Shifting Financial Marketing into Gear
How Blockchain is Changing the World: Finance, Marketing, and Web3
The statement “blockchain technology is changing the world” is likely uncontroversial. What the changes are, where they are headed, how to excel at marketing in the context they create — all of that will take a bit of explaining and will probably leave some room for disagreements. Accordingly, let us begin with some history.
Unsurprisingly, the earliest version of the internet is known as Web1 (or, sometimes 1.0).
In ancient times, a period also known as the 1990s, web pages were largely simple text. People logged on to read specific items, get updates, or engage in straightforward linear text chat. The websites and pages were hosted by servers run either by an ISP or by a hosting service.
This internet developed through the ‘90s survived the dot-com bust, and continued, with a gradual increase in interaction, in the first half-decade of the new millennium.
Interactivity Drives Evolution
Around 2005, the accumulation of slow progressions on a number of fronts became an all-at-once awakening to the fact that the world now had a Web 2.0. The great corporate behemoths had arisen: Facebook, Twitter, eBay, and YouTube. At the same time, the interactivity of users on web pages had ceased to be a nice extra, it had become the point. People logged on precisely to interact.
Consider eCommerce. On Web 1.0 there would be, say, a catalog for prospective buyers of widgets. Users would scroll through it to find the widget they fancy. They might then use an email address to say, “I’d like your catalog item 3456.” Or they might use a more convenient on-screen button for the same purpose.
But Web 2.0 has payment systems integrated with credit cards and with payment processing sites such as PayPal. It encourages user reviews, refunds, and negotiated transactions.
Put simply: Web 1 was about the publishers and Web 2 was, and largely still is, about the platforms. Now a Web 3 (or Web3 without the extra space, or web 3.0 if you want to look old school) is struggling to be born. There is a broad consensus, though it is one with some dissenters, that the next wave will be about users-as-creators, with crowdsourcing and blockchains making everybody an entrepreneur.
To go further into this prospect for Web3, though, we must define some other terms.
Crypto: the ubiquitous prefix. “Crypto is short for “cryptography,” the art of writing or of solving codes, and for “encryption,” the process of encoding information.
Cryptocurrencies were first developed as a way of solving the “double spending problem” without an intermediary. Suppose Alice has digital money (of some non-cryptographic sort) sitting in a computer file. She can send it to Bob to buy some goods or services. But why could an unscrupulous Alice not then send the “same” money to Charlene? If she can: this is an impossible system to sustain. If she can’t: what stops her?
One obvious example is that the parties can use an intermediary. PayPal knows its account holders and keeps a ledger of their balances.
But the key innovation of Satoshi Nakamoto, in his notorious 2008 paper, was the invention of a distributed ledger as a way of accomplishing the same result. The ledger is not something kept by an intermediary. It is kept by a global; peer-to-peer network, thus it is a “distributed ledger.” The transaction must be encrypted in a specific manner for it to get onto this distributed ledger. Once it is there, it becomes in effect immortal, or immutable.
In the early days of the development of this technology, the focus was on the fact that the transactions weren’t stated in dollars, or in yens or euros, but in bitcoins (or the various other crypto coins that soon came along.) But at least as important, there was a technological revolution underway … for lack of a better label, the blockchain revolution.
Blockchain: a specific type of distributed ledger. As you might imagine from its name, in a blockchain transactions are added on to certain distributed ledgers in … blocks. Each added block becomes a link in a continuing chain. The size of each new block, and the speed with which new blocks are added, differ from one blockchain to another, and thus from one cryptocurrency to another. A point worth remembering: blockchains, and ledgers, turn out to have lots of other useful applications beyond the realm of cryptocurrency. In broad terms, it is this technological development that has set the stage for Web3.
