Second-Order Opportunities

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This year we’ve seen about $US460m in VC investment pour into Bitcoin/Blockchain companies. In spite of the fact that most of the large investments this year have been growth rounds for established Bitcoin companies (e.g. Coinbase, Bitfury and Circle) much of the excitement in the space has been driven by interest in permissioned Blockchain and distributed ledger technologies.

However, questions have already arisen from investors about where the next wave of opportunities will come from. Most people will, for example, point to the growing area of identity and ongoing developments in permissioned blockchain technology. Interestingly, some are already looking at opportunities that exist from the second-order effects that Bitcoin/Blockchain technology has created.

So what do I mean by second-order effects? Much like the microwave was invented based on radar technology from World War II, Bitcoin is quickly creating a vast body of IP that has applications well beyond the Bitcoin industry.

For example, the need to store bitcoin in a secure yet accessible way has led to a number of companies developing hardware wallet solutions (e.g Ledger, Trezor, Case). In all instances, these companies have had to iterate on security models that have remained fairly static for decades. These types of devices clearly have application in other industries.

bitmain antminer t9

The same can be said from a hard science perspective, with the rapid development of ASIC miners we’ve seen chip size drop to an astonishingly small 16nm. It’s hard to imagine that the learnings that come from manufacturing ASIC mining rigs can’t also be applied to other industries.

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I predict that we’ll start to see many smart investors begin to think orthogonally about the Bitcoin/Blockchain industry. With a broader approach being adopted as to how the IP developed by Bitcoin companies can be deployed in other industries in a novel way. Likewise, it’s likely that some companies that initially started out as Bitcoin companies will pivot into other industries in which they can exploit their IP in a more direct (and profitable) way. This is definitely a case of “watch this space”.

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