Dear Reader,
This update in Product | Strategy | Innovation begins with a follow-up to a prior post on June 25, [U15] Can Government accelerate Innovation? In that update we highlighted a new law passed in El Salvador making Bitcoin legal tender. The intent was not to replace, but to add another tool beyond the US dollar for a large unbanked population in El Salvador. So what has happened since the law went into effect? And what is the potential impact on 8 billion people around the world?
When El Salvador’s President Nayib Bukele proposed making Bitcoin legal tender in his country, he was really just expanding an experiment started in the surfing and fishing village of El Zonte a few years earlier. That experiment known now as Bitcoin Beach was facilitated by non-profits funded by an anonymous US donor. These non-profits worked with approximately 3,000 El Zonte residents to establish digital wallets to use Bitcoin and area businesses to accept Bitcoin payments for goods and services. But Bitcoin is optimized primarily as a digital, decentralized, secure store of value versus a direct medium of exchange. And although Bitcoin Beach validated 90% of residents in a primitive village in El Salvador could adopt and use digital money, President Bukele realized expanding Bitcoin nationwide would require some modification to the El Zonte use case.
Inflation is a thief that steals fiat currency.
The US dollar is both a reserve currency and legal tender in countries outside the US like El Salvador, Ecuador, Guam and others. Fiat currencies in countries across South America like Venezuela and Argentina, Africa and other parts of the world experience periods of significant inflation and at times hyperinflation. This diminishes purchasing power and led El Salvador to abandon their own fiat currency and to adopt the US dollar as legal tender in 2001. Inflation is a thief that steals fiat currency.
The path forward could consolidate a wide spectrum of fiat currencies today into a smaller number of reserve currencies in the future. Those reserve currencies include the US dollar (leader by far), Euro, Japanese Yen, United Kingdom pound sterling, Chinese renminbi, Canadian dollar, Australian dollar and Swiss franc. But actions by the central banks of even these countries will devalue these currencies over time. But the use case for the US dollar as a medium of exchange is robust and supported by an entire financial services industry across the world. But the US dollar is also an analog version of money with printed bills and coins. Digital technologies expand the use case with credit cards, online payments, and other services provided primarily through the banking system.
The total market capitalization for USDC on November 10 was US$34.6 billion.
The evolution of the US dollar could include wider adoption of the US Dollar Coin (USDC), a cryptocurrency referred to as a stable coin because it is secured by reserves of US dollars. So, 1 USDC can be exchanged at any time for $1 US dollar. USDC was developed by CENTRE, an open source technology project bootstrapped by donations from Coinbase and Circle. USDC is built on the Ethereum blockchain to enable smart contracts for programmable applications. The Securities and Exchange Commission (SEC) raised significant concerns about the use of less secure commercial paper to secure stable coins like Tether. Coinbase and Circle responded on August 23 with an updated policy. They now secure USDC with all reserves based completely in cash and US Treasuries with a term of less than 90 days. The total market capitalization for USDC on November 10 was US$34.6 billion.
Payments and transactions are the ideal use case for the US dollar and the financial services that support it. A secure, long-term store of value is the primary use case for Bitcoin. The north star for a decentralized, global “bank” to cost-effectively serve anyone worldwide could consist of a digital wallet (country issued or open source), an exchange linked to the digital wallet to convert currencies into Bitcoin and visa versa, USDC (medium of exchange) & Bitcoin (store of value). El Salvador rolled out its own Chivo digital wallet for both iOS and Android phones to store US dollars and Bitcoin for payments between users. US dollars are likely stored as a balance by the exchange linked to a Chivo wallet. And El Salvador deposited $30 of Bitcoin into each wallet when it launched the Chivo wallets to help drive adoption with the Bitcoin Law on September 7. As of October 7, there were 3 million Chivo wallet users inside El Salvador, or 46% of the population. That compares to 29% of the population with a bank account. This makes Chivo the largest bank in the country based on users. There were a number of glitches during the rollout, but President Bukele has committed to fixing these issues.
