Digital Currency: Five Phases to Mass Adoption

How to Achieve Mass Adoption and Create a New Economy Backed by Consumer Demand

The Future of Money

The future of currency is increasingly digital. In the future, you will pass tokens back and forth with your friends, just like cash, without the need for a PayPal or Cash App to hold anyone’s money in between. Whether those tokens are Central Bank Digital Currencies (“CBDCs”) issued by the government, cryptocurrencies like Bitcoin, or some form of corporate loyalty token, it is very likely that in the future consumers will be accustomed to holding and spending many digital currencies from a digital wallet. Many foresee this future, but few can elaborate on the process to get there, whether that be for a single digital currency or the industry as a whole.

The Adoption Problem

“Mass adoption” is much like an urban legend of the digital currency world, complete with a group of diehard believers determined to hunt it down despite being mocked and met with supreme skepticism.

When Facebook announced their now defunct digital currency project “Diem” (formerly known as Libra), it was akin to a revival of the local legend — a fresh sighting of the elusive white whale by a trusted source, and with it, a renewed vigor to catch it. That said, if Facebook had airdropped Diem to their billions of users across multiple apps today, would the beast truly be captured? Would Diem have instantaneously achieved the legendary status of mass adoption among everyday consumers? Not yet.

Giving away money is easy. Just ask any number of cryptocurrency projects that can boast a large number of gifted or “airdropped” recipients, despite seeing little-to-no activity. Alas, my Grandmother having $1 of Diem waiting in her Facebook account does not make her an active user, much less a source of growth to a budding digital economy. It wouldn’t be until Facebook had turned such earners into spenders (i.e. users), retained those spenders on a regular basis, and finally, converted them into buyers of the new currency, that a new digital economy could emerge — backed by real consumer demand. That is what the adoption of a new currency creates: a new economy; and therein lies the crux of the adoption problem. In order to create a healthy economy there must be quality producers of goods & services as well as users of those goods & services. But in order to have quality producers and users, you need a healthy economy — a classic chicken and egg problem.

Digital Currency is still a nascent industry, which is exciting, but that also means that there is a lack of guidance and resources on most topics, whereas other industries maintain an abundance of entrepreneurial theory, experience, and precedent to build on. Mass adoption is one of the most important challenges the industry is trying to tackle, and yet there is no established roadmap to follow or iterate upon. To date, we have been wandering blindly, hoping to stumble upon the winning formula by chance.

In order to help codify a more tangible framework to navigate this challenge, I’ve created a five-phase approach to creating a new economy and truly achieving mass adoption. This is more a funnel than a linear roadmap, as there is no true finish line to building an economy; each phase of this framework compounds upon the potential of the next, creating a cyclical cascade and flywheel of growth and development. The more effectively you are able to execute each facet, the more successful you are likely to be in the overall endeavor of achieving mass adoption. Please note that this framework is merely intended as a starting point for anyone brave enough to take on this challenge and that a number of variables, contextual circumstances, and nuances may necessitate modification and/or iteration.

The Five Phases to Mass Consumer Adoption for Digital Currecy

This simple approach was designed to allow any digital currency to find real product-market fit, whether that be for ecosystems, insular single-app micro-economies, or even entire industries as a whole:

• Integration by applications, services, & platforms.
• Distribution to new users to form a network.
• Activation of users via great experiences.
• Retention of users; i.e. reasons to keep coming back for more.
• Inflow of revenue to sustain and grow a new economy.

In this article, I will go into detail about this five-phase system of Integration, Distribution, Activation, Retention, and Inflow, or “IDARI” for fans of nonsensical acronyms.

Before You Begin — Why?

Before aiming to achieve meaningful integrations, one should understand their “why”. Three good questions to ask before creating a new currency are as follows:

1. Why is this currency being created? (This currency is a solution to the real problem of…)
2. Why would a business ever want to accept this new currency? (The incentive to build with this currency is…)
3. Why would users ever want to utilize this new currency? (The user benefits of using this currency are…)

If you are able to answer these questions meaningfully, those core values will serve as your guide in crafting a strategy to achieve mass adoption. If you cannot answer these questions meaningfully, you do not need to create a new currency.

