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Copycats are rampant among cryptocurrency projects.
Every week I get word that someone is building XXX for AR or XXX for China or, most creatively, XXX, you decide what it is for.
Do not believe? Then take a look at the red sea of cryptocurrency games. At present, the entire blockchain game actually has only one category, which is the encryption celebrity smart contract, but the name is all kinds of strange. Basically, these games have collectible registries with only 1 of each supply, and a buy/sell mechanic ponzi scheme.
Of course, the most obvious example of imitation is a project called TRON. The text of its white paper is copy-pasted from IPFS and Filecoin.
Juan Benet, the founder of Filecoin, posted a post to analyze how serious plagiarism his white paper has been, and the currency circle once launched a group ridicule against Tron.
The results of it? TRON is now among the top ten cryptocurrencies by trading volume.
In this upside-down world, some cryptocurrency project leaders even actively invite other projects to use their code. Recently, Vitalik Buterin of Ethereum commented on the EOS consensus model, arguing that it has security risks.
It doesnt seem very safe.
He then proposed a possible situation. According to the current consensus model, it is possible that two conflicting blocks will eventually be determined to be valid. Finally, Buterin made the following suggestions:
If you want an intuitive and elegant way to do this, I suggest you just use this algorithm thats in our Casper FFG paper.
Vitalik asked EOS founder Daniel Larimer to copy the algorithm developed by the Ethereum Foundation.
In an environment like an open source project, plagiarism is as unstoppable as blockchain. Some people think this means that cryptocurrency projects have no defense against competitors, so the key to a projects success is not having the best tech talent, brand, etc., but having the best go-to-market strategy.
What would Warren Buffett say about this?
In business, I look for those economic citadels that are protected by impenetrable moats, Buffett said.
secondary title
How to build a moat, and do cryptocurrency projects really have such a moat?
Generally, there are five ways to build a moat:
Cost advantages such as economies of scale: A company uses its size or unique assets to undercut competitors on cost.
Intangible assets such as patents, brands, and trade secrets: When a company owns intangible assets such as patents or brands, it will obtain monopoly or pricing power in the market.
Efficient Scale: A market of finite size, such as utilities, airports, etc., is best served by only one or a small group of companies, since the return on the market will be below the cost of capital, there is no incentive for competitors to enter the market.
Switching costs: Customers will be forced to incur a fee or inconvenience when switching from one provider to another.
Network Effects: As more people join, the value of the network increases for both new and existing users.
The question is: are these methods useful for cryptocurrency projects? And listen to my analysis one by one as follows.
Use cost advantage to fend off competition:
Lets say we are Ethereum, the largest smart contract protocol. We have a cost advantage in this industry and could theoretically use our size to undercut our competitors. But can we do this?
Absolutely not. We will labor to create innovative algorithms like Casper FFG, dedicated to EOS by our fearless leaders.
In open source systems, being the biggest usually means you cant wait for someone else to develop a solution for you. For imitators, the most time-saving and labor-saving solution is to wait, do not invest resources in research and development, and obtain what you need from innovators in due course.
Defend with intangible assets:
There are some good examples of how intangible assets can be used to protect a projects competitive advantage. Lets examine the roles of patents, brands, and trade secrets one by one.
Patents: Hashgraph is a new smart contract protocol whose underlying technology is patented. It remains to be seen how well the patent protection works, and how the community reacts to a patented public blockchain.
Branding: Branding is important, but its hard to say how much. Bitcoin is always the first thing that comes to mind whenever cryptocurrencies are mentioned, and it does seem to be doing it good. The same is true for Ethereum. Both 0x and Aragon have a halo effect. One might hope that brands play an important role in attracting and retaining network members, but its too early to tell.
Commercial Confidentiality: Starkware is a new project focused on STARK technology, a private and scalable technology with minimal expertise. They plan to offer their expertise to other projects in exchange for tokens. For this model to work, their expertise must reach a level that cannot be replicated. This strategy is more interesting than Hashgraph.
