Updated: Aug 2, 2019
One of blockchain's most promising aspects is it's potential for enterprise use. Everything from data centers to supply chain management can be further developed with the help of blockchain. There is one player in particular leading the charge in blockchain for enterprise use with more daily transaction volume than ethereum and with many of those transactions coming from actual enterprise use of the chain. It has real partnerships with PwC, the Chinese government, DB Schenker, BMW, LVMH (owners of Louis Vuitton among others) and many more. Despite all this, the market cap of the main coin of this blockchain is almost 100 times smaller than that of Ethereum. Yes, I am talking about Vechain.
Ofcourse, it can easily be argued that Ethereum should be more valuable than Vechain. It has higher recognition, has more dapps and has the first mover advantage when it comes to smart contracts. But should it be 100 times more valuable? Or rather, does vechain have potential to catch up in price? That is what I will be examining in this article.
So let us start at the... Start. Vechain began development in june 2015 and the first version was released exactly one year later and was marketed mainly as a supply management and proof of authenticity system for luxury brands. The next step was to enter the wine industry with these services and Vechain later became the first blockchain solution for digital vehicle passports. Vechain has since finished as runner ups in LVMH innovation awards and made their blockchain open source. They acquired investors like PwC and DNV GL, and the latter has developed a service on Vechain called "My Story", which is probably the hottest topic regarding Vechain at the moment. For the full list of milestones, you can read more here: vechain.com. I want to delve a bit deeper into "My Story".
To quote the CEO of DNV GL - Bussiness Assurance: "My Story illuminates products and their supply chain for the benefit of consumers, who will have instant and in-depth access to key products characteristics such as quality, authenticity, origin, ingredients, water and energy consumption and more, all verified by DNV GL along the entire transformation process,”
It works by putting a QR code on a product which, when scanned, shows information about the product which has been verified on Vechain, making it immutable, unchangeable and transparent. It is an excellent use case for blockchain and is currently being used in different industries but mainly by Italian wineries.
Okay, so this all sounds well and good, but as always we must ask were the value in this is for us as investors. Au contraire to many other cryptos, the adoption Vechain actually has a direct impact on the value of its coin. Shocker! I want to use "My Story" to illustrate this.
So to start off, we need to introduce the two coins inherent to Vechain, VET and VTHO. VTHO is consumed when interacting with the blockchain, like gas in Ethereum and NEO. VET can be staked to produce VTHO and is also Vechains main coin for economic activity such as purchases, settling smart contracts or investments in Vechain ICO:s.
So, to interact with the Vechain blockchain you either need to buy VTHO or hold VET to produce your own VTHO. Whatever the choice, the use of Vechain benefits coin investors, either by increasing the value of VET or by increasing the value of VTHO which also increases the value of staking rewards gained by holding VET. Additionally when VTHO is spent, 30% goes to Authory nodes (which we will discuss later on) and 70% is burnt, effectively reducing supply while also rewarding holders.
Let's extrapolate this process on "My Story":
A winery has just harvested their grapes and to authenticate the date of harvest they upload the information on Vechain through "My Story". To do this they buy VTHO from the open market which they then spend to upload the information. As the grapes ferment and produce wine, the time has come for bottling. Again, they use "My Story" but this time they not only authenticate the date, they also authenticate the humidity and temperature of the wine and unlike last time they use VTHO they produced themselves, by buying VET from the open market a few months prior, to upload the info to the blockchain.
Each purchase of the coins on the open market obviously increase the price of the coins as there is increased demand, and because of the token burn the supply is decreased further increasing price.
"My Story" is just one part of the story though. Through Vechain having a so called Multi-Party Payment Protocol it allows for parties other than the sender to pay the network fees. For example, this allows for data of how a car is driven to be recorded by an insurance company to base their car insurance price on without the driver having to personally interact with the blockchain. This is a very effective way to reach mass adoption as people themselves do not need to interact with the blockchain.