Phase 1: Integration by applications, services, & platforms

Why is this important?
An object can display all the characteristics of money, and yet not be used as money. To be a functional medium of exchange, any good currency needs to be accepted for goods and services.

How to Achieve Integration
Integration is one of the hardest steps in the journey to solving for adoption because there is no incentive for a business to accept a medium of exchange that has no established usage or installed base, and being the first to take a chance on this idea often requires some sort of buy-in, whether that be ideological, financial, or both.

The first partners willing to take a chance on this economic vision will likely expect to be compensated in some way for their efforts. This is where understanding your “why” comes into play — the most effective strategy is to solve a real problem they are facing (e.g. monetization, decentralized lending, cross-border payments, loyalty points, etc.) and have aligned ethics, or a shared vision for the future.

This is also where incentives can play a major part in the formation of a new network of producers of goods and services. This might translate to offering stakes in the new economy, similar to the relationship between Federal Reserve and nationally chartered banks. One of the most used and effective ways to do this is by creating an effective grants program, in which grants are awarded in tandem with the achievement and maintenance of important integration and performance milestones, in support of their plans to grow usage and adoption of the new currency.

Existing and well-known applications are especially important in establishing a new economy because these are trusted “institutions” through which consumers will be introduced to the concept. These applications act as “lighthouses” to show prospective participants what is possible, and what there is to gain. Offering direct partnerships to these services could, however, also have a number of seemingly negative consequences in the long term, such as runaway emission rates, which is not uncommon for the beginning of a new economy. Convincing the best producers of goods and services to do business in your digital economy may end up looking exceedingly generous in hindsight, if successful.

Measuring Success
In analyzing the success of this phase, one potential KPI to track is the number of active integrated apps/platforms/services that accept your currency. This allows you to see how many integrations you have at face value, based on the statistical potential of all services collectively.

One could also measure the total number of active users between all integrated platforms that may be exposed to the new currency, reflecting an install base that represents the total potential user base, if properly activated.

Another is to track the number of meaningful spend opportunities within those spheres, although it may take some time to perform a use case audit, so this is easier to do with insular virtual currencies (currencies that only work in one place) than ecosystems — whatever you decide to do, it is important to understand that continuously re-evaluating data and optimizing your strategies to better achieve your objectives is key.

Phase 2: Distribution to new users to form a network

Why is this important?
In order to use a new currency, users need to have it at their fingertips. Once existing applications begin integrating a digital currency, they can begin distributing it. Distribution is one of the easiest and most straightforward steps toward mass adoption, although it should be noted that the method by which the currency is distributed will be directly correlated to the perceived value by the user. If they are given something of no value, for free, it will have no value to them, because there is no cost (financial, attention, or otherwise) to attain it. Remember that the goal is to create a strong economy, and simply giving away money will not do that — users should value earning and saving this currency.

You should also aim for as wide and evenly distributed a supply as possible to prevent economic control from going to any one or handful of entities.

How to Achieve Distribution
There are a number of effective methods to accomplish broad distribution with high perceived value. One of the most effective is to allow users to earn their new currency.

“From 2018 to 2023 and beyond, many more people are going to get their [cryptocurrency] not by mining it or by buying it, but by earning it.” — Balaji Srinivasan, “Introducing Coinbase Earn”

Earning digital currency via digital “jobs” such as engaging in sponsored content, creating valuable content of their own, or achieving desired user behaviors, is not only a great way to distribute a new currency but also a great way to increase engagement and therefore the value of the platform itself. This also establishes a value of the currency to the user, as they had to contribute their own efforts in order to earn it, rather than simply receiving it for free.

Another effective way to accelerate distribution is to incentivize it directly. This can be done via grants that award large distribution networks or even by designing an incentive layer for developers into your digital currency operations, similar to Bitcoin mining, but for apps that achieve any parameter of accomplishments.

Measuring Success
A potential KPI for the measurement of growth in this phase is to track the number of active unique accounts that hold a balance of the new digital currency, a metric often referred to as “unique holders”. This will give you an eagle-eye view of distribution efforts. But remember — lots of holders do not make a productive or compelling economy.

