Author: Francois Devillez

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Blockchain Other

Blockchain scalability solutions to drive user adoption

Blockchain technology is a marvelous thing, it has brought major advancements, created economic value, and may even change the way we do business. However, any seasoned technologist knows that it’s more complicated than that. As entrepreneurs come up with new ideas, developers are hard at work finding blockchain scalability solutions. 

In this article, I’ll talk more specifically about blockchain scalability solutions that improve user experience and drive user adoption. I’ll brush off the common misconceptions and mistakes that people who want to start a blockchain project make and offer alternatives. 

Blockchain scalability solutions: on-chain vs off-chain

Many blockchain entrepreneurs want to put as much data on the chain as possible. They argue that it makes their project more decentralized. But this is not the best idea on several levels. There are several things to avoid when you’re starting a dApp development project.
First, blockchains facilitate the storage and transmission of value. They’re optimized for that. However, by pushing non-financial application data on the blockchain, you clutter the network and have to pay unnecessary transaction fees as a result. This reduces blockchain scalability by making it more expensive to run a dApp and slowing it down. 
Blockchain scalability is a lingering concern for developers and entrepreneurs alike. However, blockchain scalability solutions exist with existing technology. State channels and side-chains, for example, allow users to store non-financial application specific data either on a secondary blockchain or in a database. Our developers recently implemented state channels in decentralized derivatives trading platform, CloseCross. 
These solutions allow free microtransactions to occur parallel to the main blockchain. Only when you need to verify a result or record changes will the transaction write to the main network.
This phenomenon — also known as clearing — isn’t specific to the crypto industry and is commonly used in finance. Very often banking transfers and exchange order books are batched and executed at the end of a certain period of time, all in one transaction.
The same mechanism works in blockchain projects, allowing linear scaling in terms of fees and speed. This improves blockchain scalability by saving money, electricity, and time.

Blockchain scalability solutions in practice

Let’s say we’re creating a decentralized poker application. Maximalists might argue that each interaction should write to the blockchain.
They may design a project that would try to put everything on-chain — from card generation logic to a big smart contract containing all the game’s logic. Each players’ move would require gas transaction fees that fluctuate depending on network traffic. Few users would currently tolerate a fully decentralized poker game.
However, a more pragmatic blockchain project could use side-chains or state channels to record the stats of every game and only commit final results. These blockchain scalability solutions not only keep the game engaging but also keep fees low. 

blockchain scalability

Focus on product development

In addition to trying to put everything on-chain, some blockchain projects lack product development. Let’s take a real blockchain startup Crowdwiz as an example.  The company aims to “shift power away from intermediaries and centralized control and place it back in the hands of investors, who will benefit from financial services in a new, transparent way, with no middlemen and no hefty fees.”
Although the description of this project looks very salesy, the project succeeded in raising more than $7,000,000 in November 2017. More than a year and a half later, the project has little to show.
Recently, CrowdWiz released a Beta version of one of their products. Needless to say, the engagement is quite low (fewer than two users on the platform). Moreover, the price of the token decreased by 99% compared to the ICO price. Despite the fact that the project looked very promising, the product release took a lot of time and lost momentum.
Tech entrepreneurs must be aware of the fact that timing is everything. You want to catch the right momentum. I recommend the Blitzscaling approach popularized in Richard Hoffman and Chris Yeh’s book on startup growth. They lay out a path that can help develop your product in rapid iterations according to the needs of your users in record time.
Don’t take one year to release a perfect product. If your Beta looks very clean, it’s probably because you launched it too late. Investing a lot in product development and tech is the first step of any successful project.

Put users first

When we deal with new technology, user adoption, and user experience is key. Apple’s iPod is an excellent example of why a well thought design is crucial to the success of a product. MP3s and audio players were available at the time when the first iPod came out.
There was nothing really new in terms of technology. What really won the crowd is the convenient way to go through thousands of songs that the iPod had to offer. Same goes for the first Macs.
People are generally not tech savvy. However, almost all blockchain projects require users to generate and the store a private/public key pair, as well as understand blockchain specific concepts such as gas, ram, cpu….etc.
One of the main challenges of today’s blockchain industry is to make the interaction with the blockchain as fluid and as transparent as possible. As a reminder, in order to be able to use the first computers, users needed a good grasp of programming.
Nowadays, you can use a computer without any remote knowledge of programming or computer architecture. As such, user interaction should be the main focus to boost blockchain user adoption.

