An intense rate of experimentation is currently taking place into what might eventually be an entirely new way of doing business in the internet economy. With the advent of cryptocurrency-based digital tokens, a business can completely blur the traditional lines between salary, equity and vouchers, creating an efficient way of funding projects.It works in a similar way to how it worked in my own birth country of USSR. It was common there that workplaces that didn’t have cash to pay wages would simply repay their employees with their product. A farmer, thus, would get paid in sacks of potatoes. It seems that thanks to crypto-equity tokens a similar business model is reappearing, this time used as a way to bootstrap funding for fledgling startups, and without all the hassle of carrying the potatoes to the market.Where this will come out is hard to predict right now, but I’d like to show you around to a few case studies, some projects where this is currently happening.
Let’s Talk Bitcoin started as a podcast for Bitcoin enthusiasts. As any digital content business it needs to handle the difficult world of monetization as well as figure out a way of compensating content creators and participants. Both hard problems when you’re starting out with a vision but no readership and no money. Last month (July 2014), Let’s Talk Bitcoin announced the launch of LTBcoin, what they call a ”crypto-rewards program for LTB creators and community”. In reality it’s far more than that, but even as I’m writing this I keep hitting my head on the fact that we don’t yet have any business terminology for these types of compensation schemes.
Basically, LTBcoin is a digital token, issued by the founders of Let’s Talk Bitcoin and powered by the Bitcoin network. LTBcoins are limited in number and are issued according to a predefined payout scheme that every week hands out these coins to content creators (proportionally to the popularity of their content), platform owners and even to a small degree to the audience.
What can one do with these LTBcoins then, what is it that makes them valuable? Well, Let’s Talk Bitcoin has announced that effective immediately they will only accept LTBcoin as payment for ad space in their podcasts and other web real estate.
The price for an ad slot (in LTBcoins) is determined in a weekly auction. The price of the LTBcoins themselves are determined by the open market, as they can be traded for cash (bitcoin) on an exchange. Basically, everything is liquid and decided by the market, but one can assume that given a rise in viewership, the price of advertising should go up, and in effect also the value of these LTBcoins.
To recap: This podcast site (it’s really more of a community) is paying both content creators, participants and audience in a token that is immediately liquid and tradeable for cash, or redeemable for an indeterminate (market-decided) amount of advertising space in the future. If you need the cash – sell your LTBcoins immediately. But if you want to speculate in the success of LTB as a community it then makes sense to hold on to these tokens in hope of them appreciating in value over time.
Just like the Russian farm worker who got paid in potatoes, the content creator on LTB gets paid in ad space – but instead of having to sell that ad space himself he has a digital token that can be immediately traded for money, or stored as an investment in the future success of the project.
This way, everyone (including the listener) is incentivised to work for the success of the project, increasing the price of adspace and thus the LTBcoins.
It even makes sense to give these tokens as tips to people that do something good for the community. To study the tipping dynamic have a look at Dogecoin (www.dogecoin.com). What started as a joke (a cryptocurrency that is just like Bitcoin only with a picture of the cute dog), took off and created an internet phenomenon larger than the meme it was originally based on. On the Dogecoin sub-Reddit one can see people giving each other little tips in dogecoin for writing anything thoughtful or funny. It may seem weird at first, but after a while you notice it creating a very friendly athmosphere and a nice way of showing appreciation to an anonymous stranger. Go ahead and have a look: http://www.reddit.com/r/dogecoin
Building on this notion of cryptoequity tokens, Swarm is a startup that helps other startups bootstrap themselves. Swarm helps them set up and distribute their own coin as well as market it to potential backers. Basically the same service that Kickstarter offers, but instead of a t-shirt backers get equity in the startups they fund, equity that quite often also can be used to purchase products from the startup itself.
Swarm just finished raising their seed fund (on their own platform of course), it raised over 2.000 BTC (~1,25M USD) from anonymous backers all over the world, who will be rewarded with owning an equivalent amount of SwarmCoin, which will be redeemable for coins of projects launched through Swarm.
Can you really say that it’s equity? In a way, but it’s also not. Is it a voucher? Kind-of. Is it salary? Maybe. But not really. Noone knows what to call this. It’s a digital currency issued by a private organisation and backed by its’ own product. The details haven’t been worked out yet, nor the kinks or the problems, not to mention a complete lack of financial regulatory guidance. But quite probably (at least from the technological point of view) if the joint stock company were to be invented today it would look like something very similar to this.
Sergej Kotliar (founder of bitrefill.com)