Weekly Update #233: Blockchain in 2018

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Hello Investors,

Late last week, TechCrunch reported that Facebook was set to enter the crypto-fray, with its sights set on integrating blockchain into its social networking site. No details of the company’s strategy on this front were provided; however, the acquisition speculation that may follow from the announcement is likely to only add more fuel to the fire sparked by the current crypto-company craze.

In our view, there are a lot of reasons to be excited about blockchain and to believe that these open, decentralized ledgers could revolutionize much of the infrastructure that powers the global economy. Current uses (some still in development) include peer-to-peer payments, smart contracts, and public benefit distribution. Outside financial transactions, startups are also looking to blockchain to revolutionize areas such as cloud storage, voter fraud prevention and -- relevant to Facebook -- managing censorship. The centralized administration that currently governs economic activity (think brokers, government agencies, lawyers, bankers, etc.) could be heading down a path of obsolescence.

Technologies with such broad-based impact, though, can take time to gain traction. As a very instructive article in Harvard Business Review points out, many barriers exist to widespread blockchain adoption, including technological, governance, organizational and societal. The authors draw parallels to TCP/IP (transmission control protocol/internet protocol). TCP/IP was first developed in 1972 -- well before the internet became an integral building block of the economy. Along the way, many internet-based companies failed and investors failed to decipher which business models were best suited to harness its vast potential. Only 30+ years later did companies such as Amazon, Google and Facebook emerge as industry titans.

Blockchain holds enormous promise. Amid the hype, though, investors should keep in mind that the path to realize its potential will likely be longer than many wish...and not without its share of bumps.

Phil Haslett
Founder + Head of Investments, EquityZen


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