May 3, 2018
CRYPTOCURRENCY MARKETING: PART I
An Industry Overview
So what exactly is cryptocurrency? Is it a Bitcoin? And what is this blockchain thing everyone is raving about? There’s a good chance you’ve heard of any of those three technologies mentioned in the last two years with the cryptocurrency and blockchain industry growing rapidly. In this two part series, we will look at the relation of blockchain, cryptocurrency, and bitcoin as well as go into a high level explanation of each to further illuminate the marketing strategies and policies common to this industry. Let’s enter the blockchain…
“Blockchain” is a type of technology that was developed largely to support the creation of Bitcoin, the most prevalent cryptocurrency. Simply put, Blockchain technology is a digital ledger of transactions that exist in a decentralized fashion. The decentralization of the blockchain provides for higher levels of security and usually easier accessibility to the ledger by members of the blockchain. Higher security features due to a lack of a centralization and the Proof of Work (PoW), Proof of Stake (PoS), or other similar validation proofs gives blockchain a level of visibility not present in other digital networks. A blockchain network exists in a live environment, constantly changing and building on itself through the work validation of members of the blockchain. Because blockchain networks are highly traceable and due to the implementation of security features provided by the network, blockchain is viewed as a technology that can innovate many areas of business, commerce, and even government -- a good example of that is currency. Enter Bitcoin.
Bitcoin’s inception began in late 2008 and early 2009 when the founder of Bitcoin, Satoshi Nakomoto, launched the Bitcoin network and mined the genesis block of Bitcoin. The Bitcoin network, based on a blockchain, began to grow over the next several years fueled by a loyal following and a strong developer network promoting this revolutionary currency on digital media. Fast forward a decade and you are looking at a Bitcoin that is much different from inception, having evolved to expand into more business enterprise opportunities. Improvements to the Bitcoin network and blockchain, several forks in the blockchain, and more has happened since 2008. During this time frame, an entire cryptocurrency ecosystem emerged around Bitcoin; this cryptocurrency ecosystem embodies much of the original principles of blockchain technology, innovating onto it and altering it as well. We now live in a world that is home to a full blown cryptocurrency market much larger than the Bitcoin blockchain network.
Cryptocurrency is a generalized term that identifies assets based on blockchain networks that are a store of value and are tied to monetary or derived monetary value. Many cryptocurrencies are conceptualized and then materialized following Bitcoin, such as Litecoin. Bitcoin is often referred to as the gold of cryptocurrency, and Litecoin can often be referred to as the silver. Funny enough, the coins are branded similarly as well. Another popular cryptocurrency is Ether, founded by Vitalik Buterin and the Ethereum Foundation. While some cryptocurrencies create their own blockchain networks and have their own blockchain code, validation systems, and decentralized forms of governance, some cryptocurrencies simply build off other cryptocurrencies.
An example of each:
Litecoin was designed by a former Google engineer, Charlie Lee, to improve on the fallacies of Bitcoin. To do this, Litecoin was created on a different proof of work algorithm designed to increase transaction speed favoring large amounts of high speed RAM rather than raw processing power.
ERC20 Tokens are cryptocurrencies built off of the Ethereum network. Let’s explore this example and Ethereum more in the next section.
Ethereum is one of the largest cryptocurrencies in existence today known for its smart contracts. A smart contract is code that runs on the Ethereum Virtual Machine (EVM). The EVM allows code to be verified and executed on the blockchain, providing guarantees it will be run the same way on everyone's machine. Smart contracts can accept and store Ether, data, or a combination of both. Then, using the logic programmed into the contract, it can distribute that ether to other accounts or even other smart contracts.
The Ethereum network has paved the way for thousands of cryptocurrencies because of it’s smart contract technology. As we mentioned earlier, this is one of the most common ways that a cryptocurrency builds off a previous one, in this example Ethereum. ERC20 tokens/coins now make up a large share of the overarching cryptocurrency ecosystem.