China banning Bitcoin and Bitcoin mining earlier this year was a significant boost for the US when the hash rate for Bitcoin mining dropped significantly for existing US miners. This made it easier for US miners to earn Bitcoin through their proof of work to secure Bitcoin transactions. The low cost of sustainable energy in Texas and other areas of North America have attracted many crypto miners to setup operations with these sources of sustainable energy. Local governments in Miami and New York City are embracing Bitcoin to support the growing Bitcoin network spanning users and developers. And the SEC recently approved Bitcoin futures ETFs to add an important tool for traders. ETFs tied to the spot price of Bitcoin will likely follow. Companies like Tesla, Square, PayPal, and Microstrategy are also adopting Bitcoin as a store of value for their corporate accounts. The use case for Bitcoin will only strengthen as more Companies and Institutions adopt Bitcoin as an alternative for a portion of their cash and cash equivalents.
The total market capitalization for Bitcoin on November 10 was US$1.26 trillion.
The total market capitalization for Bitcoin on November 10 was US$1.26 trillion and provides an alternative to real assets like gold and real estate. Bitcoin is also digital for portability and easy exchangeability into US dollars or other currencies. Additional technologies are being developed on top of Bitcoin to facilitate other use cases like transactions on the lightning network. But for now, El Salvador could represent an immediate use case for many countries around the world to combat inflation using 4 primary tools: digital wallets, an exchange linked to the digital wallets, US dollar as a reserve currency and Bitcoin as a store of value to protect savings against the thief of inflation. USDC could also simplify the use case for the US dollar within digital wallets. It will be interesting to see if other countries adopt El Salvador’s Bitcoin Law or variations of it in 2022. Early adopters would likely act on the current data in El Salvador, but others may wait for reports on the first year of use to make recommendations within their own countries. Zimbabwe could be the next country to follow El Salvador. Brazil would be a significant development if that happens. However, it will be important to track sentiment and user experiences in the early countries adopting Bitcoin as legal tender to address challenges before momentum is the primary driving force versus solving problems with the solution.
Upcoming Series: Health Ecosystem Model for Strategy and Innovation
So why bother researching Bitcoin as legal tender in El Salvador, Tesla’s Mega Machines to cast large parts to manufacture electric vehicles and Square’s Seller Ecosystem. Insights into solving problems come from many sources inside and outside of target industries. We learn by exploring and turning over more rocks. Amazon and Square provide a lens to look at the challenges we face within healthcare and potential solutions. Tesla, Palantir, Spotify and others also add to that lens. K Health and Ro are analogous to Square offering services to consumers through its Cash App. But what about Healthcare Providers? Square is also working to connect 70 million Cash App users to its Seller Ecosystem with 2 million businesses.
The model is positioned around Health to include consumers for healthy living and prevention versus only Healthcare with a primary focus on patients and providers. The success of Amazon and Square is due to a comprehensive vision that continuously drives down cost to accelerate adoption and includes the underserved. Cash App is a preferred “bank” for the “unbanked” in many parts of the US. Legacy banks and credit unions face challenges lowering their own costs enough to serve the unbanked even with intentions to do so.
Healthcare represents the third largest global market with an estimated market capitalization of $12 trillion by 2022.
As previously discussed in [U12] Update: Beyond the FAANGs, healthcare represents the third largest global market with an estimated market capitalization of $12 trillion by 2022 behind financial services and the combined market for transportation and energy. And the global market for healthcare increases substantially if we also include healthy living and prevention directed at consumers. There is no shortage of think tanks, consulting firms, governments, new ventures and corporations all working to disrupt and advance the fragmented legacy healthcare system. But maybe we can advance a model to help facilitate change. We will see where we end up. The concept for the Series spans 3 parts.
The 3-part Series on Health Ecosystem Model for Strategy and Innovation is currently planned in the following parts:
3 Pillar Model,
Connected Care, and
Connected Transactions.
We will continue to learn from Amazon, Square and other companies leading disruptive innovation to inform our model. Updates can revise or go deeper into a specific Pillar or Feature. Profiles can highlight relevant companies. The 1st part of the Series will go into more details on the Model, but this Update provides an overview of the 3 Pillars and the next 2 parts of the Series.
3 Pillar Model for Health Ecosystem Strategy and Innovation
The model consists of 3 Pillars where the first two form a marketplace between Consumers and Providers. This shares a similar structure to marketplaces used by Amazon, Square and other companies. And the third Pillar provides the technical services to serve the needs of the marketplace and each individual Pillar.