Phase 3: Activation of users via great experiences

Why is this important?
It is not enough merely to have applications and services reward their users with, or even accept a new currency. People have to care about what they can do with it. This is why you cannot just buy mass adoption by giving away money, because there need to be user experiences that inspire organic everyday use by consumers and digital communities. That entails thoughtful integrations that genuinely enhance the user experience, happily “addicted” users, and leveraging the core functionalities of popular applications to create meaningful utility. Activation is a phase most projects never enter, as it lies at the heart of the chicken/egg nature of the adoption problem.

How to Achieve Activation
It is easy to make the mistake of thinking that the power of a trusted platform or partner lies in their name, but their power to contribute to a new economy actually comes from the utility they contribute. That means two things — (i) implementing killer use case(s) that improve the life of the user, thus making them into a collector and consumptive user of the currency and participant of the new economy, and (ii) actually generating meaningful usage of these experiences. A big-name partnership without measurable impact is useless, and considering any potential cost to make it happen, probably even detrimental.

Strong collaboration amongst economic participants is also vital in unlocking great user experiences on a macro level. By continuously working together to find out what’s working, what isn’t, and what you still need to succeed, you will be able to offer each other relevant support and optimize your approach as you grow. It is important not to look at the acquisition of partners as a finish line, but rather as a starting point through which a long-term relationship is formed. After all, building a strong economy is a collective effort, and requires enduring commitment.

Measuring Success
Measuring the performance of activation can be done via a tweaked “Total Users” count, which reflects in some way the actual utility of the currency by consumers. One example is “Total Spenders”, which measures the number of users that have spent the currency on a consumer good or service (not speculative trading or gambling) during any period of time. Avoiding the allure of tracking speculative demand and spending money on vanity partnerships to generate hype to support that will help build a more sustainable project over the long term.

Phase 4 — Retention via reasons to keep coming back

Why is this important?
After users have had their “wow” moment with the new currency, they become active participants in the new economy. Now you have to keep them there.

The difficulty of the retention phase lies not in its accomplishment but in its sustainability. Retaining users with great experiences is an almost natural thought process for any UX designer because these things go hand in hand, but when building a digital economy there is a time limit on the overall economy attaining sufficient viability before this pillar collapses unless the integrated platforms are committed for the long term. What happens is that an app might create an interesting new user experience, fail to retain users, and therefore lose the progress and network effect they’ve built so far by the time they are ready for the next release.

How to Achieve Retention
Here are some tips on user retention in the context of building a new digital economy:

• Find an “evergreen use case” — a foundational use case that, when all else fails, will still be compelling to users, is essential for a new digital currency integration. This can be features that are always useful to users, such as offering the ability to earn and redeem for gift cards or popular perks (think loyalty points), or the ability to send money around the world without a money transmitter.
• Find a “platform-seller use case” — this is a killer use case that is only accessible by using the new currency. It is so good, it convinces new people to join the economy in order to engage with it, and keeps active users coming back for more.
• Ship features fast, experiment — Tokens add friction that users are only willing to accept when engaging with the features is worthwhile. It is important to keep users engaged and entertained with the new currency, or they will quickly begin to ask what the point was of having their beloved experiences changed for it. The process of evaluating and refining experiences should be everlasting, and always adapting.
• Be proactive, not reactive— Building an economy is like overflowing a pool with a drain at the bottom. The longer you take, the more your existing progress is erased. Your best shot at breaking the surface is a timed, coordinated, and strategic effort. Keep this in mind and try to work with the other independent participants to time major milestones in a way that helps all participants and increases the chances of the economy becoming a success, otherwise, they may be left to wither along with your chances of success, as you wander about trying to figure it out.
• Brace for the storm— users are not the only participants you need to worry about retaining. For that reason, strong relationships and setting proper long-term expectations are key in this phase. Building something new always takes some amount of trial & error, so you need to always be learning from what works and what doesn’t while making efforts to improve. Obtain strong allies who believe in the vision, are onboarding and retaining users thanks to great user experiences, and are willing to “brace for the storm” that may come with implementing a new way of transacting on their platform — and in digital currency, with challenges ranging from product to technical to security to even legal or geopolitical, there is plenty to work through together.

Measuring Success
A good metric for retention is tracking a modified version of “Monthly Active Users” that measures the number of users actually spending the token, along with their retention. However, if earners are also in some way generating economic demand by consumers (e.g. advertising dollars), then just tracking traditional “MAU” and retention of those users could work as well.

