So I was chatting to a broker this week about companies I like in the blockchain sector, and mentioned eXeBlock Technology (XBLK.C), one of our marketing clients.
“I don’t understand it,” said the broker.
So I sent him my most recent story on the company.
“I still don’t understand it,” said the broker.
“What don’t you understand,” I asked.
“I don’t know. What does it do? What is it? How do I derive value from it?”
As we got into this, it became clear that the easiest thing for a blockchain company to do these days is not actually do any blockchain business, because blockchain (in practice) is complicated. Mining Bitcoins in aircraft hangars in Snordenfjorden; that’s an easy pitch. But when you get deeper into what blockchain will actually do in the world, eyes start to cross. Swizzle sticks start to swizzle. And brokers start to do mental calculations regarding whether it’s too early in the day to hit the restroom for a nasal pick-me-up.
So this is my effort to correct the record and bring simplicity to the story. In the broker’s words, “Talk to me like I’m five.”
BLOCKCHAIN EXPLAINED:
Have you ever played the kid’s game called Telephone? You form a line and a person at one end whispers a message into the ear of the next person, who whispers that message to the next person, and so on, and by the time you get to the end the message is completely garbled.
Now imagine if six kids went down the line verifying the message at each point, so that every time someone got it wrong, there were others in the chain that could correct the record. Now your message would stay true right the way down the line.
That’s blockchain, in a nutshell. It’s a technology that encrypts and shares data widely, so that any transaction made against that data can be verified at multiple points in the network instead of just one.
It might go something like this:
Node #734: User V567V sends 1 BTC to User R8903E
Node #735: User V567V sends 1 BTC to User R8903E
Node #736: User V567V sends 1 BTC to User R8903E
Node #737: User V567V sends 1000 BTC to User R8903E
Node #738: Go screw yourself, Node #737, you’ve been compromised. I see what you did there.
Node #739: Burn Node #737! He’s a witch! Kill him! KILL HIM WITH FIRE!
Node #740: Can we all just agree that User V567V sent 1 BTC to User R8903E?
All nodes: Yes.
Node #737: Screw you guys.
Okay, it won’t exactly go like that, but you get the idea.
By verifying information in encrypted form, at multiple points in the chain, you make it infinitely more secure because, while hacking one person in the chain is relatively easy, hacking everyone, at the same time, in the same way, would be the greatest hack of all time.
When banks move money today, they’re essentially doing it Telephone style. One side says we’ve sent it, another side says we got it. To hack that transaction, all you’d need to do is impersonate, or break into, one end of the deal.
But you can’t hack the blockchain. That’s why so many big companies and organizations and governments are looking to change their systems from the old way (point to point verification) to the new way (multi-point verification) by employing a blockchain transaction verification system.
Bitcoin runs using this method. If I buy some of that cryptocurrency, a thousand Bitcoin ‘miners’ (computers that have been set up to verify Bitcoin transactions in return for a little Bitcoin currency) will verify that transaction and ensure I actually paid for the coins, and received them, and that record would now be available for anyone in the chain to verify at any point.
That’s blockchain. It’s not a thing as much as it is a school of thought. It’s a way of doing things.
So how do we invest in it?
We don’t. We invest in companies that are going to use it to rewire the way the world processes money, information, records, and more. Just saying, “We’re in blockchain” isn’t enough. You have to do something with it.
What does eXeBlock want to do with it?
In a word, gaming.
Let’s be clear: eXeBlock has nothing to do with actual gambling. They’re not the Bodog of Blockchain.
They develop open source DApps that anyone can use or modify and every time their DApp is used or incorporated by another developer, they get a piece of the action.
They have entered into an agreement to develop four open source DApps in return for 960,000 Peerplays (PPY) tokens. These four DApps are like incubation tools that can be modified by developers to make their own, but once in use, they collect revenue from each transaction. They are making money from the framework.. not what gets built on top of it.