Forge partnerships

After the right timing, the second pillar of success is the right partnerships. The lightning success of ICOs has led to a proliferation of ICO websites and software templates promising an all-in-one solution for your project.
We think that every job needs the right tools, the more optimized your tools, the better the odds of success.
Don’t fall into the cheap trap of saving money where you really shouldn’t. Strong and secure foundations are important for any crypto project because they have a financial dimension.
We at Espeo, have a long experience building custom tools that offer blockchain scalability solutions for various projects. From side-chains to state channels, we can advise and get your project off the ground.
blockahin scalability

Conclusion

Poor user experience caused by low blockchain scalability hinders widespread user adoption. In order to make a good blockchain project, it is important to grasp the importance of existing blockchain scalability solutions such as side-chains and state channels.
Develop a realistic project that users want to use and interact with. It’s 2019! the only way to attract people to your platform is to make sure that they have as smooth as frictionless an experience as possible.

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Blockchain Software Technology

6 pitfalls to avoid in blockchain application development

Knowing your target audience is important to launch a successful dApp. With any dApp blockchain technology should form the basis of a product and deliver utility to end-users. So many blockchain application development projects so far have focused on the buzzwords and not on how the product will actually work. When people ask me about their dApp, they want to know why they haven’t seen much user adoption. I often have to list some of the things that could have made their blockchain application development project more profitable.

When users buy your tokens, they become part of the project in a similar way that shareholders become part of a company. Therefore, it’s important to have the interests of all actors aligned with similar goals. In this article, I will present 6 reasons why projects lack user adoption and ways to do it differently.

The dApp is unusable


Creating a profitable dApp blockchain business is all about finding the right product/market fit. Launching a product that your users will like for what it is and not because of the technology behind it is critical. After all, few really care about how services such as Paypal work under the hood.

All that matters in blockchain application development is that the product works and that it’s convenient to use in the end. Adopt this approach when dealing with any new technology, but blockchain especially.

Don’t assume that your users will know how to use MetaMask, or MyEtherWallet. The customer experience must be as smooth as possible, to remove as many barriers between the company and the customer. Good UX design also goes a long way to improving usability and building trust in any dApp

Every operation that requires an active behavior from your users (token sale, airdrop, interaction with the platform) should be an opportunity to educate them. A resource center where users can find small videos and/or presentations to guide them through your platform is essential to success.

The tokenomics model is not sustainable

Usability aside, token supply and demand play a huge role in the success of any blockchain application development project. Most dApps have a native token. Since the token — in theory — gains value, it’s important to design an economic system involving the token (tokenomics)  that will regulate that value.

Usually, blockchain application development projects choose a deflationary model inspired by bitcoin. In the bitcoin model, there is only a fixed set of tokens in existence and because of that, the price of the token will go up. 

However, this system only works for projects that aim to use the token as a store of value — as digital gold — not as a utility for the dApp blockchain platform. If we compare the storage of value effect and the utility effect of a token, there’s clearly a divergence of interests between users. Some want to use the token and thus don’t want its price to fluctuate. While others want to speculate. Since most projects are based on a utility token, the deflationary model alone does not work.

Some projects use an inflationary model, this model reflects real-world monetary systems. While this is very complex to design and set up, it brings unique advantages. One of the most famous blockchain projects implementing inflationary tokenomics is STEEM.

Carefully designing the right tokenomics model for your blockchain application development project is a crucial step that will contribute to the longevity and the economic stability of your project. Do not underestimate the importance of a well-thought tokenomics.f the token price drops to zero, the project is dead.

No one can find the token on exchanges

Once the blockchain application development is over, it’s time to list on exchanges. Centralized exchanges are big actors in the decentralized landscape. As strange as it sounds, the activity of an exchange (even a crypto exchange) is highly regulated and people have been fined and shut down for running illegal exchanges.

