How can blockchain enter the mainstream? 5 strategies analyzed

If 2015 was the year that financial institutions woke up to the power of the technology behind bitcoin (called blockchain)—Visa, Goldman Sachs, Citigroup and other established Wall Street venture capital firms joined together to pour $488 million into the industry—2016 may be the year that the technology is embraced in a more mainstream way.

According to the World Economic Forum’s September report, “Profound Transformations: Technological Tipping Points and Societal Implications,” 58% of respondents said they expect 10% of global GDP to be stored in blockchain technology by 2025. However, as of press time, the current Bitcoin capitalization is around $6 billion, or 0.008% of the world’s $78 trillion GDP.

Blockchain, or distributed ledger technology, is a technology that is safer, more transparent, faster, and cheaper than the current financial system. And it’s already being used for things like identity verification, land verification, provenance information, and more. But for all its merits, it’s in what Disruption author Geoffrey Moore calls “the chasm”: Right now, tech geeks and others who have strong reasons to prefer it over existing options have adopted it, but now companies in the space need to attract more outside users to become their core customers.

Moore, author of the 1991 book “Crossing the Chasm: How Disruptive Products Go Mainstream,” outlined the technology adoption lifecycle model, noting that new technologies are adopted first by “innovators” who are particularly interested in the technology. In the case of Bitcoin, innovators include early developers who worked on the technology protocol before it had any value, as well as libertarians who have their own ideological reasons for accepting a form of government-issued money.

Moore calls the second group of people who embrace technology “early adopters” — visionaries who aren’t necessarily technical people, but who appreciate the benefits of new technology. In the case of Bitcoin, these people include Vince Casares, the founder of Bitcoin company Xapo, who has evangelized Bitcoin to venture capitalists and entrepreneurs who are members of the second group. In addition, early adopters include people like Barry Silbert, who now leads Digital Currency Group, and Dan Moore Head of Pantera Capital, both of which focus on investing in Bitcoin and blockchain companies.

If a technology crosses the chasm, then Moore says the "early adopting majority"—the pragmatists who are only willing to invest in innovations that they believe will no longer be a fad—will then adopt the technology. But convincing this early adopting majority is not easy. Early adopters/visionaries don't mind disruption in their own process, nor do they expect it from the technology. They are "prepared to support it for reasons that oppose immutability," Moore writes. "The early adopting majority, by contrast, wants ... innovation, not revolution." If the pragmatists can't be convinced that the cost of disruption is worth the cost of switching to innovation, then the technology will ultimately not cross the chasm.

This is the conundrum facing Bitcoin and blockchain entrepreneurs today: Sure, the technology is faster, cheaper, more secure, and more transparent than existing technology, but many people find that our existing financial services — credit cards, bank accounts, Venmo, and so on — are fast, cheap, secure, and transparent enough that they not only work just fine, but in some cases function even better than what blockchain technology could do in its early stages.

"If consumers don't see any benefit or downside, then they don't care," said Michael Moser, director of payments at Javelin. "It's all about what's most convenient."

Below are the five main strategies that companies in the industry are pursuing (I’ve highlighted them on a decision tree), and the strengths and weaknesses of each in helping the technology cross the chasm. Keep in mind that some companies span multiple categories — for example, Chain.com, Coinbase, Consensys, R3CEV, and others work under infrastructure, in addition to their primary category — and that not all comparisons are equal. (Especially with the last group, organizations focused on infrastructure aren’t always pursuing fundable ventures, which is why some of them, like Ethereum, are nonprofits. On the other hand, others, like Blockstream, are just starting to launch commercial applications. There are many valid categories in this space.

1. Bitcoin Strategy

While it seems most digital currency companies have turned to blockchain in 2015, some are still focusing on bitcoin. The most notable of these is Coinbase, which says its goals for 2016 are international expansion (it’s now in 32 countries), increasing its market share of bitcoin exchanges (especially internationally), and promoting the creation of bitcoin applications. For its latest goal, the company may launch prototypes of some new applications—“not applications that we use for ourselves, but applications that help the industry grow,” said Coinbase CEO Brian Armstrong, comparing it to how Google and Facebook promote the use of the Internet through Google.org and Internet.org.

He explained that the company’s decision was not to follow the blockchain crowd:

“Blockchain is an important technology, but by far the most important use case for blockchain is the largest and most well-known blockchain today, which is the Bitcoin blockchain… Some companies may use blockchains internally and in a closed context, but just like when the Internet first came out, some companies created intranets, which were useful, but not as effective as the global, open Internet, so too will blockchains. Most innovation and most applications will be built on a public blockchain, and that will be the most popular blockchain for using Bitcoin.”

