On Unprecedented Growth

We’re sure you remember it from high school math, but allow me to remind you. The bisection method. For example, you are looking for where ⅓ is on the decimal scale. You start with the firm knowledge that it is somewhere between 0 and 1. On the next step you “learn” ⅓ is less than ½, so you effectively halved the zone of the search — the answer is now in between 0 and ½ . The beauty of the method is that very few iterations will take you to the answer with an acceptable error range.

Trying to address an issue with numerical estimations takes defining the interval for the search at one’s current best state of awareness. We would like to know when blockchain technology will affect most ordinary businesses in a way the Internet did by the beginning of the millennium. When will it become impossible to ignore? As we see it, being conservative people, the far (very pessimistic) interval edge is somewhere 5 years from now. The text below is our attempt to build some reasoning for the far optimistic edge.

Unlike the slow Internet revolution that took over a decade, the blockchain one will hit businesses with a shockingly powerful and short stroke. Next year. This fiscal year.

How It Will Affect Your Business and Why You Should Care

Significant technologies change the status quo in the business landscape. Living generations have witnessed many such events and can hardly be caught surprised this time. However, blockchain tech is special because it progresses in three planes at once:

1. It affects capital markets, especially the crowdfunding segment that more and more businesses use for fundraising nowadays
2. It affects operations (cost structures and pricing strategies) in many industry segments, not just in those directly adjacent to smart contracts tech or other blockchain-based inventions
3. It radically affects consumer attitude across a wide demographic stratum which, in turn, affects marketing strategies

The dragon of the blockchain economy is three-headed — it affects capital, operational, and marketing aspects of businesses.

The changes in these three fields are taking place simultaneously. An average startup business plan today is likely to have two major flaws at once: one in competitive landscape description and one in marketing. Moreover, it is probably being presented at the wrong place to the wrong capital market.

(1) Who Needs Solid Business Fundamentals When You Have Audacity?

These days, to get your share of funding you compete with projects without product, sometimes without a cohesive team, but with skills and impudence to launch an aggressive ICO (initial coin offering) campaign. Many of your hypothetical equity crowdfunding investors and even VCs have reversed their door hangers and have gone grazing on those new capital markets. The scope of applications funded there is quickly going beyond the ephemeral borders of the blockchain tech and even the broader decentralization segment. Any company can now turn itself into a DAO (decentralized autonomous organization), issue tokens, and commit an act of unregulated fundraising. The speed the marketplace is getting populated makes me think that “nerve” is the contemporary five-letter word for “happy”.

(2) Good Riddance to Costly Rubbish

The skinnier the business, the faster it revolves. This abstract affordable wisdom does not directly take into consideration that it is your costs and margin levels that are already outdated. Look around; it may be the case.

Cheap bitcoin-based remittance and cost-optimal, blockchain-reincarnated settlements were the talk of the town a couple of years ago. Now, there are more doubts. Blockchain implementations are still an expensive way of making the erudite finansists feel good about themselves. But don’t be fooled by this parochial retreat. Blockchains — when symbiotically merged with crowdsourcing — seem to more quickly invade other, non-money industry segments.

Sia.tech claims it will charge cloud storage customers 10 times less than Amazon. Colony.io is a huge threat to Upwork. AdChain Registry does not directly compete with RTB players, but it will affect their margins with a very clever crowdsourcing mechanism. The list goes on. Tell me what kind of Blockbuster you are and I will name you your Netflix.

(3) Presumption of Guilt

On crypto forums, more than once recently we saw the term “premined scam” in a reference to the US dollar. Not only did it get more technical compared to the insults of the early days of crypto-anarchism in 2010–2011, this phrase incorporates the scornful attitude and assurance that the world will soon be their way.

The new norm is no single person of failure. By default, a system or organization that depends on the will of a handful of people deserves zero trust. Such systems may not be boycotted, but they will be considered lower grade and avoided should a more decentralized and immutable alternative be present.

Thus, if you have a “traditional technology” business, not only must you suffer lower margins due to higher costs, you need to reduce it even more to give price discounts to compensate for your congenital malformation of being incumbent.

Ten Months Left. No Time for Blind Complacency.

The unprecedented speed with which things develop today has at least the following causes.

