you can see the landscape of 2019 through my eyes, you must wear sunglasses to block its light." Joseph Lubin asserted very strongly that the future will be distributed, while other figures such as Jimmy Song from Blockchain Capital remain skeptical about the development of distributed applications in the next few years.
So far, the unicorns in the blockchain industry are still those companies with centralized governance of traditional business models (Coinbase, Binance, Circle and Bitmain, etc.), and traditional corporate governance models are still beneficial to the cryptocurrency ecosystem development of. But we have also seen that distributed companies such as Bitcoin and Ethereum and DAO organizations and dapps are replacing traditional centralized companies.
The previous and future stages of the blockchain revolution
We are currently transitioning into the fifth stage of blockchain development, where cross-industry blockchain applications and blockchain scalability solutions are being explored.
In the first stage, during 2009-2012, Bitcoin was invented as a new type of digital currency and a proof-of-concept product, and the first batch of users consisted of core technicians and cryptography experts who posted on various forums (bitcointalk. org, reddit, etc.) to mine and promote cryptocurrencies.
During the second phase in 2013-2014, infrastructure such as exchanges, wallets, custody, and payment solutions began to increase as media coverage increased (although much of it was negative). The third phase in 2015-2017 focuses more on real applications around financial use cases, such as remittances, micropayments, cross-border payments. With the emergence of smart contracts with Ethereum, we entered the fourth stage, where we are exploring use cases beyond finance, and the new fundraising vehicle ICO became a killer app at this stage.
In Phase 5, we expect successful dapps and asset on-chain cases to restore confidence in the technology and improve blockchain scalability, privacy, data storage, interoperability, custody and applications user experience. Later in Phase 6, we expect to see the disruptive development of dapps, fiercely competing with decentralized applications and centralized Internet monopolies like Dropbox, Facebook, YouTube, Airbnb, etc., consumers can deeply participate and participate in the digital economy gain more power.
On the other hand, successful DAPPs may take a while to launch, as decentralized application ecosystems receive far less funding than protocols ever did. During the dot-com bubble, most of the money went into building applications (Yahoo, eBay, Amazon, etc.), while protocol developers (TCP/IP, HTML, FTP) were researchers who got paid next to nothing, not for profit Organizations often deal with subsequent iterations of the technology. However, in the blockchain space we have seen the opposite, with most of the capital flowing into private companies handling protocol development (Ethereum, NEO, Icon, Ontology, etc.), many blockchain tools did not receive capital from ICOs. A disproportionate distribution of funds may slow down the overall development and release of distributed applications.
Crossing the chasm, a term coined by Geoffrey Moore
Overall, digital currency and blockchain adopters are still in the “Innovators” range of 2.5% of the global population in terms of global adoption. There are currently approximately 4 billion Internet users worldwide, and we are entering the "Late Majority" phase of Internet technology adoption. The next blockchain bubble will likely bring "Early Adopters" of cryptocurrencies, and the "chasm" will likely be in large consumer-facing companies (Starbucks, Facebook, Walmart, etc.) and financial institutions (Fidelity , Nasdaq, Goldman Sachs, etc.), these companies have begun to explore opportunities and have a large user base and influence over traditional players.
For example, Facebook is currently developing a solution to allow stablecoin payments on its messaging app WhatsApp. The company has great potential in financial services, with more than 200 million users and a huge user base in India (which leads the world in remittances – according to the World Bank this year, in 2017, people will $69 billion repatriated to India). We have also seen recent announcements from Samsung and HTC that they are already developing hardware and preparing for the next wave of adoption by introducing built-in cryptocurrency wallets in the Galaxy S10.
Additionally, we are seeing a shift in mindset on the institutional side, notably the involvement of school foundations such as Harvard, MIT, Yale, and Dartmouth, which are starting to invest in the digital currency space. Recently, Cambridge Associates, a leading pension and endowment fund manager (advising on nearly $400 billion in capital), has begun advising clients considering long-term investments in digital assets. Additionally, Bakkt, a project recently created by Intercontinental Exchange (ICE), which just raised over $182.5 million in funding, enables consumers and institutions to buy, sell, store and spend digital assets. These moves will further drive the global adoption of cryptocurrencies at an institutional level and help bridge the divide.
