(This is a seven-minute read)
The Flaws of Centralization
Facebook’s outage on Monday is more than just an inconvenience: it’s a demonstration of the failures of centralized organizations. Blockchain technology is poised to solve these issues through decentralization, one issue at a time.
This week, I took a look at four blockchain-based projects (all of them altcoins that you can invest in) that compete with some part of the Facebook ecosystem.
A Disclosure: This is not investing advice and I haven’t done the due diligence I normally would when investing in altcoins. This solely serves as a theoretical look at how blockchains/cryptos can be competitive and provide tremendous advantages over centralized organizations.
As of writing, I own none of these cryptocurrencies. They are ranked them from biggest to smallest by market cap.
Competitors: Facebook Live, Instagram Live
Theta is a crypto that allows users and creators to upload and stream content without relying on a centralized service. It solves problems related to custody, issues with streaming, and creates a fairer economic model for creators/broadcasters.
Addressable Market: $50 billion
The global market for live-streaming video is about $50 billion a year. Netflix and Amazon Prime Video represent an opportunity for expansion between traditional media and homegrown live streamers, and the space is growing rapidly.
Price Forecast/Upside: $23 billion Market Cap / $23 per token
Twitch does about 2.3 billion in revenue yearly, and other streaming providers have price-to-sales ratios of about 10. If Theta grows to be as big as Twitch today, it would represent a 3.5x return on the its current market cap.
The crypto is founded by YouTube cofounder Steve Chen, and has huge livestream partners (such as the World Poker Tour), so it could even be poised to compete even with more traditional broadcasters.
Benefits of Blockchain:
Theta provides solutions to both the economic and computational problems facing centralized video streaming. On the technical side, decentralized streaming via shared bandwidth allows for a higher-quality and faster streaming. Users are rewarded for watching streams (and thus helping share bandwidth on the network) with a token called TFuel that allows you to purchase subscriptions, tip streamers, and buy merch.
Theta is not only taking on Facebook and Instagram live, but streaming platforms (Amazon with Twitch, Google with Youtube) and legacy media players like Comcast and ESPN. None of those organizations will go down without a fight.
Competitor: Oculus VR
Facebook’s virtual reality company, Oculus, has already made a bid at centralizing and dominating digital spaces with Zuckerburg’s ‘Metaverse.’
But internet spaces should be owned by the users. There’s no reason that we cannot mutually own and govern ‘digital real estate’ as individuals to create communities that benefit users, not centralized businesses.
Addressable Market: $12 billion
Currently, the size of the virtual reality market is about $12 billion, but this is definitely a moonshot opportunity. The space will probably be subject to winner-takes-all network affects, and if the technology takes off, it might be the basis of how we interact in the future.
Price Forecast/Upside: $10 billion / $5.39 per token
If the industry follows projections, expanding to $70 billion by 2028, a 15% market share would value Decentraland at about $10 billion, representing a 7x return.
Benefits of Blockchain:
Built on the back of Ethereum, ownership is key in Decentraland. The platform features NFT-style wearables and purchasable names, the very land in their virtual world is up for sale. Governance is key as well: the protocol is overseen by a DAO (decentralized autonomous organization) that hypothetically protects the owners and users of Decentraland as opposed to maximizing the profit potential of the corporation behind it.
While the concept of an open-source, shareable digital VR world is awfully enticing for investors, those who have used Decentraland have some questions about its viability. From criticisms of the founders to slow load times and poor graphics, Decentraland has an uphill battle to fight for market dominance. Perhaps other VR-based ‘digital real estate’ will end up winning out.
“If you’re not paying for the product, then you are the product.”
Facebook is a huge player in big data thanks to the information of its users. Billions of people like you and me voluntarily give up their data for free use of its product, and Facebook owns and sells our data without regard for privacy, ethics, or security.
Addressable Market: $64 billion
Since Facebook is a multi-faceted company, it’s hard to extract what percentage of its market cap comes from data, what value comes from advertising platforms, and what value is held elsewhere. Today’s big data market is valued at $64 billion, so we’ll use that number as an approximation.
Price Forecast/Upside: $64 billion / $104 per token
The global big data marketplace is on schedule to expand exponentially, with the market to reach about $240 billion by 2026. $64 billion dollars would represent about one quarter of that, and a 128x for Ocean Protocol.
Benefits of Blockchain:
Ocean uses the blockchain to realign incentives around data, creating a marketplace for large data sets and returning privacy and use rights to individuals.
The OCEAN ecosystem wraps data sets and services as ERC20 (Ethereum-based) tokens. These tokens can then be self-owned and governed, as well as used across exchanges, platforms, and even DeFi platforms using existing crypto infrastructure.
Many tech and stock analysts like big tech firms for their ability to build ‘data moats’: the insights and value provided by massive data sets is a competitive advantage in itself. Facebook has an approximately 15-year head start over Ocean Protocol, which is an enormous barrier to entry.
Competitor: Whatsapp/Facebook Messenger
The Adamant Messenger ecosystem is an anonymous, encrypted, private Peer-to-Peer messaging service with existing applications for iOs, iPhone, Android, Web, and more.
Addressable Market: $200+ billion
Whatsapp was purchased for $19 billion at a cost of $55 per user. Now, with $5-$10 billion in revenue yearly, it’s probably worth between $85 and $200 billion. Telegram is worth about $5 billion with 500 million users. The global messaging market is enormous: if you include phone companies and messaging features of other companies, it’s probably over a trillion dollars. Just capturing a fraction of that market would lead to tremendous success for this project.
Price Forecast/Upside: $3 billion / $34.8 per token
It’s hard to penetrate network-based markets because of the frictional changing costs: there’s only value if others use the platform. But if you can start to create network affects, it might take off. This is the smallest project I looked at, so it’s the most uncertain as well (although all these projects are pretty risky.)
We’ll use a conservative valuation of Telegram as a comparison at $3 billion. That would represent a 1200x, and maybe is worth an outside bet.
Benefits of Blockchain:
In short, the benefit is decentralization: you have ownership of your data, it’s anonymous to use and register, and it’s completely private.
Right now, it costs $ADM tokens send messages, but the cost is quite low: about .001 $ADM per message. That allows you to send about 34,000 messages for a dollar. For privacy and security, that’s a small price to pay, but I see it as a large obstacle to mainstream adoption when services like Telegram, WhatsApp, and Signal are all free.
For widespread adoption, I think it makes sense for the messaging service to be offered for free while verified document signing and P2P payments (both features that already exist) could have a small fee attached.
Cryptocurrency’s Trillion Dollar Opportunity.
Looking at these altcoins shows us that blockchain is not simply a one-trick pony. The technology enables us to rewrite the rules around ownership, governance, centralization, and privacy.
The cryptos above may or may not be successful in taking on and competing with Facebook, but one thing is for sure: cryptocurrencies and high-growth altcoins will transform much more than our financial systems.