A Branded Future for Bitcoin
- James Isaac
- 11 Aug 2014
I predict that, within the not too distant future - perhaps the next couple of years - Bitcoin will have lost its position as market leader among cryptocurrencies, and the battle for market dominance will instead be held between brand-sponsored altcoins.
This is an opinion I first formed back in January, so I was fairly surprised to see no movement in this direction for the most part of this year. That changed last week though, with Stripe's introduction of Stellar - a fork of Ripple with very minor changes, being promoted by Stripe - the online payment processing company.
Historically, the barriers to entry involved in creating an altcoin have been fairly high. The concept itself only really appealed to the highly technical, as it required forking another coin's codebase, and making significant enough changes that its announcement thread would be well received on the Bitcoin forums. There's a critical mass of adopters required for a coin to be taken seriously, and serve its purpose as a currency.
This led to a fair amount of technical innovation amongst altcoins. New altcoins would attempt to make iterative improvements to weaknesses in the original Bitcoin model (such as the wasteful proof-of-work hashing algorithm, or addressing the low allocation number leading to 1BTC = $1,000), and compete with each other for market share (among only those dedicated enough to be involved in the trading of altcoins). No innovation thus far has given any real advantage over Bitcoin itself though, which still easily holds the market lead thanks to its first-mover advantage.
However, I don't believe there's anything intrinsic within Bitcoin which means it will hold this position forever. In the same way that MySpace and AOL, who at one point may have seemed undefeatable, were promptly shoved to the sideline when something more exciting came along, there's nothing to guarantee Bitcoin's long-term success.
So far this year we've seen Dogecoin (a Litecoin clone which started off as a joke) attain one of the highest market caps of all cryptocurrencies (which it subsequently lost again); Coinye West receive a huge amount of press coverage (before losing its legal battle against Kanye West); and more importantly, Coingen, a service which for 0.2 BTC would generate a new altcoin from a user-supplied name and logo, providing the basic tools needed to mine and trade that new currency1.
What I think these prove are, firstly, that people will gravitate towards a coin based on nothing more than hype. And also, that the barriers to entry for the altcoin market are gradually lowering.
Cryptocurrencies are lucky not to have seen mass commercialization yet. We see it in practically every other industry - the biggest battle isn't over the relative merits and features of products, but over which brand can sell itself through the most aspirational marketing campaigns to win over customer affinity. Whether it's Samsung and HTC in the phone business, Coca-Cola and Pepsi in the adding sugar to water industry, or any number of the competing designer clothing labels, there's huge money to be made in becoming a household name within a nation of consumers.
Cryptocurrencies are ideal for this kind of commodification. Bitcion's entire codebase is, by its nature, open source, meaning launching a working altcoin can be as simple as forking the codebase and tweaking some parameters. There is also a vast market waiting to be tapped into, outside the current customers - who consist almost exclusively of technical early adopters. A mass-marketed altcoin, launched with sleek smartphone apps that make things easy for the user, could explode in a matter of days. I have yet to see an altcoin that feels like anything other than a toy for techies, or even remotely well marketed for mass adoption.
Perhaps most importantly, there's a huge appeal for profit. It's an unfortunate attribute of competing cryptocurrencies, that the newest will always be more attractive, as users see it as their chance to get in early. Why would you want to stick with a currency that's plateaued out a relatively stable value, when you have a chance to get rich, like all those stories you read in the news about Bitcoin early adopters becoming millionaires?
For these reasons, there's a big incentive for brands to invest in launching their own altcoin as an extension of their brand, and put some of their marketing budget towards its promotion, and the development of complementary tools. This isn't to mention the point that, sooner or later, once cryptocurrency software has been developed to the point where they serve all the needs of a currency, they'll probably start being generalised so they can accept any altcoin (in the same way a browser is capable of accessing any website).
I think it's only a matter of time before we see the likes of XboxCoin, PayPalCredits, AppleTokens, and CocaColaCoins (although I imagine with more catchy names). As discussed, there's also an on-going incentive for users to jump ship from some of the current altcoins they hold and buy into the latest trend - leading to a highly volatile market.
Stripe are by no means a mainstream brand, yet after their partnership with Stellar, I've seen several people reporting that some of those who previously had no interest in cryptocurrencies are now looking into buying.
What I imagine the cryptocurrency landscape looking like a couple of years down the line, is a bit like the stock market today, but a lot more volatile. As the trend starts catching on, more and more brands will want a piece of the action, and there will be a lot of contention for market share over the underlying blockchain technology.
To try and make money in this climate will be the equivalent of day-trading - a difficult job of speculating, not based on real merit, but hype and market sentiment.
The only suggestion I can make to avoid this outcome, is for the cryptocurrency community as a whole to become aware of this possibility, and understand why the open, democratic and decentralized nature of Bitcoin is worth preserving. Many developers are investing their time into building ecosystems around competing altcoins, with a hope to boost that coin's relative value, and make themselves a decent profit - but it should be realised that long-term this is a losing battle, as a brand with a multi-million dollar advertising budget could crush any altcoin into irrelevancy without breaking a sweat.
By pooling resources together on Bitcoin, and opening it up to a wider audience with better marketing and more user-friendly tools, we can hopefully make it something more than just another avenue for corporate exploitation.
Coingen itself may or may not have been a scam, but in theory there's nothing making this infeasible as a service. ↩