What Makes Them Different to Those of Other Industries
In the high-tech sector winning format wars is the highest precept. For the triumphant company it means high margins or high revenues from licensing fees or sometimes even both. Leveraging a killer application is key. For many blockchain advocates there is no doubt bitcoin is this killer application for payments. Bitcoin is by far the best-known cryptocurrency, even better known than the blockchain itself. Bitcoin had an early-mover advantage, because it set the technology lifecycle in motion and is still growing. At 42 bn USD it has by far the highest market capitalization and the gap to the second placed Ethereum (33bn USD) or the third placed Ripple (9.5bn USD) is staggering. Many leading FinTech projects use bitcoin as a basis on which they code their own solutions, just like the Goldman Sachs-backed Circle Internet Financial. But given its operational scale limitations and the energy resources bitcoin gobbles, it will not be able to sustain the immense expectations. Therefore, by 2015 there were already 440 active altcoins, which were basically an alternative to bitcoin. Some of them are driven by established institutions like the Citigroup-led digital currency Citicoin.
Solving Compatibility as the Major Challenge
Identifying the killer application as early as possible in the technology’s lifecycle is the key to beat competitors. To reap the profits, the specific product attributes that this new technology enables have to match the needs of the users. Which attributes of the new product will customers be demanding? Everybody is pointing to speed and convenience. But with the blockchain we have a paradox. The explosion of altcoins aiming to solve customers’ problems has created a new need: interoperability.
People don’t want to carry hundreds of currencies, not even if it is crypto-coins stored in digital wallets, still involving costly and cumbersome exchanges. This is why the killer application will not be one coin or one particular token, but an application facilitating the communication between systems, so-called interledger technology. Some serious forays already exist like Ripple, who uses the blockchain to let banks exchange money with a trusted third intermediary. The Turing-complete Ethereum is the second biggest application that facilitates large-scale interoperability. It can run any coin, any protocol.
And indeed in 2014 Ethereum became the second most successful ICO in history and the sixth largest crowd funding project in general. Market potential of interledger solutions is not limited to a specific coin, nor even cryptocurrencies in general. Interledgers can also handle Euro- and dollar-denominated value. This is good news for those who come up with this killer application, but even more importantly, this time it may help incumbents stay on top. Current systems can be connected to new ones, diminishing the risk of obsolescence. ICOs that can manage to bridge the divide between today’s and tomorrow’s world are certain to arouse the interest of incumbent financial institutions as well, which will automatically boost the overall willingness to invest into such ICOs. Ripple and Ethereum are the prime examples, the two applications that are clearly leading the hunt to displace bitcoin as the number one in terms of market capitalization.
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