Silbert of the Bitcoin and blockchain incubator Electronic Currency Group agrees. Asked which business strategy will get the most consumer adoption, he said Bitcoin as a speculative investment. “The fact that speculation is the killer app, and most of the use cases for Bitcoin, is not a bad thing, because ultimately, Bitcoin is going to be a railroad-like enabler for money to be moved across borders without middlemen or friction, which makes the Bitcoin blockchain robust and secure,” he said. “If people didn’t want to know and speculate on the price of Bitcoin and hoard Bitcoin, you wouldn’t have companies deploying resources to mine Bitcoin, and if people didn’t mine Bitcoin, you wouldn’t have a secure network, and you wouldn’t have the ability to do — whether it’s seven transactions per second or eventually 7,000 transactions per second.” He previously told me that he believes Bitcoin’s appreciation will make its investors feel wealthier, giving them money to spend, which in turn makes merchants interested in it as a payment method. (Silbert’s main Bitcoin expenditure is gift cards from Gyft.)

But considering how many companies are focused on blockchain, it’s to be expected that some of the views that emphasize Bitcoin are narrow and risky.

“If you have a company based on Bitcoin — like Coinbase and Bitpay and other wallets and exchanges — if the number of Bitcoin adopters doesn’t increase, then those companies are going to struggle.”

Assuming this scenario were to happen, Eric Piscini, chairman of banking technology at Deloitte, added:

“We’re going to see these companies choose to move away from bitcoin and offer their services in other currencies.”

But Armstrong pointed out that in terms of Bitcoin’s growth compared to other types of blockchains: “The Bitcoin network is doubling its transaction volume every year… If you compare Bitcoin’s measures to other types of blockchain activity, Bitcoin’s measures are about 90% to 95% of all the activity right now — that is, if you can define it as dollars of venture capital being invested or a lot of developers actively working on something — which is in Bitcoin.”

Even Chain.com, which is focused on enterprises and has even stopped offering its API to bitcoin startups, said Adam Ludwig, CEO of Chain.com.

“Personally, I still think Bitcoin is here to stay and there will be a place for it in the market like a scarce electronic commodity — basically electronic gold. I don’t think it’s going to go away.”

Still, it’s unclear how a business strategy focused on Bitcoin will help the technology cross the chasm from early adopters to pragmatists who think the currency is too risky to be stable. This doesn’t mean that companies focused on Bitcoin won’t succeed. If Bitcoin/blockchain does cross the chasm, these companies will be well positioned to reap the rewards. But according to Moore’s theory, they just can’t convince the pragmatists to adopt the technology.

2. Fintech Strategy

Many companies are quietly leveraging Bitcoin behind the scenes, so that even though their customers may not know Bitcoin is powering these services, they are still enjoying its efficiencies. Companies in this category include Abra (remittances); Align Commerce (business-to-business payments); Circle (internet finance peer-to-peer payments); and Upload (multiple services including payments and foreign exchange).

Circle CEO Jeremy Allaire’s attitude is typical of this category. Like Coinbase, Xapo, and other companies in the bitcoin space, Allaire believes that an open, decentralized system like the bitcoin blockchain will triumph over what he calls “walled gardens and proprietary networks.”

What makes Circle different from other companies, however, is how it built its service. "(Amazon) didn't think of themselves as an HTTP or HTML company in 1994 or 1995," he said. "They thought of themselves as an online bookstore, or an online retail company."

These fintech companies amplify in niche markets where there is a lack of a dominant, well-functioning and/or inexpensive product or service. For example, Allaire said:

“We’re not trying to sell to people who are passionate about bitcoin. We’re trying to sell to customers who want to share value with each other and pay each other.”

Unlike Venmo or Square Cash, Circle can complete transactions even when no user is receiving the payment. If a Circle user sends money to someone who doesn't have a Circle account, the recipient can send the money back to their own bank account, or to another digital wallet if they want to use Bitcoin. It's not unlike the peer-to-peer payments that China's WeChat has begun using, Allaire said.

“It’s just embedded in their society and culture and it’s happened in about two years. Nobody has gotten to that point in Europe and the U.S. yet, so from our point of view the market is still wide open.”

Align Commerce and Abra are trying to solve some of the biggest headaches in financial services — Align Commerce in B2B international payments with high wire fees where payments can disappear as they pass through middlemen, and Abra in remittances where fees eat up 8% of each transaction, or one month’s worth of money sent to someone monthly in a year.

In Moore's technology adoption life cycle, this strategy for using special effects is called "bowling lanes," with each pin representing a market segment. Mark Cavender, founder and managing director of the Divergence Institute, said,

“One of the reasons for segmentation is that it’s impossible to try to build a complete solution for the entire market.”

