guide language: the TechCrunch week published five VCS Lightspeed Venture Partners, a managing director jeremie liu (Jeremy Liew) of the article, according to virtual currency currency is becoming a hot topic recently, a virtual wallet, exchange and payment is a startup can be involved in three major areas of the currency market.
the following for the full article:
as a venture investor, my interest in the currency ecosystem lies not in its concept, but in the business. COINS have a chance to overturn a market worth billions of dollars, and at the same time create a huge new market. The currency will have three key markets:
1. Virtual wallet. Virtual wallet service help the user to hold the currency, provides some functions of bank current account.
2. Foreign exchange. Exchange service will be dollars into the currency, or will the currency for dollars.
3. Payment. Payment services to help businesses accept COINS in trading.
in general, venture capitalists interested in billions of dollars worth of market will be. How will these markets developed to billions of dollars in size?
with the currency wallet will be free, one of which is installed on the computer software to help users to send or receive COINS. But it also means that needed to store in the computer related to the currency account of privacy information, so there is lost or stolen. A growing number of COINS users are turning to use wallet hosting service, such a digital wallet for you to save the currency, and can be accessed through the Internet. However, the wallet hosting service Must have credibility, won’t cause the user money lost. Such services are also should be free of charge.
we can assume that the future one day, hosted the wallet will be able to charge account funds 0.5% annual fee. This is a high estimate, but if you can provide the host security, insurance, and deal with fraud trade protection measures, then the fee is not out of the question. If virtual wallet market is worth $1 billion, that means hosting the purse in the management of the currency amount to $200 billion. And now the currency of the total size of the $1.5 billion. COINS only about 150 times to reach that level. Over the past year, the currency has risen to 30 times, therefore rise 150 times also not impossible. After two years, the value of the currency could be reached that level.
COINS may need a long time to become a world currency, and it may never achieve it. So for a long time, the currency and real currency exchange will be a huge demand of market.
ordinary consumers to exchange the currency commission for 50 to 100 basis points, and large exchange fees can be dropped to 10 basis points. We can assume that, in exchange of the future, the fees An average of about 25 basis points. In order to achieve the $1 billion market size, then the amount to 400 billion dollars every year. Last month, the amount of $60 million for the currency, and are likely to be close to $200 million this month. This means that the cash amount $720 million to $2.4 billion each year. To the maximum, exchanged only expand 200 times, to achieve the desired size of the market.
volume, namely the transfer of currency in the real economy, usually to change the amount of 2 to 20 times. If the volume and exchange relations remain stable, so 200 times volume needs to grow, to achieve the market size of $1 billion. Over the past year, based on the currency of the trading volume has increased by 30 times, so the size is achievable.
in the end, the appreciation of the currency and exchange rate will depend on the amount of payment based on the currency. If people do not use the COINS to pay, then there will be no power from the real economy to promote the ascension of appreciation of the currency and exchange rate. This development will be entirely speculative.
a key to the currency advantage is almost zero transaction costs. However, there are multiple merchant services for currency trading 25 basis points or higher fee. For example, the current Bitpay will charge the poundage of 1% or more. So if you want to get a $1 billion market size, then based on the currency trading to $40 billion a year.
last month, based on the currency of the trading volume of about $250 million, may this month will be $750 million. So annual volume will be $3 billion to $9 billion. To the maximum, a $1 billion market size means volume need growth at the current level 50 times. Over the past year, the volume has increased by 30 times based on the currency. At present, global GDP is about $82 trillion, so a $40 billion deal volume will account for about 0.5% of global GDP. In contrast, the United States a country, only a year now by the volume of credit card is $2.5 trillion, accounting for 16% of the American years GDP15 trillions of dollars.
how to achieve these goals
on the analysis of the size of the market, according to the currency of the indicators data needs to be based on the current implementation of 2 to the growth of the order of magnitude 2.5. Only 1 year last year, however, these measures can achieve the growth of the number of 1 to 1.5 magnitude, therefore the goal of the future is still achievable. The question now is, how to realize such a development? Markets may not through illegal means or speculative activities to achieve such a scale. The use of the currency needs to become mainstream, and the only way to achieve this goal is to get the COINS for merchants to accept, and COINS with the extremely low transaction fees. Such advantage can attract low net profit margin of industry, such as food and electricity company, business or transaction costs too high, such as cross-border payments and micropayments. It is possible that these industries use the pioneer of the currency.
however, if the currency exchange rate has been unstable, merchants will be less likely to simply because fees and lower to the currency. Due to the cost by real currency settlement businesses, and businesses are reluctant to bear the currency exchange rate risk, so after accept COINS, merchants will be the currency exchange for real money immediately. This requires the currency exchange services has high liquidity, so a professional company in this field can be involved. Before, there have been some companies to enter the market.
if the currency exchange rate volatility tends to be stable future, then merchants will be willing to hold the currency in the longer time, even using the currency for payment. In addition, if some countries there are no currency stable monetary and financial system, so in countries such as COINS were also more likely to be accepted.
if the currency accepted by mainstream users hope, then the COINS all the elements of the ecological system to conform to the regulations. This is why last month’s department of the Treasury’s financial crimes enforcement on virtual currency regulation, after the currency prices. As the currency is more and more close to the United States regulatory system, the virtual currency will also be further legalized. These regulations, as well as the potential for future follow-up regulation will increase, plus the cost of the use of COINS, but in order to realize the legalization of the costs of such modest.
of the meaning of startup
for startups, and not all big market opportunity exists. The currency attractive because the subversion of the current system of virtual currency. Innovators dilemma may lead to big companies pay for a long time away from the market, because they fear it will destroy the current high profit margins. But the competition will one day come.
for start-up companies, the key question is: what is your competitive advantage, and how you cope with the market follower? In terms of the currency exchange business, liquidity will be a high threshold. Although there are some examples of new entrants can take open market mode, but it is still difficult. And in the currency wallet and merchant services business, it is unclear what is the threshold of the market.
the currency risk is also worth mentioning. Related to the currency exchange, wallet and investment tools of hackers, theft and fraud has led to the $1.2 million worth of COINS stolen, and at present the currency stock just $11 million. This means that the theft occur more than 10% of the currency, it has not yet been considered petty theft and personal wallet stolen events. Just this week, a coin purse services after the hacking was forced to shut down. Given the current environment, the currency startups need to get more by vc financing to resist risks, and to provide security measures and the monitoring measures of prescient.
in this scenario, the currency appreciation 100 times or more. If this become a reality, then buy COINS will be better than set up a company the currency of the investment. You will receive a high return, at the same time, don’t have to face execution risk, but also won’t have too much fun to do so.
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