Hardforks & Softspoons

Mergers and Acquisitions in a Blockchain world

With all the talks about a bitcoin hardfork and the potential disruption that this development could cause to the ecosystem, it is prudent to consider the potential for tame blockchain mergers or “softspoons”. This thesis is predicated on the fact that at least one coin has already signalled a migration from a bitcoin-related protocol to ethereum citing reasons including lower fees, more active development and faster transaction times. In this case, the smaller network has appended itself to a larger network. The underlying question becomes, what happens when the large network decides to merge, acquire or takeover a smaller network in a decentralized ecosystem?

We can look to the traditional markets to guide our thinking on the merits of the softspooning of two blockchains. First, let’s consider why one chain would want to merge with another. It could be to realize economies of scale or to increase market share by consolidating different managerial specializations. This could take the form of a ‘merger of equals’ where both coins are identically ranked in terms of influence and market cap such that a merger would enable them to compete with a more dominant player. It could also be an ‘acquisition’ where a high market cap coin would decide to create x amount of tokens in exchange for all the tokens in a lower cap coin. Furthermore, one blockchain could simply invest in the ICO of another promising project and by that means maintain a stake in the success of the latter. Technically mergers and remergers could happen inifitely as illustrated by the timeline of AT&T.

The governance structure incorporated into coins like DASH, PIVX and DECRED facilitates decision making in a way that increases the probability of a softspoon event. Given the competitive nature of humans, successful networks will strive to increase their dominance and one way to achieve this will be by joining forces with other blockchains. Based on this line of thought, the Dash crypto community for example could court lower cap coins to append to its network in an acquisition-type deal. Dash already has a dedicated business development team and are aggressively vying for the top position in crypto therefore this might not be too far-fetched.

The signs pointing towards this path include the fact that the crypto-community will eventually mirror traditional business organizations as more and more legacy actors join in. As a matter of fact, the sort of egos that cause a hardfork could also lead to a merger if incentives align although this would admittedly be relatively more difficult to pull off for a decentralized system. A related insight then is that blockchains likely to be softspoonees are those that are facing an imminent systematic crisis yet have an engaged community centered around a theme or interest (marketing, logistics, records, music, arts, sports).

Acknowledgements: Special thanks to Chris Coney for thinking through this with me on the cryptoverse show (the discussion starts at 13:04), David Johnston and William Mougayar for critiquing the inital idea.