How Google is making inroads into the crypto ecosystem
Google boss Sundar Pichai confirmed last week the company is exploring crypto and blockchain potential.
As Alphabet (GOOGL), Google's parent company, announced its results with a record surge in advertising revenue pushing its market cap to $2tn ( £1.4tn), Pichai said: "We are definitely looking at blockchain, it’s such an interesting and powerful technology with broad applications."
Google is making significant inroads into the crypto ecosystem as blockchain technology and the adoption of disintermediated (cutting out the middlemen) peer-to-peer transactions become more mainstream.
Pichai's announcement weighed in on how Google could add value to existing web3 innovations, saying that blockchain solutions are "something we want to support the best we can".
Google plans to allow blockchain-based businesses to utilise their cloud computing services. They are also seeking to incorporate NFTs on their web platforms and are even contemplating cryptocurrency payments.
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The tech giant is following in the footsteps of other Silicon Valley companies that have already embraced web3, in an effort to catch up with the pioneers of the crypto-space.
With its slow initiative in seeing the potential of blockchain technology, Google does not have a first-mover advantage. In 2018 Google co-founder Sergey Brin took to the stage at a tech conference in Morocco and admitted his company has “failed to be on the bleeding edge” of the blockchain revolution.
It is now over a decade since Satoshi Nakamoto released the Bitcoin White Paper, and, as this disruptive technology evolved, Google didn't make a move.
However, on 27 January, Google Cloud announced it was starting a new blockchain-based division, called the Digital Assets Team.
The announcement comes at a time of rapid web3 innovation and escalating cryptocurrency adoption among consumers, producers and merchants which could see cryptocurrency payments, artistic content as NFTs and distributed computing technology become the new norm.
According to John Kicklighter, the chief strategist at DailyFX, Google’s move into crypto is a way for it to "establish critical traction" in this burgeoning, competitive space. He said the company could be seeking to affirm its presence before the arrival of regulatory frameworks that could stifle growth.
Major players in finance and technology have a headstart in the sector, including IBM (IBM), Microsoft (MSFT), Facebook (FB), Goldman Sachs (GS) and Amazon (AMZN).
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Kicklighter told Yahoo Finance UK that multinational corporations like Google are “moving quickly in an effort to establish traction not just to establish a competitive advantage in this burgeoning area of tech, but they are also pushing forward to establish critical traction before slow-moving regulation stifles growth”.
He said the recent announcements from Google show that the tech leaders are seeking to establish “material progress in these areas before governments spool up their ability to push back against an aggressive crackdown”.
Kicklighter said: “The scrutiny will be more intense on Google should the early investment not pay off quickly, but the company has a history of investing in projects for the long-term, sometimes with outsized returns.”
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In last Thursday’s announcement, Google appealed to distributed-ledger-based companies and explained how they could deploy their blockchain nodes “on the cleanest cloud in the industry”.
The internet search behemoth plans to participate in the crypto-ecosystem by helping blockchain developers scale up their businesses using Google’s “secure, and sustainable infrastructure”.
The company said it will support the validation of data transfers, cryptocurrency transactions and digital assets like NFTs in a way that allows scalability whilst maintaining speed of settlement.
However, cryptocurrency fundamentalists may point out that deploying blockchain nodes on Google Cloud does not constitute a decentralised network if those nodes are all maintained by one corporation.
A network’s level of centralisation is difficult to define. Emiliano Billi, chief technology officer at Kollectiff, said: “If all the nodes of a particular blockchain are in Google Cloud we can start talking about centralism, but that kind of centralism can only affect the layer of computational power, not what happens inside that blockchain.
“True centralism occurs when only one entity controls the majority of the mining process, confirms transactions and validates blocks. But, in this case, Google Cloud rents the service to different final users."
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The Google Cloud announcement name-dropped blockchain-based companies that they are already working with, such as Dapper Labs, Hedera and Theta Labs.
Yolande Piazza, vice-president of financial services at Google Cloud, said: "Just as open-source developments were integral to the early days of the internet, blockchain is yielding innovation and value creation for consumers and businesses.
"As the technology becomes more mainstream, companies will need scalable, secure infrastructure on which to grow their businesses and support their networks."
Google has also planned to integrate NFTs on YouTube, which contributes nearly 11% to the company’s overall revenue.
In a letter published last month, YouTube CEO Susan Wojcicki said: “We’re always focused on expanding the YouTube ecosystem to help creators capitalise on emerging technologies, including things like NFTs.”
She said the platform was using web3 innovation “as a source of inspiration,” specifically calling out cryptocurrencies, decentralised autonomous organisations (DAOs), and NFTs as areas of interest.
Read more: Non-fungible tokens: What are NFTs and why are they creating such a stir?
Stephen Tse, co-founder of Harmony One, told Yahoo Finance UK that this would open the company up "to an entirely new consumer base, shifting the public’s perception of what is possible for web2 companies, allowing them to evolve with emerging technology”.
Watch: Sundar Pichai interview
Google Cloud said they were “exploring opportunities in the future to enable customers to make and receive payments using cryptocurrencies”. This was interpreted by some as a bullish signal for the world’s premier cryptocurrencies, such as bitcoin (BTC-USD) and ethereum (ETH-USD).
Google's statement added that Google Cloud would also host a full blockchain transaction history for bitcoin, ethereum, litecoin (LTC-USD), dogecoin (DOGE-USD) and other major crypto-tokens. The market reacted with a bounce that saw bitcoin pump 4.5% and ethereum up 12.3% in the last week.
In January, Google’s president of commerce Bill Ready reiterated the company’s crypto-intentions when he spoke to Bloomberg, saying crypto transactions remain “something we pay a lot of attention to, as user demand and merchant demand evolves, we’ll evolve with it”.
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Crypto AMA host Andrew Forte said: “User demand and merchant demand have evolved and the strategic partnerships Google has established with Coinbase and BitPay identify its growth as a company in becoming more dominant in this emerging technology. Allowing users to have access to cryptocurrencies in digital cards, providing an alternative payment method aligns with the forethought in the creation of digital currencies."
Google is currently trying to diversify away from advertising as its main source of revenue and become more prominent in other growing markets. The implementation of a Google Cloud blockchain division signals the company’s serious intention to influence the crypto-ecosystem with its combination of capital, computing expertise and political influence.
However, Google may face challenges in the crypto-space, such as user anonymity, publicly accessible distributed ledgers, permissionless transactions and decentralised ownership of data and intellectual property.
The cryptocurrency revolution promises to make sweeping changes to the way society operates. This disruption comes in many forms, including decentralised finance (DeFi) and decentralised film (DeFilm).
The crypto-space has grown to the point where it can no longer be ignored. The World Economic Forum anticipates that 10% of the world’s GDP will be stored on blockchains by 2025.
Klaus Schwab, executive chairman of the World Economic Forum, said that the world is on the verge of a fourth industrial revolution, and blockchain-based innovations will be a key ingredient in manifesting this dramatic change.
The potential of blockchain technology to power the digitisation of economics, bring smart automation and increased interoperability and connectivity are now being taken seriously by tech giants, including Google.