‘Adopters reward’ — the engine behind the token economy
Have we unknowingly stumbled across the world’s most powerful on-boarding funnel or is it something more sinister?
The term ‘adopters reward’ — named aptly after the concept of ‘miners reward’ within the bitcoin community — refers to the inherent financial incentives offered by tokenised networks to reward user uptake.
To grasp the significance of this we must first dig a little deeper into the foundations of tokenised networks. Specifically, the ‘Network Ownership Effect’ or ‘NOE’ for short, identified within the well-known crypto publication The Control.
Notice anything strange?
The second part of the NOE feedback loop ‘value of users ownership stake increases’ is the give-away. This is the essence of the ‘adopters reward’.
This one seemingly small difference to the original network effect turns out to be crucial when money is on the table. It means users become misaligned with the first part of the loop ‘utility of the service increases’ — and potentially obscure the underlying value/utility of the network.
A situation is created where users may be on-boarded not on the premise of any present-day utility for them personally but for expected market utility in the future a.k.a, speculation, plain and simple. This can be very dangerous. It allows an asset to grow in value under false pretenses, further encouraging speculation (which users are rewarded for) without the evidence of any real-world value.
The ‘adopters reward’ creates a user perspective where they only participate in the network from a purely selfish point of view — to be ‘rewarded’.
Alright, alright enough FUD. Lets explore the possibilities.
Where to from here?
It seems that we have developed a powerful weapon.
‘Adopters reward’ & The ‘Network Ownership Effect’ — things that have the potential to create networks of distributed wealth — whether legitimate or not — on a staggering scale. Why? How? Because it’s all grounded in the most powerful human emotion there is… Greed.
This will almost certainly result in one of two outcomes, either:
a) We create an ecosystem of elaborate Ponzi schemes based on tokens that have little or no real-world value.
b) We drive wide-spread adoption of useful tokenised networks for the common good.
Possibly a mix?
To me the most plausible outcome is a mix.
Here’s why: With great power comes great responsibility.
First, responsibility on the part of the users/community to assess the fundamental utility and therefore value of a token. Secondly, responsibility on the part of regulators to ensure ICOs and the entities participating are open and transparent.
However most importantly there is responsibility on the part of the founders, to hold themselves, their users and their developers to the highest possible standard of accountability.
If we master the above and ensure this weapon does not fall into the wrong hands, in time we should see a prosperous, honest and globally distributed eco-system of useful applications.
I believe this is already happening to a certain extent. There are some great projects out there and I have faith that a lot of them will deliver utility for their users over the long and even short term. Right now though, the Crypto market is still in its infancy and the fact that 99% of all activity is speculation is quite unsettling. This is not necessarily bad per-se — speculative bubbles have an important economic function — but people will likely lose a lot of money in the next 24 months finding out the hard way that X ICO was not the right one.
We really just need to answer one question. In the general sense, can we convert these speculators to users? How can they contribute productively?
Does reverse adoption (or adoption through investment) work?
In my view… it certainly could. If we take a quick trip over to Bitcoin land (probably the most qualified example) and try to break down todays real world utility, you’ll see things aren’t all bad…
So let’s assume that bitcoin’s daily trading volume is made up of 5 categories:
(2) Internal Transfers (between accounts held by the same person)
(3) Investment (long hold)
(4) Speculation (short hold)
(5) Payment for goods and services
Number 5 is (arguably) the core value of Bitcoin.
“By best estimates payments for goods and services make up around 2–5% of all Bitcoin trade volume on a given day. This number is increasing too. So early signs look promising… but we have a long way to go yet”
2–5%; not too bad. Don’t forget the context though — Bitcoin is a blue-chip example in the crypto sphere and is still only just starting to be adopted for real world utility.
So the moral of the story is….
Tread very carefully.
In summary, it’s too early to call. My hope is that within 5 years:
- Several tokenised networks will have played out full cycle (from early token speculation to 100% token utility),
- ‘Adopters reward’ and the ‘network ownership effect’ are hero’d as the greatest on-boarding mechanisms of all time.
- Capital is democratised and profits are distributed more evenly on a mass scale.
- There is a more balanced speculation/utility ratio across the crypto-sphere of near 1:1.
Let’s wait and see. After all — all we can do is speculate at this point…. :)