[U15] Can Government accelerate Innovation?
Recent examples across FinTech, CleanTech and HealthTech
Dear Reader,
We often associate government with rules and regulations. This week in Product | Strategy | Innovation we share recent examples of some government firsts that could help catalyze innovation. Maybe these firsts will inspire other catalysts. The examples are:
Bitcoin and the US Dollar are both legal tender in El Salvador.
Maine’s state and pension funds must divest their oil and gas securities.
Virtual Care expands to meet healthcare community needs during a pandemic.
Blockchain technology also provides the rails for some other technology to drive change in these three cases. In the first case, Bitcoin is the store of value to cross borders without expensive remittance fees. Bitcoin can be held or converted to US Dollars for use as currency to buy goods and services. In the second case, Bitcoin accelerates the transition to sustainable energy to power crypto mining with renewable energy sources like wind and solar coupled with grid-scale battery storage. In the third case, blockchain provides the rails for a health utility network to deliver and transact virtual care with tele-health, home testing, medication deliveries and prescribed digital therapeutics.
El Salvador passes law adopting Bitcoin as legal tender.
El Salvador’s President Nayib Bukele recently confirmed nearly 70% of its population remains “unbanked” without access to traditional financial services. El Salvador was the first country to pass a law on June 8th adopting Bitcoin as legal tender. The US Dollar will also remain legal tender in El Salvador. President Bukele envisions economic progress using dual currency with the US Dollar as the primary medium of exchange and Bitcoin as a store of value that also enables cross-border remittance without high transaction fees.
El Zonte is a popular surfing and fishing village on the Pacific coast in El Salvador with 3,000 residents. The village is relatively poor. An anonymous donor in the US started funding local non-profits in 2019 with Bitcoin to stimulate building a crypto ecosystem in El Zonte. Bitcoin Beach materialized and the non-profits worked with the local residents to establish digital wallets and worked with the local businesses to accept Bitcoin payments. Ninety percent of El Zonte’s residents have reportedly made a crypto transaction since Bitcoin Beach started. President Bukele referred to Bitcoin Beach as evidence to support the Bitcoin Law.
But equipping a whole country where only 45% have internet access will be more challenging than just a village with 3,000 residents. El Salvador has an aggressive plan to equip the country for Bitcoin in 90 days. Next steps and an update on progress will be key to execute this plan. El Salvador has a population of about 6.5 million people with a GDP in 2019 of $27 billion in US Dollars.
Kenya successfully adopted a mobile phone money transfer service called M-Pesa through cellular service providers Vodaphone and Safaricom in 2007 using the local Kenyan Shilling currency. By 2012 there were 17 million M-Pesa accounts in Kenya alone.
M-Pesa has also expanded to other countries like Tanzania, South Africa and Afghanistan. But M-Pesa is tied to mobile phone operators and local currency. El Salvador has adopted an open source crypto technology with Bitcoin that is independent of centralized control for a store of value and the US Dollar as a medium of exchange. Paraguay, Panama, Brazil, Argentina and Mexico have also expressed interest in adopting Bitcoin due to inflation concerns. Tanzania is evaluating the adoption of cryptocurrency as legal tender, too.
Bitcoin provides the rails into countries like El Salvador to expand use of the US Dollar as a reserve currency.
If using the US Dollar as currency in countries like El Salvador predicts adoption of Bitcoin as legal tender, which countries use the US Dollar as their currency? The countries include:
Commonwealth of Puerto Rico
Ecuador
Republic of El Salvador
Republic of Zimbabwe
Guam
US and British Virgin Islands
Democratic Republic of Timor-Leste
American Samoa
Commonwealth of the Northern Mariana Islands
Federated States of Micronesia
Republic of Palau
What is the impact if more countries start adopting dual currency with Bitcoin and the US Dollar as legal tender? The US Dollar could expand to more of the 8 billion potential users as a reserve currency on top of Bitcoin rails. Countries like Brazil and Mexico may keep their own currency, but just add Bitcoin for cross-border remittance and to facilitate foreign investment. However, adopting Bitcoin as legal tender isn’t without conflict. Remittance fees contribute to GDP in many of these emerging markets.
Earlier this year, New York City voted to divest $4 billion worth of fossil fuel company securities.
Maine became the first US state to pass a law on June 17th requiring the divesture of all state treasury and pension funds invested in oil and gas companies by 2026. This follows New York City’s decision in January to do the same with $4 billion invested in oil and gas companies through its pension fund.
These government actions by New York City and Maine could play a role to accelerate the transition to renewable energy. Even more so if the divested assets are invested into renewable energy projects and companies. New York City Mayor Bill de Blasio commented the divesture was not just about the environmental concerns, but also about fossil fuel companies not being good long-term investments.
