In the madness of the daily seismographic wiggles in cryptoland, the opportunities behind blockchain technology itself seem to have gotten lost in the wind. Investors look to be forgetting that currency is only one application of blockchain. What about everything else?
People are comparing cryptomania with the late 90’s dot com era, but the comparison is missing one important difference. During the dot com era the craze wasn’t zeroed in on one specific application of the internet. Money was flying into every stock purporting to do any kind of business using the internet. Cryptomania suffers from a unique and very focused tunnel vision. Even within the single blockchain application to currency, most of the focus is being dedicated to a single currency within that market – Bitcoin Cash (BCH) and its various forked incarnations.
There is another important reason to widen our view of blockchain outside currencies entirely. While governments may give cryptocurrencies regulatory problems in an attempt to keep their own currencies dominant (a move we just saw in South Korea yesterday), the same can’t be said for other blockchain applications that don’t encroach on hallowed state-controlled ground. Currency markets are monopolized by governments for a reason, but other markets and by extension their blockchain applications are much freer and present much less danger for investors in terms of government encroachment.
So what tradable companies are focusing on blockchain generally these days? There are not many yet, and even fewer on a major exchange. The two on the Nasdaq are Overstock.com (OSTK), and Riot Blockchain (RIOT). Overstock was the first retailer to accept BTC back in January 2014, and according to its filings 0.25% of its sales are in BTC. Overstock CEO Patrick Byrne is a believer in sound money and is associated with the Mises Institute, so in retrospect it’s not surprising that he of all people made the first move. Overstock has logged about $5 billion in sales since January 2014 when it started accepting BTC.
Now, the company is investing in 10 other blockchain companies with different applications. You can find them all here. Byrne has gone so far as to suggest that Overstock may sell its entire retail business in order to exclusively focus on blockchain applications. This is either a genius move or incredibly mad, but that’s what they all said when Overstock started accepting BTC in the first place. It turned out genius was the right descriptor in that case. Investor response has been the same as it has been for any company associated with blockchain. The stock exploded and is up 520% since May.
Here are just three applications Overstock’s investments are working on:
1) tZERO applies blockchain to trading platforms, with the goal of making third-party-managed exchanges obsolete. Paying commission to your stock broker is like paying a wire fee to a bank. Just like cryptocurrencies make wire fees unnecessary, tZERO is looking to make stock trades “minable” instead of managed by a third party.
2) Peernova has a reconciliation and audit product that would eliminate the need for clearinghouses to verify financial transactions. Basically blockchain for fiat currency institutions to cut out their own redundant clearinghouse middlemen.
3) IdentityMind Global collects digital identities into a blockchain ledger in order to separate fraudsters and criminals from legitimate actors without the need for each party to have their own expensive security filters. This could easily fit in to the gaming industry for example to screen out problematic gamblers or group different kinds of gamblers.
Overstock is essentially pondering whether to exclusively become a sort of blockchain ETF. And none of this has to do with cryptocurrencies directly. Something like these systems will eventually experience mass adoption across industries. Maybe it will be Overstock, maybe other companies, maybe both, but these other applications will be more stable investments in the long run if only because there is little chance they will be outlawed or otherwise regulated to death by a jealous government.
Riot Blockchain has a similar approach to Overstock, except it is also focused on mining BTC itself. It then uses this cash flow to make investments in other blockchain companies. Riot back in November acquired 1,200 Antimer machines from Bitmain and has a majority stake in Canada’s largest cryptocurrency exchange Coinsquare, but it also has stakes in two other blockchain firms:
1) Tess Inc. is looking to apply blockchain to escrow services through smart contracts for the telecom industry. Again, instead of a third party firm securing transactions in escrow, smart payment contracts that get activated when confirmed on the ledger do this automatically.
2) Verady LLC, is a sort of meta-blockchain operation. It provides accounting and audit services, through blockchain, to cryptocurrency exchanges. Even this though is not dependent on the price of any given currency, but on the volume of activity within the market itself.
Overstock would be the purer blockchain investment and is the closest to a blockchain ETF available. Riot is a combination of blockchain generally and also direct BTC investment without the wallet, more leveraged to the price of BTC itself, but not exclusively reliant on its price.
All industries are soon to be Ubered. By that I mean, just as Uber took a hammer to the taxi industry by decentralizing it, blockchain will soon take a hammer to data-management intermediaries of all sorts. Uber has its own “miners”, in this case independent drivers, and is much cheaper than the traditional taxi because of that. But cut out the middlemen and replace them with a decentralized force that is much cheaper, and the middlemen will fight back, just as taxis have fought Uber.
Unlike the government itself though which has a better chance of handicapping cryptocurrencies proper, private industry cannot stop greater blockchain from the economic shifts it will eventually cause. There will be skirmishes, but that’s about all, because the benefits to consumers will be far too obvious for the old industry giants to combat.