Fred Ehrsam, co-founder and president of popular bitcoin exchange and wallet service provider Coinbase, believes blockchain is beginning to revolutionize the mechanism of consumer acquisition in startups.
The concept of consumer acquisition in the startup ecosystem is fairly basic; it entails the method utilized by a company in securing a fundamental basis of consumers.
For instance, multi-billion dollar technology companies like Twitter had to incentivize prominent figures and celebrities to begin using their platform to convince the general population to follow. The issue behind consumer acquisition is, no one wants to be the first risk taker to utilize a platform that does not have a strong user base or reputation.
Startups can kickstart the distribution of their networks and platforms by offering shares of their companies to individuals with large followings to promote. However, splitting company stocks amongst tens of thousands of users is not only financially impractical but legally burdensome to deal with.
Ehrsam believes the blockchain technology is the solution to this particular problem, due to its ability to incentivize anyone in the network with local tokens.
If the Bitcoin network is considered as an example, the first users of the cryptocurrency back in 2009 had very limited merits in using the currency. It had extremely low liquidity, security, and value. In terms of stability, it was virtually impossible to predict its short term value and market cap.
Because the value of bitcoin scaled simultaneously with the user base and market demand, first miners or investors in bitcoin began to receive significant profits, as the price of bitcoin continuously demonstrated exponential growth.
“This is exactly what decentralized digital currency and transaction networks like bitcoin and ethereum have done,” wrote Ersham on WSJ. “Millions of early participants have contributed to these networks in various ways—writing code, hardware through mining, investing fiat currency, and embracing the openness of a new system. They were rewarded with some of the native token, and this arrangement supported the rapid growth of these networks,” he added.
An increasing of number of startups are following a blockchain-based consumer acquisition mechanism like Ehrsam described in the form of ICOs, or initial coin offerings.
Some startups have already initiated ICOs by engaging in a pre-sale of their native tokens, which essentially allows early users of a platform to be incentivized through the rising value of the network and platform itself.
Sources: WSJ
Image Credit: Wilfred Iven