The Cryptocurrency Industry’s Big Problem No One is Talking About
The first time I ever bought Bitcoin was to immediately send it to the Ethereum ICO.
When I tell people that I bought ETH at 25 cents they tell me how lucky I am. They think I must be rich.
But most people don’t remember how long it took Ethereum to launch. Those of us who bought the ICO didn’t see our ETH for over a year.
I’d done hundreds of hours of research into Ethereum before I put money into the ICO. I knew from the start how special it was. But after six months and a few missed deadlines by the Ethereum creators, a lot of people in the space, including me, had assumed that our ETH would never be released.
I went from wholeheartedly believing in the project to believing I was scammed. All in less than a year.
Which sounds super irrational, right?
But that’s the status quo in the crypto community. For a community based on trustless networks, we certainly take the no-trust philosophy to the max.
It’s created the biggest issue in crypto that nobody is talking about. It’s the difference between the current crypto community, which mostly consists of speculators, and the community which crypto will have to become in order to survive: a community of users.
These two communities are VASTLY different. And to be clear, I’m not trying to say that speculators are bad. They obviously provide a lot of value to these markets (we have a $170 billion coin market cap right now because of, mostly, speculators).
But speculators are fidgety. They’ll only provide value to a market for as long as they speculate that it will have value. They’re a short-term fix to a long-term problem, which is: how do you provide true value to a market?
The community that provides true value to a market are users — of which crypto badly lacks. Users have a much different mindset than speculators. Users aren’t trying to make money off the market, they don’t want to.
We are users in most of our interactions in life. When we go to the store to buy bread we aren’t buying it with the intention to sell it back for profit. We don’t rent a movie to try and make money after we’re done watching it. We don’t buy a car in the hopes we can give it back later and “make bank.”
But with most of the tokens in the market, that is exactly what we’re doing. We never plan to interact with the platform or content that the project is providing or planning to provide. We are TERRIBLE users.
At the same time, it’s not our fault. Most projects aren’t appealing to users. They’re appealing to speculators. They’re giving insiders massive discounts, they’re claiming their token structures will help token holders make money, and they’re all (for the most part wrongly) assuming that their community will eventually be their biggest users.
I’m often reminded of the DAO, and not because of its infamous hack that changed the token landscape.
At its core, the DAO was a voting contract. Project creators would submit their projects to the community and DAO holders would vote on what projects they wanted to fund. The projects that got enough support would build what they promised and, presumably, their value would increase the value of the entire DAO ecosystem.
It was in DAO token holder’s best interest to vote on projects using their DAO tokens. Because by funding good projects, their tokens would increase in value. But when the first set of projects were released for voting, only 5% of all DAO token holders voted.
Because no one wanted to lose control of their DAO tokens. If the tokens were locked up somewhere, they couldn’t trade them and make money! Ironically, the token’s monetary value de-incentivized people from using the platform that supported the token’s monetary value.
Nobody wants to use a token when they could hold that token and possibly “get rich.”
If a vendor sells pizzas, very few people will likely want to buy that pizza using the vendor’s proprietary token, PizzaCoin. Today that pizza may cost 10,000 PizzaCoins, but if PizzaCoins’ value increases, tomorrow the pizza may only cost 10 PizzaCoins. If you’re speculating on PizzaCoin’s future value, you don’t want to be the guy who misses out on long term profits in order to make a short-term purchase.
No one wants to be the guy who buys a pizza for 10,000 PizzaCoins (or 10,000 Bitcoin — if that story sounds familiar).
And that is where speculators and users are at a crossroads. If you ignore users and just appeal to speculators, then your platform or service will eventually be worthless. If you ignore speculators and just appeal to users, then why have a third party market to trade your token, anyway? At that point, you should just use a stable coin on your platform. You don’t need a blockchain token. You need U.S. Dollars.
Finding a happy medium that appeals to both communities is important. A project’s goal should be to incentivize user interaction by appealing directly to users. The question a company should ask is how can a token make user interaction more interesting and more engaging? When users step into your world, you want your user looking to be enlightened or entertained, not looking to make a quick buck.
If a user is focused on money, they’ll be unable to relax, and their behavior will be erratic.
I’m not saying that you should forget about the speculators. You’ll need them, too. As your user base grows, the demand for your token (with its finite supply) will increase. Speculators will be there to provide the liquidity your users need to interact with your content.
But let’s be clear. The focus is on the users. They are your fans. They provide the true value. Only with users will your project grow and become successful.
If you’d like to know how this can be possible, please read my other article here.