— at least at first. Then, he says, the solution becomes so powerful that “we start to see everybody moving at the same time. The solution ends up being the be-all and end-all…Instead of thinking about a solution to a problem, now all we need is acceptance of a product.” This stage is called the tornado. “Your job is no longer to create demand, it’s to fill it,” he says. Typically, at this point, a market leader emerges.

This may be the strategy Upload has been sticking with: It differs from other companies in this category because it uses both the bitcoin blockchain and its own proprietary ledger to circulate 28 additional currencies. It's not just about the pins in the bowling alley. Upload users can send money to other members for free, convert to other currencies for free, and store money in "cloud storage" - the last of which is very useful in countries like Argentina where the exchange rate fluctuates wildly. "Uploading your funds to the cloud, holding them in dollars or gold, and then pulling them out of the cloud and back into the bank when you need to convert them into Argentine pesos is not what PayPal does," says Robin O'Connell, president of business development and partnerships.

This also targets the B2B segment, with sharing economy businesses like Airbnb needing to pay hosts in different countries, or financial institutions providing services to Filipino boat workers who have traditionally settled in cash or checks.

"Imagine you're on a ship, and it's in the middle of the Pacific Ocean, and you're handed this check, and it doesn't do anything."

Instead, the workers receive their paychecks through Upload, then go to an ATM and punch in a number to receive cash or send money to a family member in a different region, he said. (Although an ATM card is required to complete a transaction with an ATM machine in the U.S., that’s not necessary in other countries.) “I think you’ll see more companies doing what we’re doing — solving real world problems,” he said.

Javelin's Moser said the fintech strategy is smart because "consumers are quickly attracted to things that work and are easy for them to do. The same is true for small businesses." Especially the latter, he said.

“It’s cash flow. This business is do or die. It’s not like a big company that can take the time to put together a working group to study something.”

They can quickly switch to one superior experience after another.

3. Corporate Strategy

Other companies see more opportunities in Bitcoin — either as a currency or as a blockchain — without trying it themselves.

"Bitcoin is an example of blockchain," he added. "It's the first, but I don't think it will be a major turning point (compared to) blockchain technology. I believe that what I said will make people in the Bitcoin community want to kill me."

Chain.com is arguably the most prominent blockchain enterprise company, and it is working to promote

“Issuing and transferring, in most cases, existing financial instruments into new media: dollars, euros, stocks, bonds, loyalty points, mobile minutes — assets are already part of the economy, but there is still a lot of friction around how to move and store them,”

Chain.com's Ludwin said.

When asked why the company decided to focus on enterprise and blockchain, rather than just Bitcoin, he said:

“I think there’s a much bigger market for digitizing the world’s assets than strengthening or supporting startups building one of those assets called Bitcoin. I’d rather digitize some trillion-dollar market than some billion-dollar market. I think it will impact our lives more directly and faster than anything else we could do.”

Chain.com has been a partner in one of the first major developments in blockchain technology: Linq, a new platform created by Nasdaq for its private markets division to track ownership of private company stocks, a long-standing problem area marked by paperwork and other inefficiencies. Linq recorded its first transaction in December, between Chain.com and a private markets client, issuing shares to investors using blockchain technology to reduce settlement time and eliminate the need for paper stock certificates.

Solutions like Linq, where "the value proposition is strong enough and the technology is mature enough to be implemented in reality" — basically, a market segment or bowling pins — will succeed in 2016, Piscini said.

Chain.com is working on additional enterprise projects in industries including telecommunications, insurance and payments. Some applications include assisting telecom companies that are moving into financial services by helping them coordinate roaming payments, when customers use calls or send text messages to another carrier while outside the carrier's network. (Last year, Chain.com announced investments in Orange, Visa, Citi, Nasdaq, Capital One and Fiserv.) On the insurance side, his company is applying blockchain technology to the reinsurance market, in which insurers transfer parts of their portfolios to other entities to share risk.

"There are no signs of slowing down. If anything, these projects will get more and more administrative support, more funding, and more unimpeded access,"

Ludwin said. This may be the closest any company has ever come to describing the tornado that Cavender described, in which he said the role of business is primarily to fill demand, not to create it.

Ludwin estimates that Chain.com will help launch seven to 10 projects in the near term, noting that any given network will have many institutions that can participate. In most cases, each network will launch with its main leadership institution and a group of inaugural participants, which could include 50 banks.

“I think there’s a very real possibility that only one tractable and meaningful blockchain network will come to market in the near term and get market reaction, but right now there are many, many participants in these networks,” he said.

He said.

Describing what the technology and companies that have been forming in the market in 2015, Ludwin said:

“This year there’s a lot of talk about market structure and who’s going to be first and who’s going to benefit the most from the network effects that are hard to avoid when launching.”

This is an area where companies have an advantage in working with bitcoin companies. Although bitcoin has the most users among electronic currencies, its popularity is not comparable to that of financial institutions such as Visa or Citi, two of Chain.com's partners.