ICO: Initial Coin Offering. The introduction of a new cryptocurrency to the world: a fixed amount of a token is offered to investors or speculators in exchange for dollars or other legal tender or, sometimes, in exchange for generally established cryptos. The tokens are marketed on the understanding that they will be future functional units of currency only if and when the ICO’s funding goal is met, and the project is successfully launched. This makes the ICO a form of a broader category of financing in the 21st century: crowdfunding.
Ethereum: A particular blockchain ecosystem, Ethereum, has acquired great significance in the development of the nascent Web3. Its native currency is Ether (ETH). Many ICOs offer more exotic coins in return for a payment in ETH.
DAO: a decentralized autonomous organization. At first (in 2016) there was just The DAO. There was only one, created by designers with the idea of creating a web-native system of investing. Christoph Jentzsch released it publicly on GitHub. Other contributors then added to the code.
The DAO was a series of contracts co-existing on the Ethereum blockchain. The idea was that investors would receive voting rights. They would vote on proposals submitted in what one might consider a virtual shark tank, by “contractors,” after some filtering by “curators.” Return on the investments would be filtered back to the investors in Ether, the native currency of Ethereum,
The DAO had an embarrassingly brief life. It was hacked almost immediately. The hack transferred almost 3.6 million Ether to a separate account. After a good deal of hubbub, the project closed down. But although The DAO was soon defunct, the generic use of ‘DAO’ for the use of a blockchain to run a member-owned community without the physical location and without many of the entanglements of traditional organizations, remains very much with us.
DeFi: Decentralized finance. The DAO was but an (early) experiment in the decentralization of finance. DAOs generally, and DeFi more broadly, have moved on. The idea is to cut out intermediaries such as banks, brokerages, and exchanges and the “paperwork” (even when it is paperless) that such intermediaries require. The number of assets managed through DeFi platforms or apps (DApps) recently exceeded $200 billion.
NFTs: Non-fungible tokens. Money is fungible. We pay each other for goods or services not in particular chunks of money, crypto or otherwise, but in money (or “dollars” or “bitcoins”) in an abstract sense. But the blockchain technology can also be used to create, and then to sell, unique (non-fungible) goods, known as NFTs, virtual-world collectibles. These are becoming an extraordinarily important part of the overall ecosystem.
Having explained the verbiage, let us conclude our interrupted history.
Filling Out the Asset Space
The developments chronicled above have unsurprisingly attracted the interest of hedge funds, and that attention will surely continue. You might learn about crypto fund pitchbooks, the marketing tool used to raise AUM in the digital asset space, here.
The leaders in the field of crypto hedge funds, Grayscale Investments, was founded in 2013. It became part of the Digital Currency Group in 2015.
In 2017, just one year after the launch and spectacular failure of The DAO, “MakerDAO,” a construct of the Danish entrepreneur Rune Christenson, was launched on Ethereum, along with associated smart contracts. Owners of the governance token (MKR) vote on investment decisions. MKR tokens are regularly taken out of circulation (“burnt”) in order to keep the token deflationary.
In September 2018, renowned VC firm Andreessen Horowitz invested $15 million in MakerDao, buying 6% of the MKR tokens. The goal of MakerDAO is to support a cryptocoin. Not the governance coin, MKR, but a stablecoin (one designed to remain constant in terms of the U.S. dollar) the Dai.
Dai seekers take the Dai out as a loan and put up Ether as collateral. When they later return their Dai to the system and get their Ether back, they pay interest. The interest is used to buy up and burn the MKR. Ether’s value fluctuates wildly, but the DAO and MKR have both remained stable. They even managed remarkable stability in the chaotic market environment of March 2020, and the start of a global pandemic.
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MakerDAO, then, is a specialized entity, but it can be taken to demonstrate a use case. Marketers now have this, and other successes, to which they can point when putting together their next pitch.
In 2019, in a major step into the investment mainstream, even the retail investment mainstream, Grayscale’s Digital Large Cap (DLC) received approval from the Financial Industry Regulatory Authority to trade on public markets. In a statement at the time, Grayscale’s managing director, Michael Sonnenshein, said that the main focus of DLC was to enable its investors to have a wide exposure to cryptos with just one vehicle.
