By Shelly Hod Moyal
What we’re witnessing with the emergence of blockchain, is very similar to what we saw during the early stages of the internet. There was a lot of hype in the beginning but the internet’s real impact on our lives didn’t fully start to materialise until roughly 20 years later.
So where should investors be casting an eye in 2018?
1. Most importantly, people sometimes don’t realize but the blockchain doesn’t fully work yet for real world applications as the nuts and bolts aren’t fully in place. For example, real world companies that process millions of transactions with millions of users can’t currently run on the blockchain in its current state, as the technology is too slow and costly to do so. For example, Ethereum can process 15 transactions per second whereas Visa processes 45,000. So technologies that enable the blockchain to be faster and more scalable are appealing. We’ve invested in several protocols that have built their own blockchain (e.g Cardano and Neo) as well as networks that enhance the performance of existing blockchains (e.g Raiden). As we see that the tech requirements (security, speed, privacy) for each business case are different, we believe several blockchains will be adopted for different use cases. Therefore technologies enabling blockchains to connect with each other (e.g Aion and Icon) will play a key role in the future of the industry. As blockchains serve as the enabling platforms, they will benefit from any adoption at the application layer. For these reasons, ‘blockchain infrastructure’ is the most interesting area in which to invest at the moment.
2. From a geographic perspective, eyes should be on China. Yes, there is a lot of uncertainty around the regulatory framework, but if we look historically at how China dealt with the emergence of the internet and social media, it’s more likely that China will cooperate with local blockchain networks in order to take part in the economic opportunity they could bring. So instead of an outright ban, the likely scenario would be that the industry will have to comply with Chinese regulations just as Baidu, Alibaba and Tencent have over the years. And given the size of the Chinese economy and the scale of the opportunity with, Tencent (being the most valuable internet company in the world) and Alibaba (way up there as well), there is a lot of upside potential in China, certainly on a relative value basis. We’ve made several investments in this theme, searching for a Chinese counterpart to some of the more established platforms created in the West such as, Neo (like Ethereum), Wanchain (like Ripple), IOT Chain (like IOTA) and others.
3. The tokenization of assets, equity, limited partner interests and other securities will be a very interesting theme over the coming years. I believe that in the long term, the majority of tokens will disappear, leaving a select few that will be used for most blockchain applications. Just as we see in the fiat world, there are only a handful of really strong currencies. However, tokenization as a means to distribute a stake in a venture will gain popularity whether it be equity or LP interests. This will be applicable to any kind of venture, not just limited to ventures with money like features that require a blockchain. As this technology develops into the future, people will no longer want to lock up their funds in any given investment as it will be possible to create liquidity throughout the lifecycle of the company/partnership/network. Liquidity providers will include regulated exchanges like Quoine and Tzero for “security-like” tokens. We are already seeing innovators in this space. Recently, VC backed Kairos created a token distribution which includes both security and utility tokens and Spice VC is creating a platform allowing VCs and PEs to create tokenized funds.
4. While we believe it is still relatively early to focus on the application layer of blockchain, we are making select investments in businesses that have decided to transition to a blockchain based business model that have pre-existing customers and revenues. Our investments so far in this space include Kin, Props and Bread. All of these businesses have entrepreneurs with business experience and assets they’ve built over the years, which in our opinion gives them a significant advantage in the industry and a real shot in generating initial adoption at the application layer. In terms of applications that make a lot of sense for blockchain, they include – social networks, sharing economies and mainstream access to blockchain assets.
5. In an economy where we’ll see many networks with many tokens, marketplaces that allow people to access, use and convert their value are really important. Any blockchain application will ultimately need to integrate exchange functionality in order to allow people to meet their value. This is why we’ve invested in several exchanges (Binance, QASH, 0x, Kyber) and are looking forward to seeing their partnerships and developments reach fruition in 2018.
Turning insight into action, I believe that the best approach to investing in the industry in its current state, with all the uncertainties around regulation and the future, is to build a diversified portfolio of infrastructure companies with a heavy weighting towards tokens that are positioned to be winners even after a crash, (e.g Ethereum). This is not investment advice and does not take into consideration your personal circumstances.
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