Vechain has lots of potential for the future but even now it is widely used in enterprise applications. This is indicated, not only through their many partnerships, but also looking at the vechain block explorer (explore.veforge.com/), there is an interesting pattern in the graphs shown. It seems to go in waves. Examining this further we can see that the bottoms of these waves are Saturdays and Sundays, suggesting that most of the transactions are done by enterprises as they mostly happen on work days.
What some might consider negative, however, is that Vechain is not as decentralised as Ethereum, for example. Vechain's Authority Nodes (which produce the most VTHO and have network authority) need to go through KYC and be approved by the organisation, Vechain also sets how much VTHO is generated and the cost of transactions. Overall, the organisation behind Vechain has a lot of power over their blockchain. I see this as positive, though. Of course decentralisation is good for many use cases but I think enterprise users don't want their operations depending on the community behind a blockchain but rather to have a trusted entity. This also allows for organisations to get support in setting up their operations with Vechain, it allows for Vechain to be marketed in a better way and it gives enterprises someone to do bussiness with. A less decentralised blockchain also provides higher speeds, in general and many of Vechain's partners get the opportunity to run a Authority Node and be part of the network. The flipside of this, however, is that you need to trust Vechain to believe in its long term prospects. But with PwC, DNV GL, LVMH and more trusting them, I am confident as well. especially considering their current track record.
However, one important aspect to consider is the fact that Vechain wants to keep the value of VTHO as low as possible to make it more attractive for enterprise customers to use their chain. As Vechain can, and most probably will, lower transaction costs in VTHO and make the generation rate higher this will decrease VTHO demand and increase its supply, respectively. Although this is good for adoption and the ecosystem in general, it does not reward the coin holders in the short run. Thus a long term investment horizon and a dividend reinvestment plan (DRIP) where you sell your VTHO for more VET is probably the best way to invest in Vechain. This way you also keep increasing the amount of VTHO you generate.
Here, I must also add that the current staking ROI is not that high by crypto standards. According to stakingrewards.com it sits at around 3% which is well above the 1.9% average dividend yield of the S&P 500 (ycharts.com). But, there are stocks and cryptos providing close to 10% ROI, one example in the crypto space is COS (which you can read more about here: thedecrypter.com. But, even though 3% may not be high in relative terms it is still quite a good passive yield, especially if you factor in the compounding effect from a DRIP strategy.
I like VET as an investment, firstly, because it is a productive income generating asset (I explain why I love those kind of assets here: thedecrypter.com). Secondly it is, according to my knowledge, one of the best assets to get exposure to enterprise blockchain adoption. This is apparent when looking at the rapid growth in adoption and partnerships that Vechain has experienced ever since their start. I like VET because the value of the coin is directly tied to the value of their ecosystem and it's adoption. Although Vechain is by far not the most decentralised blockchain, I trust the team as they have delivered excellent results thus far and I actually believe the centralised nature of Vechain is better for enterprise adoption. Another positive is that it has existed for quite a long time (in crypto-time at least), and it is one of the main alts. These characteristics make it a bit safer than many of the other newer and lower market cap alts.
Despite all this, the valuation of Vechain remains at almost 100 times less than Ethereum. So should it be 100 times less valuable? I do not think it should. Of course it is impossible to correctly value a crypto like this but it is much easier to correctly determine what it should not be valued at. I absolutely think VET has potential for price increase, and factoring in staking rewards I believe the potential for an overall good ROI is quite high for this coin. But, as with everything there are risks, especially in crypto. Vechain is only a 4 year old start up in a frontier industry so there are substantial risks to investing in VET. If you do invest, remember to not make this your only holding, bet on other cryptos and other assets as well. Diversify! If you do not see diversification as necessary, please read this to learn why it is the golden rule of investing: thedecrypter.com.
/Alex - TheDecrypter.
Note: Invest at your own risk and always make sure to research your investments thoroughly.