Phase 5 — Inflow of revenue to sustain and grow a new economy

Why is this important?
This is the final boss of building a new economy. The hardest piece of the puzzle is the most important by far — unlocking real demand for the new digital currency. Why is this important? A strong economy invests in security, infrastructure, education, innovation, research & development, etc. And, just like a state economy, people around the world also need to be willing to exchange their local currency for the new one in order for it to have a strong exchange rate, giving the economy spending power to invest. In order to have these things, the digital economy needs an inflow of revenue. This is something that I believe is greatly misunderstood in the Web3 sphere — it is beautiful that tokens allow us to reward people for their efforts, but that cannot be the only reason someone engages with a new currency; again, you cannot buy mass adoption. Play-to-earn denotes play-to-sell. Consumers must be willing to pay for your experiences if you wish to build a strong economy.

How to Achieve Inflow
The key to attaining sufficient economic inflow is in creating exclusive value. Easier said than done, you will need to create reasons for someone to need your currency to get what they want, which means getting something they cannot get anywhere else. Much in the same vein as activation and retention, it will come down to creatively implementing great user experiences that champion real usage, a healthy community of activated users becoming sincere promoters, and exclusive features only accessible by utilizing the new currency; these are all vitally important to creating the right value proposition for a prospective buyer.

Measuring Success
This depends greatly on your economic model. If there is a central bank, its revenue and treasury value are important metrics to track. If there is a traditional business model, then you should just be able to track revenue directly. If you are working with an incentive algorithm like Bitcoin mining, you may want to experiment with various models involving participant holding/selling, total supply, the flow of supply, on-chain movement, etc.

Measuring inflow for a commodity based on purchase demand is hard without specific partners and onramps, which may not be possible. In measuring the conversion of users to economic participants, the net amount of currency held by active users of the currency is another simple way of tracking performance that is hard to game but is only a proxy for purchase demand. At the end of the day, the value of the currency and any treasuries may be the most effective measures for your performance in this phase, if not the project overall.

Mass Adoption = Real Consumer Demand

This framework is not only useful for achieving mass adoption but also for evaluating progress toward it. Under this schema, your combined total progress in achieving integration, distribution, activation, retention, and inflow, is equivalent to your progress in achieving mass adoption. Ultimately what that means is achieving mass adoption is equivalent to achieving a complete digital economy, backed by real, sustainable consumer demand.

Now let’s say you do successfully create a massive, sustainable economy backed by consumer demand. This is not a finish line, as the pipeline of development continues to evolve over time. An economy is a living, breathing thing — it is always on, and thus always either expanding or contracting. Much like a business model, you must continuously re-evaluate and optimize an economy, otherwise, it will eventually wither and die. This is a non-linear, and dynamic cycle; you can start anywhere, and even work backward, but you cannot achieve mass adoption without addressing every facet.

Avoid Speculative Greed

Because the success of Bitcoin resulted in the inadvertent success of projects in its proximity, many digital currency projects of the past were able to bootstrap somewhat sizable economies based on speculative value, and worry about driving usage later. This is the siren’s call of crypto — the notion that if enough people make money with an asset that it can be shoehorned into mass adoption. This is an illusion created by inflated asset prices that stem back to the rising tide of Bitcoin.

Over time we have learned that the opposite is true. You cannot simply skip from speculative adoption to mass adoption without running into the tough challenges outlined in this framework. Early adopters as speculators might act as a temporary engine for inflow, but without the experiences to drive adoption, a real economy will never be born.

Conclusion

Whether or not a new digital currency can supplant itself as a regular part of everyday life for hundreds of millions to billions of consumers around the world has yet to be seen; but whether it’s unlocking stickers or avoiding government sanctions, one thing is certain — every meaningful currency needs a useful purpose. A digital currency for mainstream consumers is no different. I believe that the first project to master this framework in some form will also be the first to achieve mass adoption.

About the Author
Kevin Ricoy is formerly the Head of Growth for the Kin Foundation, a non-profit organization dedicated to supporting the apps, brands, and services that integrate and utilize the Kin cryptocurrency. With dozens of consumer applications and millions of monthly active users, Kin was at one point the largest project on the Solana blockchain across many metrics and still holds records as one of the most held and actively used cryptocurrencies by mainstream consumers to date.