What’s The Real World Application
So we have all these Bitcoins, these Litecoins, some thing called Ethereum, and a couple thousand other cryptocurrencies.... But what can we do with them? In the last couple years, real life application of cryptocurrencies has become more and more prevalent. Many digital vendors accept several types of cryptocurrencies as a form of payment now! That’s right, these cryptocurrencies have a value derived from the global currency market. The price of Bitcoin eclipsed $10,000 and nearly touched $20,000 in late 2017. Outside of a store of money and value, many cryptocurrencies serve a purpose within a niche. They can serve as a form of payment for a service or product, such as renting disc space on a drive, accessing supercomputer power, an elaborate medical blockchain subscription, and much, much more. The application of these cryptocurrencies depends on the nature of the blockchain environment they exist in.
Blockchain applications exist in various industries ranging from finance, fintech, general technology, healthcare, data storage, energy networks, and even micro segments of industries. This revolutionary breakthrough in network technology is changing the game on multiple playing fields and will continue to grow in the near future as predicted by analysts, developers, and industry experts. So there is a tremendous use-case for not only blockchain, but the value systems cryptocurrency provides in blockchain environments.
Marketing For Cryptocurrencies?
Let’s look at the one denomination of cryptocurrencies: their existence is to be the store of value as any modern currency would. So why would marketing need to exist around a currency? Can you think of any other world currency who spends millions of dollars a year on marketing? To understand how marketing ties in with cryptocurrency, we will need to look beyond the most prevalent and possible only denomination between cryptocurrency coins.
Cryptocurrencies, as mentioned before, act as a store of value. Businesses and brands often times create cryptocurrency coins to act as that store of value for their products or services. Businesses who operate financially with cryptocurrencies are most likely businesses built on blockchain technology or around the premise of it. As you can see, the relationship between cryptocurrency and blockchain is extremely tight.
Because these blockchain businesses have created their own coins to pay for services or products that they offer, they often try to advertise on behalf of their own business’ currency. How does this work as a real life example?
Let’s say a company has a supercomputer warehouse that they rent usage for. This company needs to track usage, client traits, and more operational data so they apply a blockchain network to their business model. As the payment form for their services, they create their own cryptocurrency to fulfill transactions. Now just as any company would, they market their services to help business growth. Here inlies the marketing that accompanies a cryptocurrency. Cryptocurrency coins are often marketed as byproduct of a cryptocurrency business’ marketing strategy seeking to spread word about their product or service. As consumers, we usually see the coin being marketed first since this store of value is propagated by investors, exchanges, and media outlets -- including social media.
So, looking past the store of value (coins) created by cryptocurrency companies, we can begin to understand how marketing interacts daily with cryptocurrency and blockchain businesses. As these businesses look to grow and increase revenues, just as any normal business, they will often turn to marketing to help them reach their business development goals. Marketing for blockchain and cryptocurrency businesses exists in large part today due to the evolution of blockchain technology spurred by Bitcoin’s creation in 2008. With Ethereum’s inception came the blockchain protocol of smart contracts which further created application of blockchain technologies in dozens of business realms as noted previously. This evolution from a coin representing more than just a currency and store of value (Bitcoin, Litecoin, etc.) to smart contracts, which provide blockchain technology to businesses, also shifted the need for marketing in the cryptocurrency space. With more businesses comes more marketing and that’s exactly where the blockchain industry has trended in the last couple of years.
With a continued development planned in the blockchain arena, we expect marketing services to continue to grow in this industry in the foreseeable future. From marketing strategy and implementation, to branding, to paid advertising, this industry can benefit from an almost infinite array of marketing services. As a marketer, you could soon encounter a situation where a company you represent is either engaged in marketing a cryptocurrency or blockchain service, or is engaged in a transaction involving cryptocurrency. To learn more about marketing in the cryptocurrency realm, see Part II of this article here!