Crypto’s Chicken and Egg Problem

Vishesh Raisinghani, professional fintech writer and crypto enthusiast, takes a look at how crypto and blockchain newcomers could break through the stranglehold of key incumbents.

Photo: Shutterstock

Photo: Shutterstock

Cryptocurrencies and blockchain-based technology solutions suffer from the classic problem that plagues most new innovative platforms - the so-called chicken and egg dilemma.

The intrinsic value of platforms that rely on network effects is based on the number of users who actively participate on the platform. Take cellphones as an example. Being the only person on the planet with a cellphone is useless because there’s no one to call.

However, if a thousand people buy similar phones, the value of your handset suddenly spikes. Similarly, if the number of phones and smart devices outnumbers the amount of people on the planet, as is now the case, you would be willing to pay hefty amounts for a device that reliably helps you connect with everyone you know.

New social platforms and innovative technologies struggle to kickstart the same effect. Consumers are unwilling to buy services or sign up for platforms that don’t have useful applications. Meanwhile, developers are unwilling to create applications on new platforms because the lack of users makes development efforts commercially unviable.

This is why Apple’s iOS and Microsoft’s Windows have deeply entrenched market dominance in the mobile and desktop ecosystems respectively. Newcomers struggle to break through the stranglehold of incumbents.

It’s a challenge that most crypto communities and blockchain entrepreneurs now face. The decentralized stablecoins and virtual machines of today are going up against the billions of users who regularly use the US dollar or Amazon’s Web Services. This struggle is reflected in the abysmal performance of platforms for decentralized applications.

According to data published by DappRadar, of the nearly 2,000 active dapps tracked only about 400 had active users on any given day and close to 300 had any transaction volume exceeding $0 over the past 24 hours.

Decentralized platforms Ethereum, Tron, and EOS are all struggling to gain mass adoption from regular users, although Ethereum is still the clear leader in terms of developer activity.

To cement their position in the industry, crypto startups need to target top-notch developers and enthusiastic early adopters simultaneously. Traditional efforts like networking at events, airdrops, referral incentives, bug bounties, partnerships with large organizations, and digital marketing have helped a number of projects climb up the market charts.

Examples of success include the team developing the Brave Browser. Brave’s community outreach and efforts to partner with major firms such as Barron’s, Cheddar, and Coindesk have helped adoption grow exponentially over the past few years.

Crypto entrepreneurs can also learn from the marketing success of projects like Maker, Binance, OmiseGo, and OpenBazaar to create their own strategy for mass adoption.

The bottom line is that crypto development teams and startups will have to figure out their own unique solution to the industry’s chicken and egg problem. For most teams, solving the lack of developers and lack of users can be solved simultaneously with the right mix of digital marketing, networking, and giveaways. Once a network or platform gains critical mass, the scaling up becomes easier.

Vishesh Raisinghani

Vishesh Raisinghani is a business writer at the intersection of finance and technology. His work has appeared in the Motley Fool and Seeking Alpha, while his musings on cryptocurrency and start-ups are published on his blog seekingfootnotes.com. You can usually find him on Twitter or LinkedIn

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