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ARK Disrupt Issue 76: Artificial Intelligence, Payments, Cryptoassets

Please enjoy ARK Disrupt Issue 76. This blog series is based on ARK Brainstorming, a weekly discussion between our CEO, Director of Research, thematic analysts, ARK’s theme developers, thought leaders, and investors. It is designed to present you with the most recent innovation takeaways and to keep you engaged in an ongoing discussion on investing in disruptive innovation. To read the previous issue, click here.

1. DeepMind’s AlphaGo Defeats the #1 Go Player in the World

Last year, DeepMind’sGOOG AlphaGo AI (artificial intelligence) defeated Lee Sedol, a multi-time world champion of the strategy game Go. In response, the #1 ranked player in the world, Ke Jie, said he was confident he would be able to defeat AlphaGo. This past week, he played the latest version of AlphaGo, and lost 3–0.

In the past year, AlphaGo has improved dramatically. The first version was powered both by  supervised learning – training based on 30 million human moves – and by reinforcement learning, playing against itself. The new version uses only reinforcement learning, powered by just one of Google’s new Tensor Processing Units, the TPU 2.

This latest achievement points to Google as the world’s preeminent AI company. At the International Conference on Machine Learning (ICML) this year, Google and its DeepMind subsidiary contributed nearly 70 papers, far outstripping other tech companies and research universities. Combined with its massive data collection engine, its in-house AI silicon, and Google Cloud, papers presented at ICML cemented Google’s position as the full-stack AI company.

ARK Disrupt Issue 76 International Conference on Machine Learning

2. Stripe Improves Its Platform To Simplify Marketplace Payments

The success of companies like Lyft and Airbnb in the sharing economy has led to the rapid adoption of marketplace business models and multi-party split payment platforms. Payment leaders like Braintree, PayPalPYPL, and Stripe already offer marketplace payments through products like Braintree Marketplace and Stripe Connect, enabling companies like Lyft to get a piece of the pie each time a transaction takes place on its network.

Launched in 2012, Stripe Connect provides startups with the infrastructure to manage payments, regulations, compliance and taxes. Stripe Connect continues to find ways to simplify the process of running a marketplace platform, as shown below.

ARK Disrupt Issue 76 Animation_newSource:

The latest version of Stripe Connect supports many-to-many payment flows, allowing easy fund transfer among multiple consumers, sellers, and vendors. Connect tracks payments, obviating the need for companies to build tracking systems and ledgers, and it supports “Express Onboarding System,” which streamlines the process of signing up and paying employees/freelancers for companies with a rapid turnover of service providers like Lyft or Postmates.  Services like Stripe Connect will be vital to the success of the sharing economy.

3. Blockchain and Cryptoassets: Consensus 2017, the Token Summit, and Cryptoasset Valuations

Between Consensus 2017 and the Token Summit, this week was full of cryptoaction. Fueled both by euphoria at those conferences and a surge in trading activity in Japan, cryptoasset markets reached a network value (or “market cap”) north of $90 billion late last week.  Then, just as quickly, the network value corrected by more than 30% to $60 billion this weekend.  

At Consensus 2017, ARK Invest moderated a panel on the structure of and legal issues around token sales.  An interesting debate centered on the classification of tokens:  are they financial securities or a new asset class?  Based on ARK’s research, bitcoin was the first of its kind in a new asset class.  Consequently, we hope for new regulation to foster and facilitate innovation while, at the same time, protecting the public.

To summarize, the valuation of each cryptoasset should be a combination of its “current utility value” and its “discounted expected utility value.” While the latter might be considered “speculative value,” the function of an expected stream of earnings, such speculation often lays the foundation for innovation. Interestingly, equities are valued on the basis of future cash flows, a generally accepted standard. One of our objectives is to set a similar valuation metric upon which the cryptoasset industry can standardize, making sense of the network values which will support and validate the evolution of Internet 3.0.

4. Auto Sales Probably Will Continue to Surprise on the Low Side of Expectations

Last year, ARK published research suggesting that auto sales would surprise on the low side of expectations in the near term and that, thanks to autonomous taxi networks, they would be cut in half by the mid 2020s, as shown below.  Now a poll from Reuters/Ipsos highlights that 9% of those surveyed use ridesharing as their primary mode of transportation now, and that roughly the same percentage plan to sell their cars and transition completely to ridesharing services within the next year.

The Reuters/Ipsos survey suggests that auto sales could be hit harder in the short term than most analysts are anticipating.  While consumer confidence has soared to more than a ten year high during the past few months, auto sales have dropped below 17 million units at an annualized rate, surprising analysts on the low side of expectations. If consumers increasingly forgo auto purchases and shift to ridesharing, drops in auto sales, not to mention the residual value of used cars, could be devastating to traditional auto manufacturers.

ARK Disrupt Issue 76 Annual Auto Sales

ARK's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.