In summary, we are still early in the blockchain technology cycle, similar to 1994 during the internet revolution, and we expect to see more capital flow into the dapps ecosystem. In addition, we expect more blockchain projects and dapps to be released in the next few years, some of which will become breakthrough projects and gradually regain people's confidence. Large corporations and financial institutions have begun to increasingly participate in this emerging field, and have the potential to attract a large number of consumers and investors, helping to bridge the gap and opening the door for mass adoption. We remain bullish on the evolution of the blockchain industry and couldn't be more excited for the years ahead.
postscript
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.
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)
Are We in 1994? What to expect Next?(Part 5)
Author：Remi Gai @ 8 Decimal Capital
Edition:8 Decimal Research
This article is part ofthe Internet vs Blockchain Revolution Series. If you are interested in readingthe other articles, check out this post
Internet vs BlockchainRevolution: the evolution of the market, infrastructures, and companies
Are We in 1994?
Interestingly, when Marc Andreessen, the founder of Netscape , found himself in SiliconValley in early 1994, he thought that he was too late and missed the wholething as the short recession of 1990-1991 hit the technology industry hard. The current stage of blockchain and cryptocurrency development is most analogous tothe Internet Revolution in 1994, in which we have invented TCP/IP , HTML , and FTP ,and out of these will lead to the development of Netscape (1994) and much later Facebook (2004), and Airbnb (2008). Inblockchain, we are still inventing the building blocks and tools that allow us to distribute compute, preserve privacy, manage identity, and allow scalabilityetc. - the breakthrough dapps have yet appeared and will emerge in the coming years。
Perez Technological SurgeCycle from Technology Revolutions and Financial Capital
Despite thenegative press during this cryptocurrency market downturn, we are still earlyin the industry, and the bubble came prematurely due to: 1) The possibility ofearly liquidity with tokens despite the fact that a lot of the products andtechnologies were not released 2) The world is a lot more connected now, thanksto the Internet and social media, which could have accelerated the propagationof hype and formation of the bubble globally in a way that wasn’t possiblebefore. However from a technological perspective, we are still in the“gestation” phase in the PerezTechnological Surge Cycle, and the “installation” period has yet appearedbecause the previous market frenzy didn’t produce the outcomes that arenecessary to reach a turning point, which include “significant infrastructureimprovements and replicable business models that can serve as a roadmap during the deployment period” (check out this great post by Daniel Heyman).
The Growth of Internet users vs Growth Projection ofCryptocurrency Users in the World
The current user adoption of cryptocurrency is most similar to the adoption of the Internet in 1994, in which 24 years later, more than half of the population on the planetlive their daily life connected. We can expect a similar growth trajectory happen in the cryptocurrency space, perhaps at a faster rate since the world ismore connected now and there’s a general trend for new technologies to be adopted at a faster pace over the past centuries. For example, it took 46 yearsfor electricity, 35 years for telephone, 14 years for TV and 7 years for the Web to reach 25% of global market penetration. Therefore, we estimate that it could take another 15 years for cryptocurrency to reach the level of adoption that we have today with the Internet.
From a capitalperspective, the magnitude of the fundings invested during the Internet and Blockchain Revolutions is also very different, with $35.6B of venture capitalflowing into US Internet startups in 1999 (according to CNN Money) versus $1B of venture capital and $5B from ICOs goinginto global blockchain companies in 2017 (according to CBInsights ). At the peak of the Internet bubble in 2000, NASDAQ hada market cap of around $6.5T (inflation-adjusted) compared to a global marketcap of $800B in cryptocurrency in early 2018. Despite the fact that theInternet bubble only took place in the United States, while the cryptocurrencybubble was global, the former had a higher magnitude of capital investedbecause: 1) The Internet bull run was coupled with the existing long term stockbull run, in which Wall Street and the retail investors were already “warmedup” to jump into the new high returns dot com IPOs 2) A large amount of capital came from the accumulated wealth of baby boomers, who were around their 40s,managing their own retirement savings, and not familiar with economic crisis during their life. In contrast, the cryptocurrency investors were mostlydominated by Millenials who had less capital than the older generations(Millennials: 41%, Generation X: 24%, Baby Boomers: 18%). Additionally, the amount of capital invested in cryptocurrencies from institutional investors was relatively small and didn’t include the participation of countries with large populations, such as China and India.