High listing fees and tough conditions are typical for the major players. This tremendously complicates the listing process. In order to list your dApp blockchain token with big exchanges such as Kraken or Binance, you need to have a large community and plenty of funds. If you go for smaller exchanges, users might find it difficult to use their platform and to find your token. Listing on smaller exchanges also means less liquidity.

One of the suggestions that we have is to look for alternative ways of distribution. There are different ways of distributing a token without going through exchanges. For example, airdrops, private shops, and atomic swaps are all solutions that can help consumers access tokens.

The dApp attracts the wrong crowd

Many entrepreneurs, not specifically in the blockchain industry, fail to grasp the importance of attracting the right users. They’re fooled by the lofty promises of a network effect and feel compelled to attract as many users as possible. Regardless of who they are.

A quick glance at major dApp blockchain groups on social media reveals that the main topic of conversation is the price of the token. Of course, this is usual in the crypto community. But should the price-obsessed be the main target of your platform?

At its core, there is a chasm between the interests of users who want to spend your token and the users who want to hold it to make a profit.  Since your goal is to drive mass adoption of the platform, you shouldn’t target the crypto community specifically because the vast majority of its members only care about price.

If we look at how usual companies operate, the share price does not necessarily reflect how the company is doing financially. Companies like Tesla, Pinterest, Facebook do not (or did not for a very long time) generate any profits.

As opposed to companies quoted above, most blockchain projects do not have any products because they focus on the price of the token rather than building one.

The reason why internet companies have value is because of their users. User adoption is the most important metric out there. A quick look at DappRadar can show that most dApps have no more than 50 users apart from airdrop groups.

If you target users in the crypto community, yes you’ll have some traffic, yes you’ll give the impression that your project is hot. But as soon as the selling window of your tokens expires, those users will simply switch to another project.

Aside from the number of users, the quality of those users is a far more valuable measure. I always suggest my clients avoid only targeting users in the crypto community. Some of them just want to pump and dump. You want to build a sustainable decentralized business.

The airdrop was poorly organized


As explained in a previous article, airdrops can be your best tool as they can be your worst enemy. There ’s always a risk in attracting the wrong users to your profile. You don’t want to have your main communication channels polluted by a flood of “when exchange” and “when moon” messages.

On the contrary, you want to have smart users that are asking critical information about your product and engage with the community. If you do it well, a lot of the support can be performed by those same users who will educate the newcomers.

There are numerous mechanisms that can prevent users from selling their newly acquired tokens on the exchanges and causing a major drop in price while still benefiting from the exposure offered by the airdrops. However, you have to organize each airdrop in a unique way, tailor-made way. We at Espeo have a history of successful airdrops and will be happy to talk about your options with you.

The dApp does not have a clear competitive edge

Before you start a blockchain application development project, ask yourself: What is my edge, what is my unfair advantage?

Time has passed where you could simply copy an ICO website, quickly write a sloppy white paper and expect to raise $20 million. If you want to make it, you need a strong value proposition. What is your value when you’re literally using the same pitch as 100 ICOs before you, what is your edge when you develop the 10th KYC on blockchain solution that will change the world?

Building a strong project takes time, efforts and resources. Creating a fancy website, adding some animations, and hiring content writers to produce “sales-y content” is pretty easy. But what’s your edge on your competitors? What will drive the users to come to your platform, apart from the tech?

A dApp blockchain platform has to actually create value for end-users. This can get very complex and it requires an extra mile of work. It may also require a second-layer of reflexion regarding the goal and project architecture. Yes, it takes more time, but it’s worth it. We always forget the time spent on a project, but the value of a project remains. And that’s where Espeo stands for.

Our team of experts can help you strengthen your projects by understanding the technical challenges that you’ll face as tech entrepreneurs. We can help lead you toward a profitable blockchain business.

Conclusion

As already mentioned above, many dApps lack a basic proof of concept. There are a lot of new concepts, and indeed a lot of nice investor pitches. However,  there are very few established prototypes.  For any successful dapp blockchain technology has to actually benefit end-users. Fixing this is already something that will set you apart from your competitors.