In April 2022, MakerDAO entered the world of NFTs, with a collection of 5,000 images of the soccer star Diego Maradona. Maradona, who passed away in 2020, was an Argentine player who participated in four FIFA World Cups. In one of these, the 1986 World Cup in Mexico, he was Argentina’s captain and led it to a championship, playing every moment of every Argentina game in the course of the tournament.
The worldwide fame resulting from such accomplishments is the stuff of which great collectibles, and in our time successful NFTs, are made. The soccer star’s daughter, Jana, said, “The Maradona D10s’ NFTs is the first time all heirs [she is one of five heirs] have come together in a creative collaboration since Diego’s passing.”
Token Economics and Marketing Questions
The study of how supply, demand, and pricing work in the emerging crypto world has become known as “token economics.” Another way of stating the point: token economics looks at the allocation of tokens to incentivize specific behaviors to create strong communities with the underlying goal of creating and sustaining one or more valuable crypto assets.
The study of these matters can lead to important marketing insights. For example, token economics suggests that an initial coin offering (ICO) should be undertaken only with an initial fundraising goal that is attainable either in bull or bear markets.
In 2018, ICOs often had and attained lofty fundraising goals, above $50 million. In 2018, they had to cut that back, to the neighborhood of $15 million. In general, all key stakeholders should be on board with the ICO and its goal.
Another marketing question: should there be a lock-up period on the tokens given to the team and advisors? In general, there are, and for the purpose of incentivizing a long time horizon, it is a sensible move. Projects that require such horizons tend to have founders, employees, and advisors commit to a 6–12-month token lock-up period.
It also helps to have an equity vesting period further out: perhaps four years.
The blockchain revolution is taking place in tandem with other revolutions: machine learning and artificial intelligence on the one hand, and a shift toward incorporating quantum mechanics into the hardware, giving computers vastly greater brute force than the digital devices with which we are all associated, on the other. Both are expected to converge with the arrival of Web3.
What results may include sellers who can understand their customers’ buying preferences far better than ever before (perhaps more quickly than the buyers themselves know them), allowing for a new standard of customization and relevance in the advertising.
Happily, some of the disruptions all too characteristic of internet use may fade into history, too, as data is kept on distributed nodes, it will become less likely that any one power or technical glitch will undermine service to a lot of users.
As such examples may indicate, Web3 finance is not some exotic development taking place to the side of the ‘real world.’ It is having and will continue to have very real consequences for ‘traditional’ financing and the folks served by it.
Web 1.0 allowed financial institutions to create their own customer-facing websites. That was seen as a new style of marketing, not in principle different from taking out ads in dead-tree newspapers. A prospective customer might go to the BigBank.com site, learn about BigBank’s services, receive some encouragement to email in questions, etc.
Web 2.0 — throughout this era, the banks have become increasingly adept at offering their services online, rather than just telling you about them. Also, bank-like services have sprung up online, starting IIRC with PayPal, though that is now a very crowded space.
Web3 — (named with the more concise spacing and after dropping the decimalization) refers to an era in which web participation itself is becoming a source of financing, and cryptocurrencies are replacing sovereign fiat currencies for many purposes for online activities. Blockchains and their smart contracts make it possible to engage in the whole range of financial activities without banks, and even without Web 2.0 bank-like entities and platforms.
Have questions around how to market your cryptocurrency, custody, or digital asset services? Explore our Guide to Crypto Marketing Using Inbound Strategies:
You may also be interested in:
- Five Crypto Market Trends and Marketing Opportunities
- Gate 39 Media Joins Global Digital Asset and Cryptocurrency Association
- New Google Policy Update Allows Crypto Businesses and Services to Advertise
- How Cryptocurrency, Blockchain, and NFTs are Radically Shaping the Future of Investing