The Complexity Barrier to Decentralization and Cryptocurrency Success
At the end of the day, a cryptocurrency project’s value is at least partially determined by its ability to attract, onboard and maintain users. In a sense, a ‘decentralized’ project must be very good at what it’s least suited to succeed at: marketing itself.
Now, some projects are actually very good at branding and marketing themselves (and yes, cryptocurrency is in part a branding war), but they share one thing in common, a centralized figure, entity or group of technocrats who have a vested interest in the long-term success of the project — sorry, Charlie Lee, selling all of your Litecoin shouldn’t reassure anybody.
I describe the group of people who undoubtedly develop as the major coin holders in each currency as ‘technocrats’ because they typically have a far-above-average level of technical savvy and money which allowed them to accumulate a large position. They may be miners, node owners, stakers or simply currency speculators, but often, they have some advantage from owning more coins than the next guy. This has important implications on a coin’s ability to actually decentralize and should be carefully considered.
How Easily Can I Buy and Transfer Your Coin?
Is your altcoin built for the technocrats or the average user? — a question few seem to consider. Sadly, a lot of blockchain projects focus on development, or at least a significant amount of time, on developing ‘delegated’ systems that satiate these big bag holders. While this seems like a decent idea, focusing on the blockchain’s most technically savvy users ignores the fact that the majority of people in the world probably can’t open a zip file, let alone set up a node or download a desktop wallet from GitHub.
Why TRON Will Succeed While Your Altcoin Fails
Alright, I don’t actually know if TRON (TRX) will succeed or fail, but there is one thing I am positive about, this altcoin does a lot of things right. Many seem perplexed why people flock to an altcoin that may lack the same technical prowess as other projects, however, the answer seems rather simple, TRON is built for the common man.
It’s easy to get into TRON and feel like you’re part of the network. Additionally, while I’ve never personally used any of TRON’s apps, they look simple, attractive and easy to access. Oh, and the project has a face, Justin Sun, which may upset some cryptocurrency purists, but undoubtedly enhances the project’s ability to gain users, build meaningful partnerships, and compete with established companies (another essential aspect of a blockchain project’s success).
You’re Not Operating In a Bubble
Sorry, just because your idea is decentralized doesn’t mean people will flock to it. If the concept already exists, your blockchain project has to actually improve on established options, and the majority of people won’t consider ‘decentralized’ a switching point.
The current activity of dApps built on the Ethereum and EOS blockchains offers prime evidence of this issue, as most current dApps offer bootstrapped versions of existing ideas. Notably, only 5 dApps currently have more than 500 daily active users across both blockchains, while the projects maintain a combined market cap of around $34 billion.
Established products, websites, apps and anything else blockchain projects seek to replace are, for the most part, easy to use and simple to access. Decentralized dreams that rely on any level of technological knowledge above downloading an app or accessing a webpage will be a barrier to a certain percentage of the population, indefinitely. That being said, total decentralization may not even be possible, or preferable, so it may not be ideal to focus on completely saturating the globe.
While the idea of decentralization is undoubtedly popular in the crypto community, it’s debatable whether it’s even possible, as economic incentives may always leave a group of technocrats in control of any voting process or hash rate. Even without those two layers of project control, the coin may simply be hoarded by a group of people leaving others without — thus making decentralization impossible. Although, these quasi-oligarchies may not be detrimental, as major players have a significant incentive to make similarly rational choices to the upper management of a publicly traded company.
It’s safe to say that any actual decentralization that takes place will start with the hardcore daily internet users in the crypto community, followed undoubtedly by institutional investors, hedge funds, Wall Street, ETFs, and finally, your parents will read about it in the Wall Street Journal. I’m not quite sure how anyone expects these currencies to be adopted by people outside of the educated stratum of society that has the ability to navigate the complex world of over 1,000 digital assets.
Yet, a project’s failure to attract this group of people, perhaps best described as coin speculators and early adopters, can spell doom as well. The best example may be Nexo (NEXO), an incredibly interesting project that could potentially upend the loan industry, but they are failing in one major area: exchange listings. HitBTC and Stocks.Exchange are simply not acceptable as a coin’s main exchanges in today’s crypto space. While you can buy NEXO on the crypto-backed loan platform, the fact the coin isn’t on Binance or any other major exchange has, in my opinion, caused the price to drop from over $0.25 to around $0.06 — a major hit considering they only value their own coin (as collateral) at 10% of its market price.
Don’t get me wrong, I think exchanges like HitBTC and Cryptopia serve as a great entry point for small-cap projects, but they are typically stepping stones to larger exchanges like KuCoin and Bittrex, or the ideal Bitfinex, Binance or Coinbase.
While many, especially in the Bitcoin Cash community, focus on the whitepaper, I guarantee the vast majority of your coin’s users will never read the whitepaper, nor should they have to. If your project is contingent on people downloading a PDF and reading an owners manual, you are invested in the wrong cryptocurrency. Users shouldn’t have to understand the technology that makes a product work — and this fact is absolutely critical to mass adoption.
Complex technologies that reach mass adoption typically don’t require users to have an understanding of the nuts and bolts that make them work. You download an app, you send money to your friend with a little poop emoji, and you go back to watching Sharp Objects on HBO. You don’t read Venmo’s whitepaper before using the app, and I contend that the same generalization is true for blockchain projects.
It becomes obvious that a lack of project leadership can be disastrous, resulting in poor project management and a higher risk of forking. Evidence abound, but the most obvious may be the $10 billion dollar coin that can’t agree on a unique logo and name. Forks resulting from a project’s leadership failing to reach a consensus should be considered a major danger to the original project, costing a percentage of current users, more importantly, confusing and siphoning potential new users as a direct competitor.
These type of ‘feuds’ between projects will be confusing and potentially off-putting to the average person, only creating a further reason for people to not use your project.
Meanwhile, Justin Sun and others have realized the key to adoption lies in lowering the bar… essentially, making it stupidly easy for people to get into your blockchain network. Take Kin (KIN), the cryptocurrency developed by Kik, as an example. The Kin blockchain currently has one major application running on it, Kinit, which rewards users with Kin for completing daily interactive activities. While the idea is simple, the accessibility of the application allows users to adopt blockchain technology without even realizing. This fact alone has resulted in Kinit surpassing the daily active users of all the decentralized applications on the Ethereum (ETH) blockchain in just a matter of weeks.
People like a leader, and they like simplicity. Projects that remember these facts will do well over the long run.
Disclaimer: This article’s author has cryptocurrency holdings that can be tracked here. This article is for informational purposes only and should not be taken as investment advice. Always conduct your own due diligence before making investments.