Why we changed our opinion about crypto tokens..
It had a lot to do with a judgement about who exactly benefits..
Back in late 2013 when we were just starting Bittunes, we entered into a discussion with the BitAngels about potential funding of Bittunes through that investment group. However, we quickly discovered that although the BitAngels had started as a Bitcoin centric Angel fund, the leadership had in fact become devotees of a breakaway crypto currency called Mastercoin, which was designed to function like a Queen Bee, pumping out innumerable altcoins. In what appears to have been a relatively short space of time, this apparently became their operational model.
When we first started talking to them, even though we had yet to develop the current version of the Bittunes app, the BitAngels quickly suggested a valuation for Bittunes of US$2m, and offered us a lucrative deal, and a $500k bonus.. provided that we used Mastercoin to create an exclusive Bittunes token. What drove their unrealistic valuation? ..I think we all know.
What were the issues we had with tokens back then?
- Bittunes was probably the first Crypto/Music application, but we knew there would innevitably be others and if all these applications created their own app coins, this would not provide the cohesive future that we wanted for a new global music distribution paradigm.
- We felt that we could already see the beginnings of broad fragmentation of the crypto space and we didn’t want to add to that.
- For our users, the value of earning Bitcoin was always a better prospect than a new token with unproven inherent value and limited trading options.
Round #2.. Let’s talk face to face (about tokens).
In May 2014 we were in New York for a Bitcoin conference and to meet some of the BitAngels team to discuss funding again. I explained my concerns about tokens, and my belief that Bittunes had to remain a Bitcoin only platform.
However, we were made aware that the deal could only proceed if we abandoned Bitcoin as our operational currency and became ‘Bittunes Coin’. This was a deal breaker as far as I was concerned, so we walked away.
Then in late 2014 the issue came up again..
During a wide ranging interview with Theo Goodman from World Crypto Network, we discussed why Bittunes had not issued a token to help finance our development.
The point for us at the time was that tokens represented the opposite of what had made Bitcoin significant. With Bitcoin there is built in scarcity and what we were starting to see with tokens was the opposite, massive over abundance. This was the heart of the problem for us.
..and we didn’t want to be part of the problem..
Sometimes you have to make difficult choices, and these decisions are innevitably going to be very consequential. In this highly dynamic and often confusing crypto field, we’ve tried hard to have 20:20 prescience. Staying true to our principles, while playing a ‘long game’, (more on that later).
So, we did come to see a definite role for a crypto token to be used in Bittunes..
But before I explain why, I wanted to cover the fundamental aspects of Bittunes that we felt we needed to preserve.
Bittunes users had started to become accustomed to the progressive gains they were seeing in their total combined earnings. To all those who don’t fully understand how Bittunes works, its important to explain two key processes that drive up earnings in Bittunes.
1. First Earning Process: (resembles a blockchain)
In Bittunes, if you purchase a song, and you remain engaged with the platform, a selection of such users will earn Bitcoin when subsequent purchases occur.
This is the core business model innovation in Bittunes. To use a metaphor that crypto enthusiasts might understand, every sale in Bittunes could be compared to the generation of a block in a blockchain..
A selection of new buyers of ‘x’ track are rewarded with micro earnings based on gamification of loyalty in the system. In other words they are mining rewards, with their attention and loyalty in the application.
2. Second Earning Process:
Those users who generate micro earnings in this way, (and also Artists who generate earnings through sales) will see their earnings totals rise (or fall) with the price of Bitcoin.
For example, the two images below are screen shots from a user account in the Bittunes app, taken roughly six months apart. Although some micro earnings were received during this period, most of the price gains are directly related to the rising price of Bitcoin during that period. ~ So, if the price of Bitcoin does indeed end up going to $50,000 or beyond, where would you like to have your music royalties and/or micro earnings?
What was our anticipated long game? ~ ‘Sidechains’
Following on in the chronology of how our thinking and strategies developed, 2014 was a decisive year.
