VCs’ view on blockchain: Like the Internet in the 1990s, investing in it with a savage momentum

The underlying technology of Bitcoin, blockchain, is still in its early stages. However, due to its excellent performance, the industry sees it as a powerful tool to change the financial industry and other business and life fields. Shen Bo, founding managing partner of Distributed Capital, said that it is currently equivalent to the level of Internet technology in 1995 and 1996, and there is still a long way to go.

Is there a bubble? "Bubbles are also driving forces"

When a cutting-edge technology appears in front of the public and begins to be sought after, everyone starts to worry about whether they will fall into a bubble and get hurt. After all, according to Gartner's technology curve, we may be entering the "first summit".

Tao Quming, partner of Wanxiang Blockchain Consulting, said frankly: "If you come across people around you who are doing something for the mass market, that is, some mainstream markets, under the banner of blockchain, whether it is providing various new services, you may have to be more careful, because although the prospects of blockchain technology are very bright, it is currently equivalent to the level of Internet technology in the mid-1990s, which is very early."

Dr. Xiao Feng, Vice Chairman and Executive Director of China Wanxiang Holdings and founder of Wanxiang Blockchain Lab, said that blockchain has not matured enough for large-scale application development in the past three or two years. The only mature one is Bitcoin's blockchain, but Bitcoin's blockchain has only 7 transactions per second under the existing framework, which is far from meeting the needs of financial applications. "Various commercial application developments can be carried out on the blockchain, which has good directions and prospects in finance, the Internet of Things, medical care, etc. But so far, it is basically in the testing and trial stage."

As for the heat of capital, there are currently three large-scale blockchain investments worth tens of millions of dollars, including the approximately $22 million investment in Juzhen Finance by Wanxiang Holdings announced last week. In addition, it was revealed that Wanxiang's Distributed Capital officially began operations in October last year and has invested in 30 projects so far, with an estimated investment of $30 million. "Data from April 2013, 2014, 2015, and 2016 show that current blockchain investment is only growing linearly, not showing the exponential growth of the bubble period."

However, if capital is not booming, who will boom? Without the promotion of capital, scientific and technological innovation will be difficult to advance.

“Many people are worried that the blockchain industry is overheated and has bubbles. In fact, bubbles can drive the industry forward at full speed and gain unprecedented attention, which can actually promote the popularization of concepts and multi-scenario applications.”

In Xiao Feng's opinion, instead of worrying about whether there is a bubble, it is better to worry about how to do practical things:

Since we have discussed a lot from last year to this year, I think we should have finished discussing "what is blockchain" a long time ago. We should have discussed "what is it" enough, and of course we can continue to discuss it. If there is no application, then we will always stay in theoretical discussion, which is obviously not enough.

"Now there are a lot of people and money invested in it, and this is exactly what the industry needs most. Even if there is a bubble in the future, there will be a group of truly excellent companies that will survive after the bubble, and may even grow into world-class companies."

The Waves of the Sand: From "Betting on the Track" to "Betting on the Players"

Looking for the "BAT" of blockchain? Start by transforming financial infrastructure

Previously, Wanxiang's Distributed Fund invested in about 30 blockchain start-ups around the world, greatly boosting the industry's expectations for blockchain technology. The conclusion of a recent report by China Merchants Securities regarded it as an important driving force for financial institutions such as the World Bank to take substantial measures to deal with blockchain.

Xiao Feng introduced that this is a special fund. "What does a special fund mean? It means that we are betting on the 'track', the blockchain 'track' rather than the 'racing driver'. The 'racing driver' must be carefully selected, and the 'track' is to be involved in all aspects."

However, "although this is a bet on the track, it is still somewhat different from a pure fund - the difference is that we are not simply pursuing financial returns. We hope to be able to determine one or two strategic directions when investing in the track."

From casting a wide net to strategic orientation, Tao Quming firmly believes that blockchain technology, like Internet technology, will give rise to a large number of emerging startups, and BAT in the future blockchain era will also be born among them.

Choosing Juzhen Finance, a project focusing on bank infrastructure design, as the first strategic investment is consistent with the logic Xiao Feng proposed when he previously invested in Internet finance.

Xiao Feng said that he had publicly discussed in 2015 that Internet finance is actually a scenario revolution, combining many scenarios on the Internet with finance. If there is no scenario, it cannot be done; but big data is not a scenario revolution, but a technological revolution, which gives traditional financial institutions a chance to turn around. There are two core technologies of big data: one is artificial intelligence and the other is blockchain. Blockchain is a new accounting method, which will change the entire transaction model. Artificial intelligence will replace many people or provide insights into financial instruments that cannot be discovered now.

“I think the ultimate goal of Internet finance is peer-to-peer, end-to-end, P2P financial services, that is, Internet finance based on blockchain technology.”

“Anything that requires the help of an intermediary and is a service that the existing financial system can already provide well is not the ultimate Internet finance. Blockchain, a peer-to-peer value transmission protocol, has great potential to change the infrastructure of traditional financial institutions.”

Domestic entrepreneurs have a long way to go: application exploration is the direction

This sounds like exciting news for the times. Although the bottleneck of blockchain technology is not limited to the international community, global blockchain technology still faces obstacles such as cryptography, distributed database construction, and the development of smart contract protocols, but for Chinese entrepreneurs, there is a long way to go. Among the 30 investments led by Wanxiang Distributed Fund, there are currently only 5 domestic startups, one of which is engaged in content delivery in this field.

"Compared with Europe and the United States, there is indeed still a gap of one or two years between domestic technology, products and concepts. At present, the country lacks all-round application practice, which is the direction that Chinese practitioners need to explore."

Xiao Feng said that at the just-concluded International Blockchain Week, developers from all over the world and more than 30 startup projects showcased their application solutions and technological achievements. However, there were very few Chinese developers. "Although there are not too few, it is indeed a pity. We spent a lot of money to invite Ethereum to hold this conference in China. In order to take care of domestic developers, we also specially trained the selected simultaneous interpreters for more than a month."

Attending the conference were multinational companies such as Microsoft, IBM, and Deloitte, but few representatives from mainstream domestic financial institutions were seen. "This is regrettable."

Five main areas of focus for capital

Shen Bo, founding managing partner of Distributed Capital, said that based on the idea that it is better to invest in a company by building it up rather than expanding it, the company has made many investments in foreign companies through the VC industry since it was put into operation on October 1 last year.

The 25 overseas investment projects to date can be basically divided into five aspects:

The first is payment, including B2B, C2C, and C2B.

The second is to do traceability and solve any problem of product tracking and tracing cycle.

The third is data management and storage.

The fourth is to provide a development environment, such as the BlockChain-Base platform, which can solve the problem of how to distinguish abstract things from the data layer and the protocol layer, so that the business layer does not need to study the underlying technology in depth. How to provide an environment that is easy and convenient for development, so that enterprises can reduce costs and use the blockchain development chassis as soon as possible, so that all large, medium and small enterprises can develop their own applications and industry innovations on it, thereby accelerating the development and implementation of blockchain in all walks of life.

The fifth is supply chain finance.

“The entire industry is still not very clear, it’s still in its early stages,” but on the road to the gambling track, VCs are conquering cities and territories: “China has invested in five companies, basically within two months.”