Cryptocurrencies are global and accessible. No sign-up is needed, and you can start interacting with a permissionless blockchain to move cryptocurrencies from user account to user account without a middleman — or counterparty. However, most cryptocurrencies rely on network-effects business models where the cryptocurrency is only as good as those who use and accept it.
Despite the hype and appeal surrounding cryptocurrencies, it hasn’t yet reached mass market adoption and few use cryptocurrencies or functional activities outside of speculation, such as to pay for goods or services. The reason may be twofold:
- Do the projects or companies have product-market fit? Are they solving a meaningful problem for a specific customer segment?
- Have companies and projects figured out how to distribute products to a specific customer segment?
Too many projects and companies building products around cryptocurrencies have not thought through how to distribute their products. They are not ensuring meaningful network effects transpire among consumers who want to transact with each other.
Airdrops Lack Network Effects
A popular distribution strategy, called an “airdrop,” has been employed by many crypto projects and companies in the past. Since cryptocurrencies are permissionless anyone can send any crypto account holder cryptocurrencies without their permission. An airdrop distributes cryptocurrencies to crypto account holders in hopes of establishing a vested interest in the cryptocurrency they just obtained.
This strategy is largely unsuccessful. An airdrop assumes product-market fit for a cryptocurrency that goes beyond speculation. This is rarely the case, thus generating pressure in the market to sell the newly obtained cryptocurrency. Additionally, the airdrop tactics to date have been broad in distribution and have created few network effects among those transacting with the currency.
Crypto Needs “Fresno Drops” Instead
Instead of broad distribution tactics such as airdrops, crypto projects and companies should take a page from Bank of America. The bank distributed its first credit card (now known as Visa) to jumpstart their card network. To work, the card needed to build strong network effects among consumers and merchants who both had to accept and use it. Additionally, the bank needed to differentiate the card against the incumbent payment methods at the time: check and cash.
In the late 1950’s, Bank of America began localized distribution of the card by signing up hundreds of Fresno California merchants. They then dropped 60,000 credit cards to Fresno residents’ mailboxes over several days. Each card came with a $500 credit limit, which made it better than cash because allowed you to easily spend money you didn’t have. :) This revolutionary distribution plan created strong network effects that served as a catalyst the Bank of America card network as we know it today. This brilliant distribution tactic would be later dubbed the “Fresno Drop.”
Facebook’s “Harvard Drop”
Facebook also jump started network effects by launching its social network at Harvard university. It then branched out to other universities by restricting signups to users with “.edu” addresses. These localized launches across universities enabled strong, high-quality network effects that enabled Facebook to quickly outpace the incumbent Myspace because it offered higher quality connections and content.
The crypto industry can learn from these examples — both in embracing their successes and avoiding their pitfalls. While crypto offers wide appeal and access, the industry should more strongly prioritize distribution to a smaller customer segment and a use case underserved by incumbent providers. In similar fashion to how the Bank of America card focused on one small geography in its Fresno Drop approach, more focused distribution tactics among crypto projects and businesses will help cryptocurrencies develop strong network effects that the industry can then take to a wider, more global audience.