Blockchain Capital was one of the first funds to invest into blockchain-enabled companies, and has been been our sole and very successful focus since 2013. With nearly 4 years of investment experience in this emerging, yet extraordinarily significant industry, we believe that 2017 will see strong mainstream consumer adoption of blockchain technology. From a worldwide movement towards decentralization to technology finally catching up with the ideas, all pieces of the puzzle are finally lining up. There has never been a better time to invest into this industry.
Decentralization as a trend
For the longest time, for most people the word “blockchain” was practically synonymous with the word “bitcoin.” By contrast, we like to say that bitcoin and blockchain technology are inextricably linked but not limited by one another. The digital currency was created nearly 10 years ago, in 2008, but only saw its first real-world application on May 22, 2010 when Laszlo Hanyecz famously purchased two pizzas for 10,000 bitcoin. That’s $5,540,000 a pizza on today’s rates! Since then, bitcoin and the many altcoin digital currencies have been taking the world by storm. Just earlier this year, bitcoin broke its November 2013 record price of $1,242, trading above above $1,290 during the period March 2-3 of this year. However, bitcoin is just the tip of iceberg, blockchain is the iceberg mostly under the water as far as consumers have been concerned (although the financial world caught up 2-3 years ago, see R3 for example).
Blockchain, the distributed ledger system behind bitcoin, challenges the whole concept of how we build and spread trust. Previously, trust has been held by a central authority: a government or an organization. Within a distributed ledger system, trust is intrinsic to the system as a whole. This is already being applied in principle to a wide variety of very different industries. Airbnb has built a distributed system of trust around accommodation. Uber is doing it with transportation. Social media and wikipedia are revolutionising communication and the spread of information. Blockchain technology is a system which allows more institutionalised industries to tap into this trend of decentralization and this is already happening, right now.
The time is now
We see an increasing number of companies across a variety of industries making the first tentative steps in blockchain adoption. They are realising that there is a pressing need to get ahead of the curve and beat the competition. Primary interest in the sector is coming from tech giants (Microsoft, IBM, Amazon) and major Wall Street banks (JPMorgan, Citigroup), with companies such as Infosys, TCS and HCL reportedly working on blockchain-based products to support the financial industry. As mentioned above, R3 was the first blockchain company in the financial sector; founded in 2014 it now leads a consortium of more than 70 of the world’s biggest financial institutions and working on a variety of projects that it is rapidly patenting.
Meanwhile, the demand for blockchain technology in finance and financial services is growing on a worldwide scale, primarily in the developing world. A multitude of economies within Latin America, Southeast Asia and Africa have strict currency control laws and are seeing consumers flock towards alternatives to mainstream financial institutions. Over 1 million smartphones [a year, a month, have we checked this?] are being activated by people who have no bank account, simply to use alternative financial services.
In terms of entrepreneurial ventures, we have also seen a clear trend emerge in the last few years. Broadly speaking, 2015 was the year when financial institutions and fintech startups discovered blockchain technology. 2016 was then the year of pilots and first deployments. Following on this trend, we project that 2017 will be the year when blockchain enterprise solutions leave the pilot phase and proceed to commercialization and wide-scale adoption. Once this happens, these venture projects will start generating revenue, which naturally raises investor interest and kickstarts M&A activity. With Blockchain Capital Fund III we are democratising access to these highly promising investments.
Practice what we preach
For us, 2017 is not only the year to invest into blockchain technologies. After all, we have been successful in doing so since 2013, becoming one of the first companies to see the investment potential in this emerging industry. 2017 is also the year to invest using blockchain technology. We believe that the technology is finally ready to take on the intricate, regulated and highly traditional industry of venture capital.
Through the world’s first Digital Liquid Venture Fund we are paving the way for other investment funds to follow suit. We are creating a state-of-the-art model to lure venture capital towards a more decentralized model, following the worldwide trend. The technology we are using is highlights scalability and security. We have also laid out a legal roadmap which solves many of the grey areas previous blockchain-based investments have found challenging. Essentially, we are building the infrastructure we need to revolutionize our own industry and we are confident that an increasing number of investment firms will follow suit.
We know that the internet was somewhat of a niche novelty until the browsers, email clients, search engines and online retailers came along. Then, suddenly, it became a household necessity. With blockchain, it has taken us years to build up the basic infrastructure rooted in cryptocurrency. 2017 will be the year when this all finally takes off.