Second and third level consequences of crypto-revolution – do we know what they are?

FinTech Cryptocurrency Revolution

Cryptocurrency is becoming somewhat of a hot buzzword these days, however, I think it can go beyond the buzz and add real value (see the summaries below). There are many industries that it will impact directly, one great example would be law or peer-to-peer (P2P) industry. However, one thing we understand little of still is the second/third level impacts that it will bring, i.e. how a more modern/flexible law system will affect our lives or decentralised P2P system (i.e. Airbnb/Ebay/Uber) will transform the way we transact. Are people even going to own houses or a smart contract will manage the crowdsourced ownership and it will be rented out Airbnb-style with the profits shared among many ‘investors’ that is easily tradable? This would change property as an asset class dramatically, transforming it from a very illiquid to extremely liquid investment.

 

Ethereum Market Map — June 2017
By Jordan Odinsky

Facebook, Amazon, Airbnb, and Uber all played a role in shaping the way people view the world. They made it normal to share moments and thoughts online. They taught us that it’s okay to hop into a stranger’s car or even sleep in their spare bedroom. They forever changed the way we purchase goods and services from one another. And I believe that blockchain technology will be the next innovation that changes the way we think about and interact with the internet. I believe that Ethereum has the potential to overtake Bitcoin as the digital currency and framework of the future because of its strong developer ecosystem, coding simplicity, and the variety of applications that can utilize smart contracts.

 

Tokenomics – A Business Guide to Token Usage, Utility and Value
By William Mougayar

Despite the incredible amount of attention and material written about cryptocurrency tokens, there hasn’t been a good mainstream definition of what they are. In the technical realm of the blockchain, the concept of a cryptocurrency token is well understood. It represents a programmable currency unit that is bolted to a blockchain, and is part of smart contract logic in the context of a specific software application. But in the non-technical arena, what is a token, really? A token is just another term for a type of privately issued currency. Traditionally, sovereign governments issued currency and set its terms and governance; in essence directing how our economy works with money as the exchange medium for value. With the blockchain, we now have new types organizations (and soon, more of the existing type) who are issuing their own currency in the form of digital money as cryptocurrency, and they are setting their own terms and rules around its operations, in essence creating new self-sustainable mini-economies. A unit of value that an organization creates to self-govern its business model, and empower its users to interact with its products, while facilitating the distribution and sharing of rewards and benefits to all of its stakeholders. 

 

Universal Basic Income: The Potential of Cryptocurrency
By Albert Wenger

Universal Basic Income is essential to getting from the Industrial Age into the Knowledge Age. Basic income gives people economic freedom, which is essential if we want them to freely allocate their attention. Much of the writing on that to date, including my own, has taken the approach of looking at existing budgets and figuring out how to rearrange them. That, however, is thinking too narrowly. Instead, I am now convinced that the right way to implement a Basic Income is through changing how money is created. At present most industrial economies use some form of fractional reserve banking. Commercial banks can create extra “money” in the economy in the form of credit as they only need to keep a fraction of their deposits as a reserve. Central banks have also used other mechanisms to provide liquidity to commercial banks, especially following the 2008 financial crisis. An alternative approach would be to move money creation the individual level by issuing a basic income. This is variously referred to as helicopter money and quantitative easing for the people. One exciting potential of crypto currencies is that they could make it much easier to build such a system.

 

What is Coinbase’s strategy?
By Brian Armstrong

At Coinbase, our mission is to create an open financial system for the world. We believe that open protocols for money will create more innovation, economic freedom, and equality of opportunity in the world, just like the internet did for publishing information. However, an open financial system is difficult to get started because it requires a network effect. Every transaction requires both a sender and recipient who are willing to use the new system. To overcome this, our strategy is to draw new users into the digital currency space via an initial use case (investment, or currency speculation) that does not require a network effect. This will create the critical mass of people required for the network effect to develop.

Do Banks Need To Lose For FinTech To Win?

fintech-win-banks-lose

FinTech and Banking relationship is always pitched as a win or lose scenario for one of the parties. Some can only win when others lose, others seek to win by helping others succeed. One of these approaches is far more scalable. Build your strategy accordingly.

Also, in the last newsletter about 2017 predictions, I’ve missed a quality report by my friend Jim Marous – you can check it out here (it’s not free but if you work in fintech/research/banking it may be worth getting it for your business)

Thanks for reading; YOU are awesome!

Have a wonderful week,
Alex

 

Is Alternative Lending a Perishable FinTech Segment?
By Elena Mesropyan

Despite competitive propositions and momentary advantages that alternative lenders may have over incumbents, it is likely that banks will eventually drive this particular FinTech segment out of business. That moment, however, will come after a brief time of mutually beneficial collaborative work that we will witness in the years ahead. Though alternative lenders will get to see growth and prosperity in the short term, the long-term success of this segment is questionable. In fact, the more sophisticated data analytics, regulatory technology and risk management solutions developed by FinTech startups get, the less time is left for alternative lenders to leverage their often overhyped position.

 

International Competition is Stifling UK InsurTech
By Thomas McCourtie

Recent years have seen a growing relationship between insurers and technology, but many of the more significant developments are stemming from international markets. Mainland Europe, parts of Africa, and even the US are way ahead of the curve, but the UK remains somewhat under-represented. While embracing technology in the UK insurance industry continues to be a challenge, lack of originality and product development could see UK providers fall behind their competitors from other regions.

 

Parsing Lemonade PR To See If P2P Insurance Is Game Changer Or A Mirage
By Daily FinTech

A lot of the InsurTech innovation we see can be coopted by the incumbent carriers relatively easily. Knowing how to build a compelling digital user experience is not enough to create a moat and sustainable advantage. So a lot of people are looking at P2P insurance as the disruptive game changer. Ever since Lemonade did their $13m Series A funded by the hot hands of Sequoia Capital just over one year ago, there has been a lot of speculation about whether Lemonade will prove this model to be a game-changer or whether the whole thing is a mirage. Now that Lemonade is releasing some information, we take a look at what we can learn about the whole sector.

 

Volatility and Liquidity: How Bitcoin Compares to its Crypto Competitors
By Willy Woo

I started this study to double check my assumptions that bitcoin was well ahead of the pack in network effects. What the data showed was this was only partly true. Bitcoin’s lead in liquidity is not unassailable, monero could match it in a year, while dash and shadowcash could achieve it in just over two. However, all of bitcoin’s competitors tote features that bitcoin is lacking – faster confirmation times and private payments. Both of these features will most likely be coming to bitcoin as layer two protocols in 2017. If and when this happens, the battle for payments and general money will be fought solely on the playing field of economic network effects, that of liquidity and volatility.