Weve seen some attempts to defend with intangible assets, but the jury is still out on whether these will work.
Defend at effective scale:
Effective scale means that new firms cannot make money entering a given market. A new company drives down profits, making everyone in the market unprofitable.
Does this mean that cryptocurrency projects should aim for a niche market? Should we be building a prediction market for cats instead of building a smart contract agreement platform?
In fact, this idea is probably too stupid or too trivial for potential competitors, which may make them discouraged for a while, but since the cost of copying is almost zero, the effective scale is not for cryptocurrency projects. important. As long as there is any evidence that the market has value, imitators can enter the market for next to nothing.
Defend with switching costs:
There is a switching cost, though the extent of it is still being debated.
The argument on one side is that if atomic swaps and interoperability can reduce the cost of switching across chains to zero, and if smart contracts can run across chains, then users or developers are not locked into a specific protocol. However, while cross-chain bridging applications should make it easy for developers to switch from one protocol to another, I expect switching costs to remain fairly high for the foreseeable future.
Take Ethereum as an example. The more projects built on the platform, the more developers there are. The more developers, the more tools and shared knowledge. The more tools and shared knowledge there are, the more attractive the platform will be to other developers. You can try to ask developers to switch after joining the community, learn new languages, and adopt new tools. If they dislike the new platform experience more than it benefits, switching can be difficult.
Defense with network effects:
As the largest cryptocurrency by market capitalization, Bitcoin enjoys many advantages.
Because Bitcoin is the largest and most secure, Bitcoin is most likely to be:
The first cryptocurrency people bought;
A virtual currency that is easily adopted by merchants;
held by institutional investors and governments;
Be regarded as a store of value by holders;
Due to its network effects, it will be difficult for another cryptocurrency to displace Bitcoins lead.
If you develop an emerging project, how do you build network effects? Look first at go-to-market strategies and the power of network effects.
The TON token that Telegram plans to issue represents a bet on the market. With the apps hundreds of millions of users, they can build their network scale in no time. And if youre starting from scratch, you might want to partner with someone who has distribution or can raise enough capital to cover the distribution costs.
secondary title
Which moats are effective for cryptocurrency projects?
The graph above compares the importance of moat resources between cryptocurrency projects and non-cryptocurrency projects in general. Being at origin means that a particular moat resource does not apply. Compared with non-cryptocurrency projects, the closer the point of cryptocurrency projects is to the origin, the less applicable the moat resources are, and vice versa.
For cryptocurrency projects, network effects are more important, switching costs are equally important, intangible assets and effective scale are less important, and cost advantages are completely unimportant.
In general, there are fewer ways to build a moat with cryptocurrencies, but it would be wrong to say that a cryptocurrency project cannot build an economic moat.
A few points to summarize:
Cryptocurrency projects have few moats to protect against competitors and imitators, so a go-to-market strategy is critical. Deep-pocketed competitors are a known risk. Ecosystem funds like the Stable Fund, and massive token offerings like Telegrams $1.4 billion are reasonable.
Once a project reaches scale, it becomes difficult to simply replicate and incorporate changes into the protocol while still maintaining decentralization. As we have seen with Bitcoin, Ethereum, Zcash, Monero, and other cryptocurrencies, protocol governance is slow and chaotic, with the most contentious decisions leading to hard forks. Although it is possible to import the protocol through the replication feature, the ease of deploying the replication feature is inversely proportional to its size and degree of decentralization.
Shanzhai lowers overall RD costs across the industry and benefits everyone, but the benefits are especially high for new projects with deep pockets and distribution capabilities.
However, only one protocol can be effectively channeled through a copycat and go-to-market strategy. If it reaches a sufficient scale, copycats are no longer so effective.
Teams with a clearer connection to their community members and superior execution in a time frame that leaves plenty of leeway will have the last laugh, but with access to capital and distribution, the road to victory will be easy many.
