All Over The World, Governments Are Seeing Enormous Potential In Enterprise Blockchain Applications
Go back five years or so and you’d be hard-pressed to find any government endorsing blockchain1 technology, and many were (and still look to be) openly hostile to cryptocurrencies. That posture is now shifting—quickly.
An hour-long TV special aired in China last week, extolling the virtues of blockchain and claiming that its value is “ten times more than that of the Internet.” To me, that does not sound like a country intent in keeping up its ban on cryptocurrencies2. And contrary to what many Westerners believe about China’s crypto-hostility, I’ve talked to a number of investors in China, Singapore, and Hong Kong who all have said that crypto/blockchain is alive and thriving in China. In my view, China is likely to re-emerge very soon as a big player in this space.
Moreover, proposed government blockchain initiatives now run the gamut, with objectives as diverse as preventing corruption in public sector finance (Italy), streamlining land registries (Netherlands) and managing customs controls (South Korea).
Where governments used to openly dismiss blockchain, they are now seeing potential benefits in its traceability. They have come to understand that it is not necessarily the anonymous, shady underworld they thought it was. The more they explore its potential, the more use cases they are finding, particularly for blockchain enterprise applications.
And now that they’ve stuck their toe in the water, I don’t believe it will take long for them to see the potential benefits of blockchain-based currency systems—i.e., “cryptocurrencies.” There is hardly any large-scale adopter that’s larger than a government. So this slow coming-about of the ship of state is potentially a huge development for blockchain technology applications, manufacturers, and implementers.
Rewards Programs Joining the Crypto Ecosystem?
Two of the themes I’ve been covering in this blog are “interoperability” and diversification within the cryptocurrency ecosystem. This week we see another small step forward on both fronts, both in the arena of consumer loyalty programs.
Right now, you can use your American Airlines (AA) miles to book a hotel room, so why shouldn’t you be able to use them to buy a burger? Or a pair of sunglasses? Every year, American Express (AXP) publishes a rewards catalogue where you can exchange your points for everything from electronics, to kitchen gadgets, to apparel.
These rewards programs are, in many ways, already a kind of “permissioned” currency—useable within a closed ecosystem built by each company. But now those ecosystems may be getting larger, potentially even approaching the utility of cash.
American Express has built a blockchain application that lets its merchants develop bespoke Amex rewards points programs. Just as you might get airline points for booking a rental car (or vice versa), now you might be able to get Amex points for buying a cup of coffee, or a sale item that a retailer wants to move off the shelf. More important, once you earn them, you may be able to spend them any way you like.
Meanwhile, Mastercard (MA) has patented a system that puts coupons on the blockchain. EZ Rent-A-Car is piloting a program to let rewards members exchange their points for bitcoin. Rakuten (OTCPK:RKUNF), the Japanese e-commerce giant, has about $9 billion in rewards outstanding and is talking about converting those to a loyalty “coin” that is convertible to fiat currency.
Fungible rewards points offer greater flexibility to consumers, attracting them to the issuer’s rewards ecosystem. That attracts more merchants, and accrues more fees to the program operator. And finally, the larger the program, the more data (troves of it) the operator will have on consumer purchasing habits and trends.
There are two key take-aways here:
First, the more that rewards points can act like cash (and that’s where it looks like they are headed), the more potential value in the issuing enterprise, whether it’s an airline, retailer, or credit card company.
Second, I have said before that the cryptocurrency ecosystem is not winner-take-all: it has room for a diverse array of digital tokens, with “interoperability” (i.e., convertibility) driving growth of the ecosystem. New developments on the rewards front demonstrate both points: growing diversity, with issuers fueling adoption by making digital tokens as convertible as possible.
WHAT DOES MY 2CENTS ADD UP TO?
We are seeing some every encouraging signs in the direction of crypto-blockchain adoption, across a diverse set of players. But this is truly emerging technology. Many of these initiatives will fail, and because there is so much attention on this space right now, many of those failures will be very public.
On the path to crypto-blockchain adoption, it’s important to remember the old adage of: crawl, walk, run. As one emerges from the crawling stage, there can be a lot of bumps, bruises, falling down, and the occasional nasty head bang.
In my view, investors should neither be surprised, nor frightened away, by recent data out of China that most blockchain initiatives are abandoned after 15 months. (That small data point has been getting too much press.) After all, 95% percent of all venture capital start-ups fail to deliver the projected return on investment. An article in Fortune a few years back quoted a 90% failure rate for corporate “innovation” projects. An estimated 75% of corporate “change initiatives” will fail. The failure rate for IT projects varies between 50% and 70%, depending on whom you ask.
On the whole, I see very positive signs around enterprise blockchain adoption and cryptocurrency diversification. But high failure rates in tech innovation are normal. So, avoid falling in love, and don’t be too disheartened if favored opportunities don’t pan out.
I’d suggest that one needs to have an active approach to managing opportunities in this space: rigorously vetting opportunities to find those that may have the best chance at success and longevity. Think of it like putting bumper-guards on the coffee table and plug-covers over the power outlets.
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