Bitcoin Killed The King & Now Network Effects Will Determine Its Future: How the biggest consumer apps got their first 1,000 users

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Jul 10, 2023

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Bitcoin Killed The King & Now Network Effects Will Determine Its Future: How the biggest consumer apps got their first 1,000 users

Money is simply a belief held by a lot of people. A collective trance. Money is simply the distillation of a shared confidence in the future. For the hierarchical pack animal we are, hierarchy with an alpha King on top is a stable and understandable structure. That’s why when the King issues a currency and tells people to use it, people believe in it. And the currency works as long as there is that belief.

The belief stems from: a) centralization of decision making and authority, 2) the longevity and predictability of the hierarchy, 3) guns and the ability to enforce behavior through violence which these hierarchies typically have, and 4) the tax base of the people within the hierarchy. Instead of a king or central authority creating the belief and then controlling the currency, Bitcoin doesn’t have a hierarchical network structure with a “strong man” at the top. It’s a decentralized network structure. Bitcoin killed the king and is replacing it with a network.

We believe in decentralized cryptocurrencies because of 1) Decentralization, there is not one person or council who can ruin the currency, 2) Software-encoded rules that are hard to change, increasing predictability, 3) Ubiquity means it will be accepted in many places, and 4) resiliency because it’s self-healing and can avoid efforts to damage it. In short, to create belief network effects, hierarchical networks use power, while decentralized networks use ubiquity. (note: embedding, exchangeability)

They don’t like each other because they are fundamentally different to live and work in. The mental models required to succeed in the different networks are different, so winners in one don’t like the winners in the other. Hierarchies fight with power and rigidity. They bring guns at the end of the day. Decentralized networks fight with flexibility and ubiquity. They sneak around.

The timeless fight between hierarchies and networks continues, but this time, it’s unfair for the decentralized networks because of the Internet and blockchain technologies. Most importantly, software-money more easily amplifies the “belief” network effect that gave older forms of currency power, since today the world is more connected and shared, beliefs spread faster in higher densities.

But to understand Bitcoin’s current and potential value, we need to think from first principles. We need to look at the network math. Bitcoin’s future will be based on the future of its network effects. Understanding and then monitoring the health of each of those network effects will give you the first principles ability to predict the future of Bitcoin in the coming years.

What will make Bitcoin persist and drive up the value of its coins? There are only four defensibilities native to the digital age that Bitcoin might use: network effects, brand, scale, and embedding. Will Bitcoin and Ethereum end up like Facebook and LinkedIn, two competing network effect businesses that had value propositions that were similar but different enough that they both survived? When you lay out the benefits this way, it becomes clear why we assume Bitcoin will function primarily as a store of value, and less as a means of exchange.

There are three forces external to Bitcoin’s network effects and inherent product benefits that could impact its success or failure in competition with alternatives. Faked transactions. We don’t really know how many of the transactions on the Bitcoin blockchain are “authentic” and actually creating a market for the coins and how much is “faked” or manipulated to give the appearance of real activity. Responsiveness of the Bitcoin DAO. A key element to track about Bitcoin — or any distributed system governed by a DAO (Decentralized Autonomous Organization) — is how well and quickly it adjusts to needed changes. Government intervention. The leading fiat currencies, namely the US dollar and the Chinese Yuan, have the most to lose from the rise of cryptocurrencies. It’s too late for governments to stop Bitcoin. The suppression playbook has been written. The governments could run the same playbook they did with Kazaa, the distributed music sharing service, in 2000.

Moving on to how the biggest consumer apps got their first 1,000 users, there are seven strategies that account for every consumer app's early growth. Most startups found their early users from just a single strategy, while a few found success using a handful. No one found success from more than three.

The most popular strategies involve going to your user directly — online, offline, and through friends. To execute on any of these strategies, it’s important to first narrowly define your target user. The tactics that you use to get your first 1,000 users are very different from your next 10,000.

There was a very significant use of street teams early on at Uber. They went to places like the Caltrain station and handed out referral codes. Evan started showing it to people one on one, giving tutorials, explaining why it was fun, even downloading the app for them. Evan was willing to try anything to get users. When he was home in Pacific Palisades, he would go to the shopping mall and hand out flyers advertising Snapchat. “I would walk up to people and say, ‘Hey would you like to send a disappearing picture?’ and they would say, ‘No,’” Evan later recalled.

Key questions to consider: Who are your early target users, and where are they currently congregating online? Do your friends fit into the target user group? If so, have you invited them yet? It's important to narrow down your target user group and utilize offline and online strategies to reach them.

Reid intentionally seeded the product with successful friends and connections recognizing that cultivating an aspirational brand was crucial to drive mainstream adoption. If your product relies on user-generated content, consider curating the early community. If your value proposition is incredibly strong, consider throwing up a waitlist. If your product is innately social, rely on existing users to invite new users.

The seven strategies to consider are: 1) Go where your target users are, offline. 2) Go where your target users are, online. 3) Invite your friends. 4) Create FOMO in order to drive word-of-mouth. 5) Leverage influencers.

In conclusion, the future of Bitcoin will be determined by its network effects. Understanding and monitoring the health of each network effect will provide insights into the future of Bitcoin. Additionally, when it comes to consumer apps, there are specific strategies to consider in order to acquire the first 1,000 users. By going where your target users are, both offline and online, and leveraging existing networks and influencers, you can drive early growth for your app.

Actionable advice:

  • 1. Define your target user group and identify where they congregate online and offline.
  • 2. Utilize a combination of offline and online strategies to reach your target users.
  • 3. Leverage existing networks, influencers, and user-generated content to drive growth and create a sense of community around your product.

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