Each Pillar also includes three core components. Overall, 3 Pillars each with three core components provide nine unique innovation targets. Each of these points also enable more dimensions to solve the associated needs. For example, the 3 Pillars in their basic form do not directly address access to care although consumers and providers are represented. But Connected Care under the HealthTech Services Pillar addresses access through consumer channels, employers and providers. And a digital health stack to enable Connected Care is used to provide the right care, at the right price using the right access to care. This deserves its own part in the Series and will likely be the most comprehensive.
So, the 3 Pillar are:
Consumers
Healthy Living
Prevention
Symptom(s) query and recommendation engine
Provider Networks
Primary Care
Measurement - regulated diagnostic testing, genetic testing & definitive diagnosis
Intervention - surgical & non-surgical, pharmacotherapy & behavioral health
HealthTech Services
Connected Care (virtual or in-person; digital health stack: digital layer, medical devices, large & small molecules, genes; value-based insurance models)
Connected Data (HIPAA-compliant EHR, KPIs & communications)
Connected Transactions (blockchain-enabled Identity, claims processing as Smart Contracts)
And innovative ventures like K Health and Ro offer consumers more capabilities to address symptoms without leaving their home.
Primary Care is one of the biggest challenges and deserves an entire follow-up Update just on that topic. Innovation within Provider Networks will continue to add extenders like Nurse Practitioners and technologies for various processes, but disruptive innovation will refine and scale Walmart Health, Minute Clinics, Amazon Care and other retail care services to increase access for routine primary care. And innovative ventures like K Health and Ro offer consumers more capabilities to address symptoms without leaving their home. These services can link a consumer to a licensed provider to prescribe approved therapies if enrollment criteria are met to do so without an in-person consult.
The Tesla Safety Score could also inform tools used by Consumers to enhance healthy living and prevention. Wearables and health checks could dynamically price health and life insurance just like Tesla is doing for its Auto insurance based on driving habits monitored by Tesla vehicles if you opt in to the service. Artificial Intelligence and Machine Learning will play a key role to monitor various signals to detect risks or improvements in behavior.
Pharmaceutical and medical device companies are not represented by a Pillar or one of the 3 core components of a Pillar even though they play critical roles within the healthcare system. That is because they play these roles as features of a more comprehensive vision, but are not as a primary component on their own in the model. They are collectively represented as part of Connected Care through a Digital Health Stack. This will be covered in detail in the 2nd part of the Series.
Connected Transactions leverage blockchain technologies decreasing cost curve with unit transaction scale following Wright’s Law.
Connected Transactions are a key component of the HealthTech Services Pillar and play a key role to reduce friction and to drive efficiency as they scale and expand the services provided. Identity and credential verification provide a key use case. Providers have to continually qualify to provide care to covered lives under a specific health plan or verify a license to provide care is up-to-date. Blockchain technology has been identified to enable providers to submit updates regarding identification and credentials once for verification and then all requests for these data can be directed to the trusted repository to verify the needed data for a specific provider. This could expand to include patients with HIPAA-compliant controls. Connected Transactions could be the equivalent of the lithium ion battery used by Tesla to drive down cost for electric vehicles. Blockchain technology is evolving as an exponential technology and horizontal across many industries. Connected Transactions leverage blockchain technologies decreasing cost curve with unit transaction scale following Wright’s Law.
IBM, Anthem, Aetna, Cleveland Clinic and other stakeholders in the Health Ecosystem joined forces to build out a Health Utility Network to realize this Identity use case. Avaneer Health was formed earlier this year to scale up these member-based, secure utilities. Identity management will also play a key role to add claims processing with smart contracts tied to blockchain technology. IBM uses similar technology in the food supply chain to document the complete value chain from the farm to the table. This not only facilitates purchase orders, invoicing and final sales, but also tracking to the source if there is a product recall or quality issue. Smart contracts linked to a blockchain will fully automate claims when specific criteria are met. These will have limited use cases initially for routine, high-volume procedures, but will continuously expand to address more complex use cases. And even if some use cases cannot be fully automated, manual processes could be limited to a small subset of the entire process to still drive efficiency.
Going forward, the plan for this newsletter is to develop topics using 2-week sprints. The newsletter post is our virtual sprint “demo” every other Friday morning (Eastern time zone). Updates, Series and Profiles provide a mix of formats to discuss topics of interest around Product, Strategy and Innovation in key markets and industries.
Best,
Stephen
I’m long AMZN, IBM, PLTR, SQ and TSLA mentioned in this update. Nothing in this post is intended to serve as financial advice. Do your own research.