Blockchain Revolution: theevolution of market, technologies, and companies
From these perspectives, we should expect another bubble or bubbles to appear in the yearsto come, as “successful and replicable business models” (Carlota Perez) will be found in decentralized applications, with alarger magnitude of institutional capital flowing into the industry, similar to what happened during the Internet Revolution in 1999-2000. We can expect the total market cap to eventually surpass $10T as it would combine protocol tokens(which capture value from dapps), equity tokens, utility tokens (if the modelstill proves to be viable in the future), and cryptocurrency (as a store of value - in which Bitcoin could reacha market of $7.8T if it reaches the equivalence of digital gold). Overall, we believe that we are still early in the technological cycle of Blockchain,similar to 1994 during the Internet Revolution and we should expect more marketcycle or cycles happen in the upcoming years.
What to Expect Next? :
Consensus 2018: Debate aroundthe adoption of decentralized applications between Joseph Lubin, Founder ofConSensys and Jimmy Song, Venture Partner at Blockchain Capital
With this current market downturn, the cryptocurrency and blockchain industries need some winninguse cases to re-instill confidence in the tech. After the Internet bubble had burst, people were gradually willing to believe in Internet again as a new waveof web startups started to find their footing, and the successes of Netflix and PayPal began to reduce some of the uncertainties and bad memories.In the cryptocurrency and blockchain world, we are still looking for successfuluse cases that can prove the value blockchain technology and decentralized applications to help the industry regain confidence. One of the prominent leader in the dapp development space and founder of Consensys, Joseph Lubin,recently claimed that “peeking into 2019, if you could see the landscapethrough my eyes, you’d have to wear shades”. Joseph Lubin takes a strong position that the future will be decentralized, while other figures such as JimmySong fromBlockchain Capital remain skeptical around the decentralized applications being used in theupcoming years. So far, the unicorns in the space are centralized companieswith traditional business models that benefit the cryptocurrency ecosystem itself (Coinbase, Binance, Circle and Bitmain). We have yet seen popular decentralized applications that are replacing traditional companies.
The previous and future phases of the BlockchainRevolution
We are currently transitioning into the fifth phase of the Blockchain evolution, in which theapplication of Blockchain across different industries, and Blockchain scalabilitysolutions are being explored. During the first phase, between 2009-2012,Bitcoin was released as a new type of digital currency and proof-of-concept,and the first users were composed of hardcore techies, cryptographers, andcypherpunks, who were mining and promoting cryptocurrency in various mailinglists and forums (bitcointalk.org, Reddit, etc.). During the second phase 2013-2014, with the increasing media coverage (although many of them were negative press), infrastructures such as exchanges, wallet, custody, andpayment solutions started to increase. The third phase 2015-2017 was more focused on real-world applications around financial use cases, such asremittance, micro-payments, cross border payments. With the emergence of smartcontracts withEthereum, we haveentered the fourth phase in which use cases beyond finance are being explored,and the new fundraising vehicle, ICO, became a killer application during thisphase. In the fifth phase, we are expecting the emergence of successful dapps and use cases, reinstalling confidence about the technology, and improvementsin blockchain scalability, privacy, data storage, interoperability, custody and user experience. Much later in the sixth phase, we are expecting to see dappsdisrupt and compete against centralized monopolies such as Dropbox, Facebook, Youtube, Airbnb, etc., allowing consumers toparticipate and gain more power in the digital economy.
On a side note,successful dapps could take some time to be rolled out because the decentralize dapplication ecosystem received a lot less capital than protocols. During theInternet bubble, most of the capital fundings went into building applications (Yahoo, Netscape, eBay, Amazon,etc.) while the protocoldevelopers (TCP/IP, HTML, FTP) were researchers who got paid almost nothing andnon-profit organizations often handled the subsequent iterations of the technology. However, in the blockchain space, we have witnessed the opposite in which the majority of the capital went into private companies that handled the protocol development (Ethereum, NEO,Icon, Ontology, etc.) and a lot of the blockchain tools did not have accessto capital from ICOs. The disproportional amount of funding could slow down the overall development and release of decentralized applications.
