on August 15, 2019 by analyze.com
When crowdfunding began gaining in popularity, it became quickly apparent that the platform was going to be exploited by scammers. Soon, it became difficult to tell whether or not the shoddy management team that failed to bring a product to market leaving a bunch of disgruntled “customers” in their wake was acting maliciously or not. Did it really matter? People paid for a product that was never delivered. But this paled in comparison to the amount of money that people were fleeced for by the promise of ICOs. (If you’ve already forgotten about the ICO debacles which exited just as quickly as it arrived, our piece on Why ICOs are Not an Investment or an Asset Class can bring you up to speed.)
All those pundits posting articles on Tech Crunch about how the ICO was going to replace the IPOmanaged to help support the North Korean regime to the tune of $2 billion. A site called Dead Coins now lists more than 1,700 failed ICOs – probably the tip of the iceberg – with failures being attributed to the following categories:
- Scam – what it says on the tin
- Deceased – the business idea failed
- Hack – “someone else” stole the money
- Parodies – “fake” ICOs that were meant to teach people a lesson – because nothing is more hilarious than losing money
It’s a shame that ICOs left a bad taste in everyone’s mouth because we wouldn’t want that to detract from the potential of blockchain as a technology. Now that the ICO dust has settled, we’re beginning to see some green sprouts of promise from blockchain. Companies are now developing legitimate business models that utilize a transparent ledger in a way that it was meant to be used. One such company that came across our radar recently is Helium.
The Internet of Things Meets Blockchain
Founded in 2013, San Francisco startup Helium has taken in $53.8 million in funding so far from investors that include notable venture capital firms like FirstMark and Khosla Ventures, the founder of Salesforce Marc Benioff, and Google Ventures. The last funding round, a Series C of $15 million that closed this past June, is being used to build out “the world’s first peer-to-peer wireless network.” Anyone can purchase a $495 Hotspot and earn cryptocurrency by providing wireless coverage for low power, Internet of Things (IoT) devices. The Hotspot device uses “LongFi wireless protocol” which maximizes range and battery life while consuming about the same amount of electricity as an LED light bulb (5W). These Hotspots then communicate with one another to form a mesh network which IoT app developers will use.
“Based on initial testing, only about 50 to 100 hotspots are needed to provide complete coverage for an entire city,” says the company. That’s a key metric to understanding the value proposition of Helium which is all about solving the IoT connectivity problem.
The IoT Connectivity Problem
When we consider writing about early-stage startups in emerging markets, we often look for participation from venture capitalists as a vote of confidence in the value proposition. Everyone has some great idea in the back of their mind, but if you can convince a venture capitalist – someone who looks at thousands of ideas a year – to invest money in your idea, then that shows you actually have something. Oftentimes, venture capitalists can see potential beyond what the founders see – the bigger picture if you will. To understand Helium’s bigger picture, we can look at what one of their investors has to say about their value proposition.
Helium investor Mark Turck – someone who writes some extremely insightful articles over at MattTurck.com – wrote a piece last year on his investment in Helium which describes the chicken-and-egg problem with IoT. Companies want to see more infrastructure in place before they develop IoT applications while the infrastructure developers want to see more apps before creating the networks of connectivity needed for IoT to grow at scale. Current solutions such as cellular, WiFi, and Bluetooth are either too expensive, too power hungry, or too limited in range. That’s why Helium developed their own open-source wireless communication protocol called WHIP which is low-power and highly efficient. IoT devices wouldn’t need much power to use the protocol which means batteries could last for years. Of course, anyone who is familiar with the IoT connectivity problem will be quick to point out that similar solutions already exist – like LoRa.
The Problem With LoRa
While some people read Medium for hard-hitting thought leadership pieces like How I Date as a Demisexual, we find the platform to be useful for startups to communicate messages to the world which we then use our platform to amplify. In December of last year, VP of Business Development at Helium, Mark Phillips, published an article on Medium titled The Problem With LoRa. The acronym LoRa stands for Long Range which is “a long range, low power wireless chipset that is used in a lot of IoT networks worldwide,” and owned by a company called Semtech (SMTC). It often comes up during conversations with enterprises and investors. That’s because LoRa has 70,000 gateways out there connecting over 50 million IoT devices.