In May 2014, I sent our lead developer to the Bitcoin conference in Amsterdam to find out about the recently announced Sidechain tech announced by @Blockstream and to talk with Adam Back.
We saw the prospect of Sidechain technology as a way of extending on Bitcoin’s functionality, while preserving its integrity. However we found out at this conference that it was not going to be production ready any time soon. Adam told us that it “could be six months or more”.. In the end, its actually taken about three years, but now in 2017 we are starting to see some real implementations, and new developments like Drivechains, that we are very excited about.
Note: the reasons that a Bitcoin sidechain is preferable to the main bitcoin blockchain for Bittunes, are to do with a) unpredictable transaction costs, b) latency (slowness) of transactions, and c) limited space in the Bitcoin blockchain for rights related information etc.
So, between 2014 and 2017, we concentrated on building engagement with Independent Artists around the world and growing the community.
We knew it would take considerable time for sidechain technology to enable the kind of solutions that we wanted, so we kept working with Artists to build the Bittunes brand and its global footprint.
So, several things happened in 2017 that started to change our thinking about tokens..
Apart from the proliferation of ICO’s this year, there were a number of other factors that have started to convince us that tokens and ‘token crowd sales’ or ICO’s are a phenomenon that is not going away.
- Crypto Exchanges like Poloniex, Kraken and Bittrex have given buyers of tokens a very quick and efficient way to move in and out of crypto token holdings. These systems are not perfect, but they do start to address one of our original concerns about token buyers getting stuck with tokens that they are unable to trade. These mechanisms also give investors a quick and easy way to exit at a time and price of their choosing. This kind of flexibility would be a highly prized and positive step for many investors.
- The advent of CoinList, being a kind of spin off from the well established investment site Angel List, was in our view quite significant. It is another indication that, love them or hate them, ICO’s have started to ‘cross the chasm’ toward main stream acceptance.
- The SEC’s determination about ICO’s although spreading fear and anxiety among many in the crypto community who are involved in or planning an ICO, is in itself a tacit recognition of the validity of this form of capital raising.
- The democratisation of venture funding, that ICO’s potentially represent if they can be executed ethically and professionally is truly momentous in its implications. For too long VC’s have operated in a kind of elitist bubble with their own rules, barriers and biases. It is easy to see ICO’s as an extension (and even an improvement) in the trend established by sites like Kickstarter and Crowdcube. Seen in this light, they again seem quite innevitable.
This last point is especially relevant to us at Bittunes, because since 2013 we have had numerous conversations with investors and VCs, but found it very difficult to raise sufficient development capital to take Bittunes to the next level. In contrast we have always felt that Independent Artists and members of the Bittunes Community have a very clear understanding and appreciation of the Bittunes mission and have always been very supportive.
We see the future of payments and earnings in Bittunes being centred on Bitcoin running on a sidechain.
However, we do see aspects of Bittunes like the submission of content and micro-earnings distribution as being able to be tokenised without compromising our commitment to Bitcoin as our primary currency. We also see the possibility of a kind of payments/earnings API to be tokenised, and even extended externally to other services.
In a world where tokens can be generated at almost no cost, value and true utility will be paramount..
As Kevin Kelly pointed out in 2007 on his influential blog The Technium, the Internet has made the cost of making copies near zero, and so everything from web pages to books to music to movies are copied and distributed at near zero marginal cost. This obviously especially applies to cryto tokens.
The thing that is ‘difficult to copy’ is the collective will and shared mission in a community who are working to reshape the processes of music distribution.
We don’t have all the answers yet, but we are opening up a process within the Bittunes Community to define a workable solution. We have begun to establish a working group (in a Slack channel) to explore how we may undertake a sensible token crowd sale. In preparation for that, we will be opening a limited and Private Presale to Bittunes community members.
If you would like more information about this Presale, or how to become a Bittunes member, feel free to contact us at: admin (at) bittunes dot com
See also: ‘Why we started Bittunes’