Thursday, 2024 May 30

Blockchain Bubble Will Burst Soon, Claims a Blockchain Startup Founder

Mergers and acquisitions in the Internet world are becoming more frequent. As a serial entrepreneur, SUN Jiangtao has become familiar with all this.

He founded 5 companies, of which 4 were acquired. In October 2001, SUN Jiangtao established his first company ShiDaiJieCheng, a communication value-added service provider, which he sold to the news portal for 20 million dollars in 2006.

In 2004, he founded ShenZhouFu, his second company, a repaid payment service provider, and was listed in Hongkong under the alias China Binary Sale Technology Limited in 2013.

In 2008, he founded his third company QianDai, a mobile payment service provider, which was sold to Meituan-Dianping at a price nearing RMB 2 billion (around $ 318.5 million). Subsequently, his forth company WeShare, which he invested and founded, was sold at RMB 1.667 billion (around $ 265 million) to Credit China. It has now become one of the largest online credit companies in China.

From his past entrepreneurial experience, it’s easy to identify that SUN Jiangtao can often predict the next favored industry and make investments beforehand, and exit at the right time too.

After selling QianDai to Meituan-Dianping in 2016, SUN Jiangtao began to devote himself entirely to blockchain technology. “It was a pity that we couldn’t find something real in the past several years to help us grow into a leading player in the market. But we still hope to do something bigger.” He said to 36Kr, China’s biztech media and KrASIA parent.

Before blockchain technology picked up in 2017, he was already convinced of its future and had set up blockchain-based global mobile digital point system Goopal Group more than a year before. It encompassed dozens of blockchain projects that received support from investors and incubators.

At the same time, he also opened up a blockchain arm in his own listed company, which gradually launched some technical products including the application of blockchain technology and innovative wallet, payment, credit system, blockchain sharing space, etc. products and services.

Compared to excited players devoting themselves to the virtual currency, SUN Jiangtao is much calmer. He told 36Kr that the top 100 digital currency issuers, which have a total market value of 400 billion dollars, have yet to give birth to a company that has really changed human life. In his view, the industry has only just experienced the highs. The bubble is big and the risk is huge. When the bubble bursts, the real technology innovation and the integration of scenes with these technologies are not far from the ground.

The following is the dialogue between 36Kr and SUN Jiangtao:

Q: What’s your opinion on the current blockchain industry?

A: The development trajectory of blockchain in 2018 is very similar to that of the Internet in 2000. At that time, the Internet bubble burst and 2-3 years later, BAT became leaders in the industry. Thereafter, after the outbreak of the global financial crisis in 2008, it took two to three years before a number of Internet companies emerged. I think blockchain is experiencing the same stage where an array of sound blockchain- or virtual currency-related companies will rise up 2-3 years after the bubble bursts.

Q: Do you feel that you have a relatively pessimistic attitude towards the industry?

A: No, I just think it is undergoing a severe phase of opportunism. From an investor’s point of view, I hope players can calm down and have a rational attitude.

Q: What do you think is the relationship between digital currency and blockchain?

A: In fact, they are mutually independent. Blockchain related projects mostly hope to partner with industries and solve problems with its innovative technology. Digital money is now more like a financial tool, which is not favored by the supervisors because once it becomes a financial tool, it needs to be supervised. However, all countries are now lacking in regulatory capacity, regulatory system and supervision experience on digital currency.

So simply speaking, blockchain is technology-related and currency finance-related.

Q: Which areas of application of blockchain do you place weight on?

A: The first is infrastructure like a purse, and the second is the technologies applied to digital currency transactions like smart investments, high-frequency transactions, financial management, and payment.

Q: You started to put all your energy on blockchain in 2016. Why?

A: Blockchain is highly related to what I have done before. As I once worked on payment, Internet finance and financial technology related works, and blockchain is a concept connecting with that field, I have no difficulty in understanding it.

Moreover, I myself was a programmer. The combination of my background and my friends’ introduction marked the beginning of my story. I was even an angel investor of his blockchain-related company.

Q: What were your views on blockchain before and how about now?

A: I think my understanding is changing with the development of the industry. And I should ascribe it to the people engaged in it. The fundamental reason behind my participation is that blockchain might be one of the most appropriate solutions to address the problem of payment, especially because of the globalization of payment, which can significantly cut the cost.

However, it has realized breakthroughs and innovations in many financial sectors in addition to payment. It also has made achievements in other areas, such as the sharing economy.

Q: In some scenes, decentralization is inconsistent with efficiency. How to solve this contradiction?

A: In fact, if you want to improve efficiency, you should expand your scale first as that will bring more nodes.

Q: Blockchain is actually a technology of decentralization. But now we find that all resources are centralized in the step of exchange. What do you think?