After, all technology is a tool. But how people adapt and react to technology has not changed. This is why it’s crucial to think about the way you target your users and how you present the product. People react to what you say. If you create a project that’s simple to use and solid economically you’ll have no problems finding the right users. Before any blockchain application development project, follow a few of these tips to launch a great product the market actually needs.

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Uncategorized

8 deadly sins of a bad ICO whitepaper

A whitepaper is a document which identifies a problem, emphasizes it and proposes a solution. In the context of an initial coin offering, an ICO whitepaper also specifies the ecosystem and the developed token (technical part). It’s more than a description of a project, a white paper is an opportunity to present your project to VCs and potential first token holders. In this article, I will analyze the most common mistakes and flaws I come across in ICO whitepapers. I’ll also propose how to fix them.

1. Using blockchain the wrong way

ICO whitepaper writers and founders sometimes forget that blockchain technology is all about new paradigms. Ranging from token economics to the way of thinking, blockchain technology removes the borders of progress.

However, it’s important to use blockchain the right way. The disruption of an existing industry goes way beyond an existing business idea even without adding the word “blockchain.” If an ICO whitepaper makes more sense by changing the word “blockchain” into “database,” then it seems nothing justifies the use of this technology. Moreover, the analysis of the token economics is vital: a poorly designed ecosystem is a sign of weak projects.

Finally, whitepapers must frame blockchain technology as something that can empower business processes, and not just as a way to make money.

2. Failing to identify market needs and to propose feasible solutions

A complete market analysis is important in order to determine its pain points and to propose innovative solutions. Identification of the key problem areas isn’t perfect because of minimalism which has found its way into market analysis. Take time to describe the market precisely! The project needs not only to innovate, but also work. Indeed, many projects propose interesting concepts, but are out of touch with reality.

3. Lack of a business strategy

Be able to identify your customers. Regardless of what your product is, whether it’s a platform, a DApp, a wallet, an exchange or a service, it’s essential to be able to identify your target customers. The first error of many businesses and blockchain startups is focusing on too broad a target group.

Correctly assess the necessary time to develop your product. Having a clear idea about the time necessary to develop your project is crucial. Developing a good product takes time and so building an over-optimistic roadmap may be a time bomb.

Sooner or later, you will have to explain yourself to the token holders. Some projects claim to disrupt the energy market in the span of twelve months. This kind of statement is suspicious, isn’t it?

How are you going to penetrate the market? Becoming the next LinkedIn or YouTube is not an easy task. Many actors pop up on the market every day, but just some of them plan their strategy carefully to attract users to their platform. Although, having the token holders’ trust is important but having a predefined market penetration is even more so.

4. No competitor analysis

There are numerous ICO whitepapers without a competitor analysis. Competition and competitors, either direct or indirect ones, are inalienable elements of running a business, so do be careful to take it into account. The absence of a competitor analysis can lead to a lack of cohesion, precision and business knowledge.

As a consequence, it’s important to analyse the competitors around the key comparison criteria, and identify their strengths and weaknesses. A research into different market actors can be conducted on several reference crypto websites (ICObench, ICODrops,  CoinGecko, etc.) but also similar businesses that aren’t based on blockchain technology.

5. Wrong choice of words

Many white papers are a compilation of buzzwords and false expectations for the future token holders. Don’t fall into this trap!

An ICO whitepaper must explain the project clearly and simply. A good project will still be good, even if it’s explained with simple words and terms. And a bad project hidden behind marketing terminology/gibberish will still be a poor one. So, keep it simple!

The choice of words is also extremely important legally-wise. The words can change the qualification from a utility token to a security token. It’s never recommended to talk about token price growth and promises of returns (high returns, outstanding returns, etc).

6. Lack of precision and structure in the ICO whitepaper

You have to structure the flow of your ICO whitepaper well because a structureless document is always difficult to read. We recommend using a classical structure, where the problems of the industry are emphasized (market overview, pain points) before presenting the solution proposed by the startup (touch points). Afterwards, an in-depth analysis of the competitors must be presented, before explaining why your project is different and more valuable than the already existing ones on the market.