1. There’s a lot of money over there, projectwise. Even if a good portion of projects are scams, the real ones move faster than any have before.
2. Interconnectivity of projects is ubiquitous. Everything is connected to everything in all planes. The community is informationally compact. Capital moves fast. Middleware projects have a lot of apps and platforms to put themselves in between.
3. There are almost no legal constraints. Whatever that might mean for an average unqualified investor or unprotected consumer, so far, that just speeds everything up, with little negative aftermath.

So, are there reasons for traditional businesses to worry right now? Of course. But what probability to have problems does a business face, numerically, considering blockchain-induced threats alone, this fiscal year already? 50%.

50% Chance You’ll Hit the Wall This Fiscal Year

Don’t take this statistic as a reference of measuring the “probability” to meet a dragon out in the street as ½ (you either meet it or not), but it’s not too far from truth to suppose you do have a 50% chance to experience business difficulties because of the blockchains development before you file your tax report in April.

Let’s assume that soon many blockchain-driven changes take place, but a business still has low chances to be directly affected. Say there is an 80% (sort of reworded Pareto rule) probability to just passively AVOID any problems connected to any of the three issues mentioned.

Almost every business has to do fundraising, win price wars, and conquer the trust of clients. Each plane is a stand-alone world, and each one is going to be affected by blockchains. Since those three activities are not causally connected, you must consider the probability of the three sequential bumps along the road. Having to pass all three one-by-one gives us (0.8*0.8*0.8 ~ 0.5) 50/50 chances of getting stuck somewhere.

Of course, that’s just some number joggling, but it also illustrates that the danger of blockchain phenomenon versatility is seriously understated. It will change the world, they say. We should welcome rather than worry over the technology behind Bitcoin, they add. Those are an outsider’s words. They are complacent about it because they don’t really believe it’s coming right now. So, they are making snobbish statements.

We have been a bitcoin lover for almost seven years. We’ve seen many attitude shifts, and if you want our opinion, the change in the last few months is tremendous. People are focused and self-assured, and we do not sense enough worrying in those leisured blockchain talks among outsiders, as if the contingency was yet a remote one.

Plenty of Money

This is crazy. An overheard the casual conversation the other day: people were arguing about one ICO and couldn’t agree without googling whether it got 270 or “just” 65 million USD. The market already got used to operating with dozens of millions, at least verbally, and no one cares $270M wasn’t reached yet by a single ICO. Because it will happen soon anyway.

Data source: coinmarketcap.com

The crypto ecosystem’s distance to the size of the gold market is less than 100x. Strange way to put it, right? If you are a hundred times smaller than something, it gives little difference whether it is a bit less or more — it’s the eternity that separates the two which is significant. Not in our case! That’s only a few years’ trip considering the tempo of the exponent that took off this April. The changes we are talking here are way closer than they appear because we never saw that many startups that well funded within such a short scope of time before. We just don’t have a trained inner-body scale feeling for this. I can hear objections that the quality of that money is low, that it’s gambling money, that they come and go. Even if these objections are true, to a large extent speculative (lottery) money can create a sustainable foundation.

Most tectonic shifts in a larger world, outside pure crypto, should start happening on the next order of magnitude switch, meaning that will be at about 10% of that distance to gold parity, and — let me emphasize this again — that may be as soon as next year.

ICO and Legal Crises

I guess, when winter 2018 arrives, the acceleration of ICO legality will not only be caused by the continuous public inflow. The forces that shape laws will start being actively lobbied by crypto-multi-millionaires, so the crypto’s ability to re-shape the entire stage should square up. Of course, at some point in time later this summer or during the coming fall, the current ICO bubble will burst. That will attract the attention of authorities and it won’t be easy to overcome with lobbying.

However, several recent shocks have demonstrated the high resilience of both BTC and ETH. Both easily swallowed several huge panics and recovered within days. Both demonstrate stubborn fundamentals and ever-positive, long-term sentiment. BTC doesn’t even seem to care too much about regulator-imposed threats and opportunities any more, neither in China nor in the USA. Of course, regulators will awaken and act, perhaps severely, but the above considerations don’t allow me to give much credit to their ability to interfere. The unprecedented speed of events will play an important role one more time. Regulators will need to coordinate efforts on a global scale which normally takes them years. They are simply going to be late.