A: I think weak centralization is a more appropriate term than decentralization. Although a lot of resources are gathered in the exchanges, they cannot control the whole market. In fact, thorough decentralization will also bring about a clash between democracy and centralization. Therefore, relative concentration is not necessarily a bad thing.

Q: I wonder if this technology will really become a playground for some people.

A: I think there will be new interest groups and it will be difficult for anyone to be the single leader. Therefore, I think it will still be a game between big guys, a relative monopoly. For example, Wechat and Alipay are competing in the field of payment; Meituan stepped into the ride-hailing war against Didi. However, there might be a dozen of leading companies in blockchain.

Q: Why?

A: It is rooted in the technical mechanism. And the moral factor is another reason. Even if someone really has the opportunity and capability to make it centralized, he will not dare to. I think it is hard to say which way is better, centralization or decentralization, at present. Therefore, the industry is neither a centralized nor a completely decentralized one. I think we can call it a weak centralization.

Q: Why do you think VCs are swarming to the industry?

A: It’s understandable that the market has been established and everyone wants a slice of the cake. This also shows that the industry is growing steadily. At the same time, the players at the bottom may slowly quit for they have little chance to make further breakthroughs. This is a process of reshuffle.

Q: Do you think the whole industry is reaching a turning point?

A: No. I think it is just a turbulent stage.

We can see from the price of bitcoin. The number of Bitcoin halves within four years, which indicates that the market cycle might be every four years. The cycle starts from the moment when the price is about to be halved. And then it enters the stage of rapid growth where many new players join in. However, they will lead to the increase of price of bitcoin. When the price is going to hit the top, the media and the public will pay close attention to it. But players will begin to exit the game once the price falls.

The whole process will last about two years. New technologies might emerge during this period and the other half of the cycle will begin. As the price rises, the players that have gone through the first half of the cycle will enter again, which is where the new cycle begins.

Q: What do you think of the breakthroughs in blockchain?

A: I think this is the most interesting thing now. First, it has breakthroughs and innovations in technology. Second, there is uncertainty in regulation. The latter often means some big opportunities that have never been seen before, and the possibility of barbarous growth.

DiDi is indeed a good example. The companies rising under the existing regulatory system will be unlikely to get involved in this kind of area. So, with few competitors having rich experience and little supervision, Blockchain will definitely have a robust development in the next two to three years.

Q: What is your current plan for blockchain?

A: My current work for the blockchain business is basically based on two platforms. One is China Binary Sales Technology Limited (神州数字), the listed company, the other is Goopal Group, my “digital money investment bank”.

China Binary Sale Technology Limited now has several products: XKey, an intelligent hardware based on blockchain technology; Masterdax, the exchange.

In addition to the self-developed products, China Binary Sale Technology Limited is looking to invest, mainly in the angel and Pre-A round, in five areas which are blockchain, AI, big data, technology finance, and consumption upgrading.

Goopal Group is a fully vertical business in the field of blockchain. We undertake such blockchain projects through investment and incubation. The company raised series A funding from IDG and other institutions last year with a valuation of 140 million dollars now. We have also found investors for the series B and C funding.

Q: Both China Binary Sale Technology Limited and Goopal make investments. How do you divide the investment portfolio of the two businesses?

A: As China Binary Sale Technology Limited is a listed company, it is under supervision. Therefore, its blockchain projects are now strictly regulated or encouraged by policy, without any so-called grey areas.

Goopal encompasses projects that are relatively innovative and related to digital currency. It doesn’t mean that these projects are illegal, but China now has yet to set up a comprehensive regulatory system over this field. Taking that into consideration, we will still make some plans to grab the opportunity in areas where good and innovative projects emerge even if there has no corresponding regulations. These businesses and Goopal itself may be more likely to quit overseas.

Q: What is the investment logic behind Goopal Group?

A: What we are interested in is projects that have innovative blockchain technologies and are related to digital currency. We have invested in more than 20 such projects now. In addition, we will also make plans to enter some new industries. These projects may not be virtual currency-related, but they will include the application of blockchain technology to a certain industrial chain to seek some industrial innovation.

Q: So, do you prefer to play the role of the ‘water’ seller in the whole blockchain ecology?

A: Yes. From an overall view of TMT’s business innovation, there are two development directions. The first is to focus on limited areas, and the other is to make plan concerning the overall ecosystem. Goopal follows the latter. We want to make more progresses in as many industrial links as possible on the premise that we do not have to spend too much money. Unfortunately, as we have not established our own channels to gain users, we can only leverage on technology and capital.

Writer: ZHANG Yuxin

36Kr Global Writers
36Kr Global Writers
The tech ecosystem is roaring. Unicorns valued at billions of dollars have emerged worldwide, while venture capital and strategic investors are constantly on the lookout for the next big thing. 36Kr Global is committed to establishing ties between global stakeholders and providing the most vital information about China’s tech scene and capital markets.

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