“If one of the big banks in the U.S. said, ‘OK, I guarantee that I will get into cross-border payments within an hour and I will charge you $0.50 for wherever you are sending the money,’ then it would be a game changer because they would be able to offer it to millions of users.”

Piscini said.

4. Consortium Strategy

Because blockchains benefit most when there are many, many participants in the system, some companies are looking to help existing financial institutions (with built-in customer bases) work together to take advantage of the technology. The most notable example is R3CEV, which has assembled a consortium of 42 banks that will create the blockchain equivalent of a dial tone, a base technology layer for bitcoin, ethereum, and Ripple (another protocol and company aimed at international payments) to talk to each other. It has also created a lab for its bank members to experiment with the technology; last week, it announced that it had completed its first test with 11 of the world's largest banks, conducting simulated transactions with each other. Beyond that, the company intends to build some commercial applications, some for itself and others for existing partnerships with companies.

Moser believes alliances like R3 have great potential to drive big change across a variety of strategies, but these groups won’t move quickly, for example, as companies deal with specific fintech sectors. “You can’t renovate a kitchen because there are so many players involved. You’d be tempted to build a house next to where you live,” he said — it takes time. But bringing these players together to work together can make the biggest difference, he said, because “they have the most to gain and the most to lose.” Yet according to the technology adoption lifecycle model, these groups can also have an advantage in making pragmatists feel more comfortable with their solutions because they have brand trust and a larger customer base.

Still, Silbert said, a group that gets feedback from many different stakeholders could end up creating “a Homer Mobile” — a “hilarious” car from an episode of The Simpsons that “has every bell and whistle you can imagine,” he said. He believes public, decentralized systems like bitcoin “have been a catalyst for some pretty fantastic innovation in recent history.” Compared to the work of a consortium, “a company anywhere in the world can come up with an interesting use case or example of a product that uses the bitcoin blockchain, find it, test it, iterate on it, and then design it in a smart way, and they don’t have to ask anyone for permission,” he said.

He ignored existing strengths in consumer trust and brand awareness.

"A large portion of young people may not trust our financial institutions as much as their parents did, but they will ultimately gravitate to the best product or service that offers them the most compelling value, whether that's PayPal or JP Morgan or Apple or a new company like Venmo," he said. "There's not that much trust in financial institutions, which are just a place where young people want to invest their money. Look at Wealthfront, Betterment and all the others. Who would have thought that the majority of people 40 or under don't have a financial advisor, and more and more are using a new online service?"

5. Infrastructure Strategy

Finally, a little different from the others, this isn’t necessarily a business strategy. In fact, organizations like Ethereum that focus on infrastructure are non-profit, while many of the for-profit companies mentioned above, such as Coinbase, Chain.com and R3, also provide infrastructure services - APIs and deeper protocols that make it easier for startups to create and develop blockchains.

Yet work in this area is also critical in helping the technology cross that gap. As Piscini puts it,

“If you look at what’s happened on the internet, if you have infrastructure provided by Cisco, Pets.com is an example of a use case for that infrastructure, and today, 20 years later, Cisco is very successful, and at least half of the sites like Pets.com are gone. So, those use cases disappeared because they didn’t provide value, but those infrastructure players are still here. I think it’s the same thing with Bitcoin/blockchain.”

He compares the products and services of the various automobiles mentioned earlier to the underlying infrastructure through which interstate vehicles travel.

“Think about the Internet 25 years ago — people were creating their own versions of the Internet,” Piscini said. “Every country, every company, every research institute, university — everybody had their own network. And then at some point we had to decide to connect our networks together, so we had to come up with a shared standard to communicate.”

It remains to be seen which of these strategies will be most effective in helping the technology cross the chasm, and it seems unlikely that it will ultimately be a winner-takes-all scenario. Different circumstances in different geographies — developing versus developed countries, for example — could allow some companies to thrive in certain markets and falter in others. Just as the internet didn’t suck all the big telecoms out of the equation, we could end up with more choice. “For the same use case, you have multiple ways to do it,” Piscini says. “If you’re not in a rush, you can use Mastercard or ACH, or if you want to do it right away, you can use blockchain. So I think consumers will have multiple options.” Once blockchain technology crosses the chasm.

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Original article: http://www.forbes.com/sites/laurashin/2016/01/26/how-will-bitcoin-technology-go-mainstream-an-analysis-of-5-strategies/#7b02102d3c31
By Laura Shin
Translator: Wang Er
BTC address: 16enj2bapYdzPfa2DWSVaT1g95MCXg2hHt
Editor: printemps
Source (translation): Babbitt Information (http://www.8btc.com/blockchain-5-play ‎)