The Blockchain Industry is in a Tight Spot, How to Break Out of the Current Situation? | Part 2
In Part 2, we propose a way to break out of the current situation and possible implementations in the future.
Written by Robin Gu, a Researcher at X-Order, an investment and research organization dedicated to the study of value capture in open finance. We strive to be a bridge between new finance and interdisciplinary fields with relation to science and research. It is founded by Tony Tao, who is also a partner at NGC Ventures.
In Part 1, we discussed the reasons for the perplexity, industries that disappeared in history, and difficulties in investing in an emerging industry.
The Way to Break Out of the Current Situation
The key to promoting the development of the industry — attractiveness
The development process of the mining industry indicates that we should not evaluate an industry in a static way, because the current state is not reflective of its future.
For an emerging industry, where should we focus on then? I think at the core is the law of attraction — multidimensional forms of attraction that can drive productivity inputs.
First of all, the industry must be attractive in multiple ways, which is the driving force needed for productivity investments.
Usually, investment attractiveness is the easiest to be understood in a capitalist society. Why did the industry have a qualitative leap and explosion in 2017? This is because a large number of participants saw the explosion of all kinds of altcoins in the first half of the year. Regardless of the target, the three-month yield was ten to a hundred times its principal. Such a large wealth effect attracted many investors/ speculators to enter the industry, it also attracted some entrepreneurs who wanted part of the pie by attempting to work on projects.
However, for any industry that wants to be sustainable, investment attractiveness is far from enough; it can only be used to explain the rapid growth of an industry. In the early stage and troughs of the industry, it cannot be used to judge its subsequent development. That would rely on more of its fundamental attractiveness or an anchoring point that can stimulate people’s instinctive behaviour.
Just like how games are very attractive to people, as they enjoy the wonderful experience brought about by the virtual world. Therefore, they are willing to spend a lot of money, time and energy to play games and to enjoy them. Hence, attractiveness only needs one anchoring point. Just one attractive point is sufficient to make people voluntarily invest their time and energy to complete something.
Similarly, people who are engaged in the blockchain industry may be attracted by something in the industry. This could be out of interest, dissatisfaction with the economic system, or the yearning of an ideal decentralized future. These factors lead them to invest their own productivity to do something that seems to be not worth the investment.
Some of the early players in the industry, who first came into contact with Bitcoin, even contributed code and sermons. This is often out of recognition and feeling of uniqueness about the project.
These productivities ultimately form the driving force of the industry’s evolution.
In the development of traditional industries, another inspiring model comes from the education industry.
An important source of income for many foreign universities is the donation by alumni. However, in a capitalist society, the return on investment is key and donation is generally considered unsustainable. We also know that in the company’s income statement, it is classified as a non-recurring profit. However, according to statistics, donation income has been a fairly stable source of income for many years.
Donors may be motivated by fame, self-interest or pure kindness, but the result shows that the school has a special form of attractiveness that makes people willing to continue investing. Many schools, in fact, exist longer than companies.
The current situation of the blockchain industry with its sharp rise and fall in recent years may make it seems like the industry’s short-term investment attraction is declining. However, we can see that there is still a steady stream of innovative projects, new productivity investment, and various projects that are constantly updated, optimized and upgraded.
The attractiveness behind these productivities is not just investment, but their continuous investment indicates that the whole industry is developing in a healthier direction.
Possible Implementations in the Future
All of the above are from a macro point of view of the whole industry. Of course, we can be an emotionless observer, and do something to boost the momentum with insights into the industry’s dynamics. However, as practitioners, we hope to find a more suitable direction for the industry through our own efforts.
Direction 1: Improve Self-haematopoiesis
The biggest worry for the industry is whether the project will die because it does not have enough cash flow. Therefore, whether the project team has its own hematopoiesis capacity rather than only relying on selling cryptocurrency to survive is key.
Now there are many traditional projects with some cash flow, including Jianshu, Jarvis +, etc. Blockchain and token are only but a part of their business operations process, they did not specifically pursue blockchain while destroying original business models.
