Altcoins are not bad for Bitcoin, but are no more important than closed loop loyalty points

Altcoins are not bad for Bitcoin. That is like saying that Starbucks Rewards are bad for the US Dollar.

Nor do I think that Altcoins (any single Altcoin, or Altcoins as a class) are the next big thing. They are as important as Starbucks Rewards or any other closed loop loyalty points. If you like Starbucks, the Starbucks Rewards are important to you. If you don’t like Starbucks, the Starbucks Rewards are irrelevant to you. It is about the product and not the currency.

It is tempting to see Altcoins as the next big thing. Who would not want to be their own Central Bank, creating your own currency? The Ethereum Ether sale last summer was a stunning success. They raised around $15 million in a few weeks for what was a pre product seed stage concept without talking to any angels or VC Funds.

However, I think that the Ethereum Ether sale was the exception that proves the rule. I don’t see this as the future of fund raising. People bought Ether because they believe that Ethereum is a game-changing platform (for the record, I agree and here are my other posts referencing Ethereum ). If you plan to run Ethereum-based applications, you will need Ether. You could wait until Ethereum is live and buy with whatever currency you like or you can buy at the seed stage. You might make some money from Ether appreciating in value but that is not the primary driver. It is like buying a product on Kickstarter. You buy the product before it is ready because you think it is an important/fun product.

Altcoins that are not tied to any underlying product, that are acquired purely for speculative value will fade away IMHO. They have neither underlying value (true for Bitcoin or Fiat as well), nor do they have the network effects of Bitcoin.

Closed loop loyalty points are not fungible. As consumers we would like them to be. If I could aggregate all my loyalty points across various consumer products and services (bank, hotel, airline, food and beverage, entertainment etc), then I would have some money to buy whatever I want. That obviously defeats the point for the merchant.

This is where mobile wallets do add real value to both consumers and merchants. I don’t mind carrying folding notes and coins. I do mind carrying the cards of all the merchants I might want to use. That is where Apple Passbook has it nailed. It just keeps my physical wallet slimmer. It does not eliminate it (new technology seldom eliminates the old technology, it just means you use the old technology less and less). If I am on a site/in a store for a favorite merchant, I can click “pay with points” as easily as I can click pay with Fiat or Bitcoin. That is cool, but it does not drive my purchasing decision – that is based on the product.


Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.