Environmental concerns around Bitcoin mining using fossil fuels offer governments opportunities to catalyze renewable energy projects where viable to power crypto mining. New York and Washington are states well positioned with hydroelectricity. Texas and Colorado are well positioned for solar and wind. A portion of divested funds from fossil fuels could fund renewable energy projects as debt secured by crypto mining operations and Bitcoin holdings as a long-term asset.
Enterprise software company Microstrategy recently raised $500 million to purchase Bitcoin with a 7-year senior note yielding 6.125% and secured with both the core operating business and the Bitcoin holdings. Microstrategy has acquired Bitcoin with a total cost basis of approximately $2.75 billion using corporate cash, equity and more recently these senior secured notes for institutional investors who cannot hold Bitcoin directly.
Renewable energy projects can also prioritize selling stored energy to the energy grid when demand is high to reduce the need for gas-fired power plants that only operate when energy demand requires extra power generation capacity. That use case alone is financially viable at the Hornsdale Power Reserve in South Australia for wind and grid-scale battery storage. And crypto mining just accelerates the transition to renewable energy.
Virtual care and smart contracts could accelerate healthcare innovation.
Amazon started Amazon Care in the Seattle area for its employees before the pandemic. The services include primary care, virtual care, home testing and medication deliveries. During the pandemic virtual care through Amazon Care ramped up significantly to meet the needs of Amazon’s employees. This summer Amazon is rolling out virtual care to its employees across the country and to businesses as a paid service to offer Amazon Care to their employees as a benefit.
Virtual care has its limitations but offers defined services when needed. Early in the pandemic, US and state governments made a number of changes to streamline the use of virtual care including relaxing restrictions that prevented practicing medicine across state lines. Payors were also required to cover virtual care the same as in-office care. This expanded use allowed extensive virtual care utilization. At home testing and digital therapeutics can be a part of virtual care to augment physician visits. Medications can be delivered to the home. And home visits can also be a part of care in some cases.
Prescribed digital therapeutics in particular have the potential to greatly enhance health outcomes. Asthma is a common condition that affects about 25 million Americans. Asthma is routinely managed with readily available therapies, but non-adherence to prescribed medications can lead to asthma attacks that may require acute care in an emergency room or urgent care setting. Propeller is a prescribed digital therapeutic that includes a digital app and attachment used with a prescribed inhaler and medication to monitor use. Research has shown Propeller increases medication adherence by 58%, reduces rescue inhaler use by 78% and increases asthma control by 63%.
Smart contracts are a feature of block chain technology and allow a process to flow with more automation if specific rules dictated by the contract are met. A consortium of technology companies, health systems, banks and payors have been working to commercialize this technology and recently founded the venture Avaneer Health to improve efficiencies through a health utility network. A key feature of this utility network is providers should only have to submit credentials to establish their identity once while they are valid and then that identity can be used with any other stakeholders in the network like payors, health systems, other providers and patients.
Patients can grant access to their medical records for an appointment to a specific provider. But smart contracts built on a block chain can be used to capture and verify a clinical workflow has been performed and completed by a provider credentialed in the utility network. If all requirements are met, the smart contract and information provided could be used for automated processing by the payor with funds moved from the designated banks to the provider as reimbursement for the services provided.
Aetna, Anthem, IBM, PNC Bank, HCSC and the Cleveland Clinic are backing Avaneer Health, but the US government could accelerate blockchain innovation in healthcare once efficiency improvements are validated with incentives to process government employee, medicare and medicaid claims through health utility networks. And a state like Florida could incentivize processing claims using health utility networks for their government employees, medicare and medicaid populations by a specific date. Aetna and Anthem will provide a lot of scale, but adoption within government will further accelerate innovation through more scale and more use cases.
In conclusion, emerging technologies must evolve to validate reliability with a primary use case. Early adopters help advance the technology. But wider adoption often may require a different use case. Governments can play a role to catalyze innovation. El Salvador adopting both Bitcoin and the US Dollar as legal tender could be the use case that takes the market cap for Bitcoin over $1 trillion if other countries follow their lead. New York City and Maine have also played role to move away from fossil fuels. If more governments and institutions follow their lead, the transition to sustainable energy could accelerate. And if government adopt and incentivize the use of health utility networks and smart contracts built on top of blockchain rails, we could see accelerated use of technologies that leverage greater efficiencies to drive better health outcomes. Prescribed digital therapeutics are one example to expand on greater adoption of Virtual Care with the pandemic.
Best,
Stephen
Nothing in this post is intended to serve as financial advice. Do your own research.