Direction 2: Create Closed-loop Demand
Hematopoiesis is a way to ensure a project’s survival, but for an emerging industry, it is better to form its own unique and irreplaceable needs. This is the basis for the long-term stable existence and development of the industry.
Xiao Feng also mentioned at the Wanxiang blockchain conference that many of our current projects are “+ blockchain”, but there will be more “blockchain +” in the future.
Therefore, creating a unique closed-loop demand rather than haematopoiesis will be a more effective way to push the industry forward.
What can be considered a unique demand?
For example, ICO in the rise of Ethereum as a specific financing method — the whole process is completed in a closed-loop with tokens. The transaction fee deduction of major exchanges is also a unique demand.
We need to explore future possible closed-loop demands. We propose three directions as examples; if you have other ideas of closed-loop demands, you can leave a message below so we can discuss it together.
Diversified Cross-border Organizational Incentive
I believe you are familiar with organizational incentive, it is also a topic that is often raised in the field of blockchain. What we want to emphasize here is diversification and cross-border.
Diversification actually corresponds to the multi-dimensional attraction mentioned before. Since the threshold of open organization projects is low, it can accept more than enough people to invest their productivity. Different levels of attractiveness will lead to different dimensions of contribution, this can be in the form of capital or code investment.
There are two levels of cross-border, one is crossing the national boundary, the other is crossing time boundary.
The advantage of using a token to reward specific behaviours or meet specific needs within the organization system is that one can ignore the differences of national boundaries. It is possible that the hourly wage for developing a piece of code in one country is much higher than that in another country, but such behaviour in the internal field of an organization is consistent if it is measured by tokens.
Time dimension may be the ultimate application of tokenization. The allocation and use of tokens do not change with the change of people involved in the project. Few currencies can do a good job in succession planning, aren’t tokens more advantageous?
Gamification
At present, the gaming industry is the most suitable application for the tokens. It has both the hematopoiesis ability described in the first direction and the demand creation ability in the second direction.
To some extent, in the existing system of the gaming industry, there have been products similar to tokens, such as coins in the “World of Warcraft”.
Games are open worlds that can create demand. Other than not being able to meet the physical demand (now there is a trend that combines AR and VR to meet part of the physical demand), almost unlimitedly high-level demand can be created. Naturally, it is a closed-loop in itself, and tokens play a significant role in the game.
Still don’t feel anything? Go check out the game Ready Player One.
Due to its extreme virtualization, the gaming industry is almost a test ground for all innovative information products. You should know that in China, the first batch of ordinary people (non-geeks) mining for Bitcoins is from all kinds of gold mining studios in the gaming industry. They have been mining Bitcoin part-time for 10 years, and are the first miners in the industry.
Machine Requirements
As early as 2013, Carl Benedikt Frey and Michael Osborne, two scholars from the University of Cambridge, UK, predicted that 47% of the 702 jobs in the U.S. could be replaced by computers in the next 10–20 years.
Elon Musk has expressed the possibility of AI replacing human beings on many occasions. Even if they cannot completely replace them, we can see that more AI robots have begun to penetrate into all walks of life.
Money is the demand of human beings. If one-day robots need to solve the tragedy of the commons, how can they allocate resources directly? There is no doubt that the token is the best choice. The reliability of tokens can be directly verified between machines, and use it as a bridge to exchange resources. Thus, if human beings need to interact with machines, token will become an essential tool of exchange.
In the world of robots, tokens are just what you need.
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Translated by (via our WeChat Account): Xin Yue
Editor: Daphne Tan
Robin graduated from Fudan University, majoring in Mathematics. Prior to joining X-Order as a Researcher, he has over 10 years of financial modeling experience (both the theoretical and execution aspect) at Big 4 and private equity funds. He joined the blockchain industry in 2017 and is currently focusing on using complexity economics to discover exponential growth opportunities.