Source: Semtech Investor Deck
In the Medium article, Mr. Philips talks about how Helium built their entire solution from scratch after evaluating existing technologies like LoRa which their wireless protocol frequently gets compared to. In earlier days, they evaluated LoRa and took issue with the governance and licensing. Long story short, Helium felt that Semtech’s licensing model was too restrictive and “prohibitive to their business model.” They then built the entire stack – from hardware to software – from scratch.
The Helium Hotspot – Credit: Helium
Fast forward to today and Helium believes in helping others build out and maintain the network as opposed to doing it themselves which they believe was “too capital intensive.” The article talks about how other companies are running into problems trying to deploy similar IoT connectivity networks, one of which – Sigfox – we covered in our article on 11 Smart City Solutions Creating Smarter Cities.
In the LPWAN landscape, companies attempting to roll their own infrastructure have not excelled: Sigfox, bless their heart, is still chasing this dream. MachineQ, on the other hand, seems to have backed off this strategy despite announcing progress earlier this year. And Ingenu, another early LPWAN upstart building public coverage on top of proprietary RPMA technology, seems to have fizzled out altogether over the last 12 months.
Other companies trying to solve the IoT connectivity problem include Finnish startup Wirepas and T-Mobile launched their Narrowband Internet of Things (NB-IoT) service nationwide just last month with “rate plans just one tenth the cost of Verizon’s Cat-M.” There’s also competition from not-for-profit initiatives as well – like The Things Network
The Things Network
Another IoT connectivity solution that Helium gets compared to is The Things Network which is “arguably one of the biggest success stories in the LoRaWAN ecosystem,” with 8,304 gateways live across hundreds of cities globally as seen below.
The Things Network Hotspots – Credit: The Things Network
On the surface, both models appear similar, but the difference is that Helium provides an incentive for network participants to buy gateways, deploy and maintain them. Yes, you guessed it. They’re paying participants with helium tokens. Network participants are “compensated in two ways — mining and per-packet transport fees — both of which are made possible by the Helium blockchain.”
This is where things start to get confusing in a hurry but it’s best to think of it like this. Tokens are fixed to the U.S. dollar as opposed to trading on some exchange in a roller coaster display of volatility. The currency of the network is Helium tokens, so to use the network you need tokens. This begs the question: If we spend $495 to invest in one of these hardware devices, how much money can we stand to make over time when taking into account the cost of the electricity needed to power the device? Again, it becomes a function of how many IoT app developers have built apps that use our device, how many requests they’re making, how many other devices there are in the area, etc.
If only 100 hotspots are needed to blanket an entire city, why not just give them away? Even if they’re selling these $495 gateways at cost, it would take a mere $50,000 to blanket them across an entire city. Why not spend $5 million and give them away for free across 100 cities in the State of California, a place where many startups will likely use the network to deploy apps? Maybe it is a matter of spending some capital to get this network deployed quickly because from where we’re sitting, the value proposition doesn’t seem very well spelled out for the operator who needs to plunk down $495 for a device that will generate cryptocurrency, something that’s largely found its way into North Korea so far.
We’re not experts in IoT infrastructure but here’s what we’ve come away with so far. Lots of people want to solve the IoT connectivity problem. The Things Network is trying to solve the same problem as Helium is, they’re doing it across the pond. (In July 2015, The Things Network managed to cover the entire city of Amsterdam with their gateways.) A quick look at the coverage map and you can see that these devices are blanketed across Western Europe – over 5,300 of them – while there are just over 500 spread out over the massive land area known as ‘Murica. It’s really a race to get coverage in place so that the chicken-and-egg problem can be solved and then apps can then be deployed.
Since we’ve been researching this company, we’re inundated with ads for their devices on Facebook and people don’t seem overly keen on the idea. Sure, it’s anecdotal evidence, but we can all agree that cryptocurrency has left a bad taste in everyone’s mouths. If we shell out $495 dollars for a device, what’s the payback period? Until we start seeing some information trickle in about how beneficial it is to operate these devices, how can we tell how strong of an incentive this is? While we wait and wonder, others aren’t so hesitant. Helium sold out of their devices for their coming launch in Austin and the Helium Network U.S. nationwide roll out is scheduled to happen Q4 2019.
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