An ICO whitepaper is the first representative of your project. This document must be precise and accurate, and the sources of every statement have to be referenced: the size and the potential growth of a market, the main pain points, etc. The sources must be trustworthy and verifiable (don’t use Wikipedia as a source, instead, go for scientific publications).

7. Problems in aligning interests

Many actors in the crypto industry have different interests:

  1. The first token holders (also known as early-birds) present at the first stage of the ICO (private sale) want to benefit from an important bonus. It’s 60% on average but can go up to 80%.
  2. The bounty-hunters want to have as many tokens, as fast as possible.
  3. The token holders (simple holders) want to observe an organic growth of the token price.
  4. The users of the DApp or the services want to have a stable price.

This divergence of interests can lead projects characterized by a poor token sale and tokens distribution strategy into an uncomfortable situation in which the token holders and final users pay the price for these mistakes.

Indeed, imagine a pre-ICO where you’re offering a bonus of 80% to the first token holders. The first reaction of these holders could be to drop the coin on the market the moment they learn about the the first exchange listing. Let’s say you also have a bad strategy of token distribution (designed to increase the liquidity of the token) in the form of an airdrop. Now combine it with this situation and you’ve got a major value loss of the token. This price drop is a very bad sign for token holders and the final users, who will suffer a significant loss.

8. Absence of legal structure

An ICO whitepaper must contain a disclaimer. As I said before, we recommend to pay attention to a  precise terminology while preparing and editing a white paper. On top of everything, a disclaimer at the end of the document written by a lawyer is a must. Don’t forget: a lawyer is somebody who you need to consult before starting a project in order to avoid problems afterwards.

Indeed, it’s important for both parties (the startup and the token holders) to know which risk is linked to the possession of this type of assets. If you’re thinking about organizing an ICO, you will also need to provide your potential token holders with a token sale agreement. It will include several details regarding the token holders (restricted areas, KYC process, etc) and the token itself (the price of the token, issuance date, etc).

Conclusion

Writing an ICO whitepaper isn’t an easy task. It requires time and expertise. If you want to talk about your white paper and how to improve it, don’t hesitate to contact me here at Espeo (box down below).

Categories
Blockchain Finance Financial Services

Token economics explained: tokenomics examples & tips

Nowadays, a lot of projects are popping up within the blockchain industry, claiming to be the next big innovation that will change the world. In reality, only a minority is really disruptive. Because of the innovative character of this blockchain technology, the number of types of tokens and used cases is unlimited: tracking ownership, provenance of documents, supply chain management, insurance and so on.

In this article, I’ll introduce this high-profile concept in crypto space – tokenomics, or token economics. This new paradigm is shaking the traditional economy, but it includes many challenges. I’ll underline its key-concepts, and its main pain points to keep in mind during the creation of a new token ecosystem.

Tokens and token economics

Notion

Token economics (or tokenomics) is the study of a new type of economy that can be defined as the design of a particular ecosystem in a blockchain environment. There are as many ecosystems as startups and projects in the blockchain industry, where tokenization is a popular process. Some of these ecosystems and types of tokens are ingenious and disruptive, others are pretty dangerous and unstable.

Putting it in simple terms every ecosystem is composed of several elements, and the crypto token functions as the central element of this new type of economy. As you might know, a token is a digital asset that can belong to different categories: utility/security and fungible/non-fungible and have a limited supply or lack a maximum supply. Let’s explain what those are, as these are important terms in tokenomics.

Utility or security?

A utility token is a digital asset used to offer the access to products and/or services on a platform. And the other is a ‘security token’ – that derives its value from an external and tangible asset and offers to the token holders a wide range of rights (entitlement to a share of profits, ownership or equity in a legal entity, and so on).

The line between these two categories of tokens is thin, so it can be problematic in tokenomics, given the different regulatory frameworks applicable to these two categories The actual regulatory framework isn’t totally transparent about the criteria for qualifying a token as a security or a utility token. However, there’s still a set of guidelines that allows the blockchain entrepreneurs to create a token that aligns with their expectations as closely as possible, legally and technically. The criteria include (but are not limited to):

  • the possibility of varying returns between the token holders based on their participation or use of the network
  • the manual action that is required outside the network in order for the holder to get the benefit of the token
  • the timing of the token sale.