Tell me about Peerplays
Traditional online gamling sites have the same problems banks do when it comes to running transactions online in a safe, fast, and transparent way. Right now, they’ll charge your credit card, run a game on their server that you can’t verify isn’t fixed, and if you want your money back, they’ll wire it to you. Eventually. Likely from the Cayman Islands.
Not ideal.
Peerplays was designed to allow folks to be able to play with Bitcoin and other cryptocurrencies on anything from lotteries to Rock Paper Scissors, in a completely decentralized way. When you play, the Peerplays blockchain verifies that you paid your coin, that you won or lost, and that you were awarded your win appropriately.
But the Peerplays token (known as PPY) does another REALLY interesting thing, and it’s central to trying to figure out a profit potential on eXeBlock.
Every time a game is run on the Peerplays network, a small fee is deducted that is then divided between ALL THE PEOPLE WHO OWN PPY TOKENS.
Essentially, Peerplays is building the machinery of a giant pan-global gaming platform, and anyone who buys the underlying tokens becomes a partner in the profit sharing of that network.
The underlying use of Bitcoin is, you can buy things with it.
The underlying use of Ethereum is, you can set up ‘smart contracts’ to buy things with it.
The underlying use of the PPY token is, you get revenue every time someone uses Peerplays for the thing it was designed for.
So how does this apply to eXeBlock?
This past week, eXeBlock announced that the Peerplays Network has granted it 900,000 PPY tokens in return for creating four Decentralized Apps (or DApps) that will allow more functionality on that blockchain.
eXe has already created a 50-50 draw DApp, that will allow fundraisers to be run more effectively, quickly, transparently, and in a more compliant manner.
Exe is now putting the wrench to its next DApp, Freedom Ledger, that will make changing currency to and from PPY tokens and dollars far easier.,
The thinking behind both of these apps is they’ll plug into other developer apps to provide base functionality, which will come with eXe taking a piece of any revenues those third party apps might receive.
In addition, because eXe owns 960,000 PPY tokens (good for nearly 20% of all PPY tokens out there), they’ll earn money a second time from the use of those apps as part of the Peerplays revenue sharing functionality.
As of the time of writing, one PPY token is valued at US$11, so the value of those tokens eXe just got, for work not yet done, is around US$10 million.
But don’t expect them to cash those in – the way PPY tokens work, they’re worth more in the hand than when sold for a short term profit.
What the four next DApps eXeBlock is going to develop will actually do is anybody’s guess. eXe founder Jonathan Bahai built a Rock Paper Scissors app to help prove out the Peerplays concept a bit over a year ago, but just about anything goes in terms of what will be needed going forward.
Sports gamling? Blackjack? Instant lotteries? Keno? Fantasy sports? Horse racing? Bingo? 50-50?
Oh, wait – eXeBlock ALREADY HAS THE 50-50 APP IN BETA TESTING, a tool they developed for charities that wish to engage in permitted fundraising, anywhere in the world.
What sort of revenue are they looking at?
We don’t know. The company can’t say without the exchange jumping down their throat and anyone who will put a dollar figure to that question at this moment in time is selling you something. The fact is, though it has been in existence for less than a year, the market cap of all PPY tokens in existence right now is US $61.2 million, and as more apps go online to bring more customers to Peerplays, more money is going to be transferred into PPY, which will have a cumulative effect on the value – and the dividend – of each one.
That’s the eXeBlock plan. Everyone understand?
Now, who’s up for a game of Yahtzee? Care to make it interesting…?
NOTE: An earlier version of this article mentioned the possibility that eXeBlock could develop gambling DApps – the company has clarified that it is WILL NOT engage in any activity that promotes or involves illegal gambling. It’s position as a public company means that it will be strict about following local laws and ordinances, and while its software may allow the movement of cryptocurrency to regular currency and back, and the 50-50 draw DApp will allow permitted gaming in a secure and efficient way, and future apps will increase the usability of the Peerplays network, it won’t be running online casinos or indie Powerball lotteries any time soon.
–Chris Parry
FULL DISCLOSURE: eXeBlock is an Equity.Guru marketing client
*ELI5*
Explain it like I’m five.