Crossing the Chasm, a termcreated by Geoffrey Moore
Overall, in termsof global adoption, the adopters of cryptocurrency and blockchain remain withinthe 2.5% “Innovators” bracket. To put into perspective, there are about 4Busers of the Internet, which in which we are entering the “Late Majority” phaseof the adoption. The next Blockchain bubble could bring in the “Early Adopters”of cryptocurrency and the “Chasm” could be crossed with the help of largeconsumer facing corporation (Starbucks,Facebook, Walmart, etc), and financial institutions (Fidelity, Nasdaq, Goldman Sachs, etc), who are already starting toexplore opportunities and have an existing large user base and an influentialreach to more traditional players. For instance, Facebook is currently working on asolution that could allow for stablecoins payment on its messaging app Whatsapp. The potential for the companyto make a move in financial services is very large, with more than 200 millionusers, and a large user base in India (which leads the world in remittances --people sent $69 billion home to India in 2017 according to the World Bank said this year). We have also seen recent announcements from Samsung and HTC, who arealready evolving their hardwares and preparing for the next wave of adoption by introducing built-in cryptocurrency wallets in the Galaxy S10, and Exodus.
Additionally, we have seen a shift of mentiality onthe institutional side, notably with the participation of endowments such Harvard, MIT, Yale and Dartmouth universities, who are starting to invest into the cryptocurrency space and recently, Cambridge Associates, a leading pension and endowment consultant advising on almost $400 billion capital, beginning to recommend their clientsto consider investing long term on the digital asset space. Moreover, a recent project Bakkt, created by the IntercontinentalExchange’s (ICE), an operator of several global exchanges including the New York Stock Exchange, just raisedover $182.5M in funding to enable consumers and institutions to buy, sell,store and spend digital assets. Such initiatives will further drive the globaladoption of cryptocurrency from the institutional side, helping bridge theadoption chasm.
In sum, we are still early in the technologicalcycle of Blockchain, similar to 1994 during the Internet Revolution, and weexpect more bubbles with bigger capital flowing towards the dapps ecosystem.Additionally, we expect to see more dapps being released in the upcoming years,in which some of them will become breakthrough projects, graduallyre-installing more confidence in the space. Large corporations and financial institutions are starting to get more and more involved in the space, and havethe potential of bringing a large crowd of consumers and investors, helping bridging the adoption chasm and opening doors for mass adoption. We remainbullish on the development of the industry and are excited to see what will come into the in the upcoming years. This concludes our article series about the Internet vs Blockchain revolutions and hope we provided you some valuable perspectives and insights.
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The Internet Revolution facts are based on thebook “How the Internet Happened”,written by Brian McCullough. MarkTwain once said “History doesn’t repeat itself, but it does rhyme”. We areattempting to draw some similarities between the Internet and Blockchain Revolutions,to help entrepreneurs and investors better understand technological lifecycles. Please leave your thoughts and comments below, and hope this articleseries will have provided some valuable perspectives about the Blockchain industry.
Sources:
“How theInternet Happened”, written by Brian McCullough
https://www.youtube.com/watch?v=pijR8vrQphk
https://twitter.com/ethereumJoseph/status/1076171159853502464
https://medium.com/@mccannatron/12-graphs-that-show-just-how-early-the-cryptocurrency-market-is-653a4b8b2720
https://www.bloomberg.com/news/articles/2018-12-21/facebook-is-said-to-develop-stablecoin-for-whatsapp-transfers
https://money.cnn.com/2000/02/14/cashflow/survey/
https://diar.co/volume-2-issue-39/
https://www.cbinsights.com/research/blockchain-vc-ico-funding/
https://www.researchgate.net/figure/Internet-users-in-the-world-from-1993-to-2014-As-on-1-st-July-2014_fig1_292251717
http://www.doc.ic.ac.uk/~nd/surprise_97/journal/vol2/kaa2/
https://www.statista.com/statistics/647374/worldwide-blockchain-wallet-users/
https://www.vox.com/2014/4/20/5624018/should-technology-define-generations
https://www.theverge.com/2019/2/25/18233131/samsung-galaxy-s10-bitcoin-cryptocurrency-wallet-features
https://www.ccn.com/breaking-harvard-stanford-mit-have-all-invested-in-cryptocurrency-funds