Fungible or non-fungible?

Depending on the business scope of the project, a token might be fungible or non-fungible. The difference is quite easy to figure out. Fungible tokens are interchangeable and can be divided into smaller token units (example: Binance Coin). Non-fungible tokens are non-interchangeable and can’t (actually) be divided (for example, CryptoKitties. Each token represents a unique cat).

In a tokenomics analysis, the choice between a fungible or non-fungible token will entirely depend on the used case-study. Let’s take an example of a Cyber Security platform where a Cyber Analyst is rewarded for providing insights on cyber security. It wouldn’t make sense for them to receive a non-fungible token. The reward is like a paper bill. Imagine that the token is worth 10 dollars, and the reward is worth 5 dollars. The Cyber analyst won’t care about a 0.5 token, because the value is the same for him or her. Now, let’s imagine a diamond supply chain platform. Each non-fungible token is linked to one diamond. It makes sense for the buyer of a diamond to receive THE token that has his diamond as asset-back, and not a random non-fungible token.

The Ecosystem

Token-flow

Designing an ecosystem requires a careful analysis of the token-flow. When doing your tokenomics analysis, ask yourself these questions:

  • What are the values that the ecosystem is trying to promote and how is the incentivization organised to adopt a determined behaviour?
  • What are the sources of input (injection) and output (rewards) of tokens?
  • How can we build a sustainable and stable ecosystem in the long-term?

Building your ecosystem is thinking about the future and drivers that lead the user to come, stay and interact with the platform. That’s the core of token economics! Plenty of projects have badly designed ecosystems. The system is based on a disproportionate allocation of tokens. Combined with a hard cap of tokens emitted, this can lead to the collapse of the ecosystem because there won’t be enough available tokens.

Architecture: dual or simple structure

In order to choose between a simple and a dual token architecture, you should take several criteria into account. The alignment of the interest between the users of the platform developed and the investors, cost of development (e.g. listing of tokens on the exchanges) but before all: a real raison d’etre. Tokenomics make sense only if you know what the goal of the project and the purpose of the token is. So you must design the ecosystem of the project to be suitable for a given structure. In some cases, a simple token structure will fit better with the goal pursued by the project.

Steemit is the best example of a dual-token Ecosystem. The raison d’etre of the Steem Dual Token structure is to incentivize the commitment of the community in the long-term. So, it affords a long-term growth of crypto assets rather than a short-term one.

Stabilization mechanism

It’s important to manage the threats linked to a crowdsale bonus that can have a negative impact on the token economics. Indeed, some blockchain startups are proposing high bonuses (up-to 80% bonus) to early bird investors. This can lead to various dangerous situations where a single investor can have a critical influence on the coin price stability.

Monetary policy

Token economics and crypto coins are closely linked to a predetermined monetary policy.

A monetary policy consists of measures an institution can take in order to create stability for a certain currency. For example, the central bank has three important instruments to achieve this stability:

  • changing the credit policy towards other banks,
  • buying or selling government bonds and foreign currencies in order to change the money supply
  • and lastly changing the reserve ratio for banks.

These actions form the core strategy of stabilizing a currency.

You have to adopt the right monetary policy for each ecosystem. If an inflationary monetary policy will afford more stability in a non-profitable ecosystem (Steemit), a deflationary system will be more suitable for a profitable ecosystem. So it’s important to build a core strategy in order to maintain a safe value for the potential token holders.

Conclusion

Token economics isn’t easy. Designing your ecosystem has its pitfalls. It’s more than a threat for the future development of a project. A weak ecosystem based on a wrong business model could lead to legal issues and dramatic consequences for the token holders.  I’ve seen some terrible ecosystems in my career and saved people from really bad ideas and failure-gonna-be crypto projects. So don’t hesitate to contact me here at Espeo (box down below). I’m confident that our team will build the most suitable ecosystem for your project that will help you save both crypto assets and your fiat currency.