Four categories of Bitcoin-related projects

New Bitcoin-related software projects are launching every day. From what I can tell these projects fall into four main categories:

Bitcoin apps and services: These try to make Bitcoin more accessible, stable, secure, and useful. Examples: wallets, merchant services, fiat-to-crypto exchanges, crypto-to-crypto exchanges, Bitcoin derivatives exchanges, tipping services, and merchant microtransaction services.

Bitcoin protocol extensions: These are applications that use the Bitcoin blockchain as a global, secure, single-instance database and generally ignore Bitcoin-as-a-currency. Examples: Mastercoin, Colored Coins, and a Princeton project that is building a predictive market.

Altcoins: These are basically Bitcoin variants with branding and technical modifications (and their own blockchain). Like Bitcoin, the primary purpose is to allow the store and transfer of value. Examples: LitecoinDogecoin.

Appcoins: These are new projects that are inspired by Bitcoin’s architecture but are intended to do things besides storing/transferring value (they also use their own blockchain). Examples: Namecoin, Ethereum.

To me, the first two categories are probably the most interesting. If there is one thing we’ve learned from the development of Internet protocols like HTTP and SMTP, it’s that network adoption is key. There will always be better protocols, but the combination of broad adoption and open extensibility generally wins. (Although Naval and Balaji make a compelling case for Appcoins here).

23 thoughts on “Four categories of Bitcoin-related projects

  1. I think that the line between #2 and #4 is blurry. Namecoin for example is a better candidate for a global, secure, single-instance database than Bitcoin itself. Another way to categorize can be to divide between a) financial and b) non-financial uses and then subdivide based on bitcoin blockchain or some other blockchain. So #1 and #3 fall under a) and #2 and #4 fall under b).

  2. Thanks – good suggestion. My argument for subdividing 2 and 4 was simply whether they use the Bitcoin blockchain. That’s a relatively small technical difference but a huge difference in terms of network. New blockchain requires new developers, new consumer relationships, etc.

  3. Catheryne Nicholson says:

    I think you’re focusing on applications without including infrastructure. Continuing on your parallel, huge infrastructure companies have capitalized on HTTP and SMTP. Bitcoin & related projects are in desperate need for those type of companies. Have you tried to run the Bitcoin client? It’s a capital ‘B’ to develop against, run and maintain reliably in a datacenter environment. That’s exactly what we are solving for at

  4. That’s a good point. Technical superiority may not be the trump card in the face of market adoption. Beta vs. VHS being an example. Mass adoption and utilization can improve a somewhat weaker system, especially in today’s world of crowdsourced innovation.

  5. fuh says:

    Bitcoin replacement projects are the most interesting. Not just altcoins, but vastly improved cryptocurrencies that will be more widely appealing and easier to secure.

    People invested in bitcoin are more interested in bitcoin. People not invested in bitcoin will be more interested in replacements.

  6. fuh says:

    Let me offer an example: imagine if Google bundled their own cryptocurrency with all android devices and made it available to use in Google Play. It would instantly exceed the reach and market cap of Bitcoin, and their network, jumpstarted by their own enormous hardware footprint, would rapidly exceed the size of Bitcoin’s network.

    Would it be a centralization problem? Perhaps to begin with, but so was Bitcoin in the beginning. The difference is that Google could offer distribution of the currency to a billion devices, give those billion devices a place to spend them easily, and provided trusted software for security and usage.

    Normal people using currency don’t care whether it started corporate-backed or not. They care about it being easy to use, low-priced, and widely accepted. GoogleCoin would put Bitcoin in the bitbucket.

  7. There will likely be successful altcoins.

    Cryptocurrencies are different enough from previous Internet protocols that I don’t think the analogies to HTTP and SMTP are apt. The barrier to adoption is much higher because you have to buy, earn or mine BTC to fully get on the network rather than just downloading software.

    For the vast majority of transactions, people will want to convert the units of cryptocurrency back into USD or their home currency and it basically doesn’t matter which cryptocurrency they use for the transaction. They just want a medium of exchange: the ability to transfer value.

    For people who want a store of value, people will buy the cryptocurrencies that they think will increase in value which will lead to altcoins with promising characteristics and/or a strong brand to increase in value and number of transactions.

    Right now many cryptocurrency services only accept BTC but interoperability will come.

    Bitcoin still isn’t that widely distributed and cryptocurrencies with novel distribution methods will find ways to have a much larger base of users. Under 1 million wallets have over $6 worth of BTC and ~2,000 accounts control 75% of outstanding BTC.

    Innovative methods of distributing cryptocurrencies hold promise. Cool examples include auroracoin which is airdropping half of the cryptocurrency equally to the population of Iceland and Huntercoin which is the first human mineable cryptocurrency.

    Imagine a cryptocurrency that was distributed by people completing an educational curriculum. This would more widely distribute the value and could potentially finance the education of people in developing countries.

  8. fuh says:

    You don’t need to “buy, earn or mine” BTC. You can simply steal it. Karpales looks like he may have stolen 500K BTC or 4% (!!!) of all BTC. Who knows how many malware authors have mined with stolen resources, and there’s a large number of other massive thefts. A huge portion of BTC is owned by thieves.

    (the usual bitcointard response to this is that “but fiat is owned by thieves too!” because they are too blinded by greed to compare actual numbers…believe me, I’ve been there)

  9. Thanks. “~2,000 accounts control 75% of outstanding BTC.” This is incorrect. These statistics are ignoring the fact that most wallet services (like Coinbase) store hundreds of thousands of wallets in pooled accounts that only have tens or hundreds of Bitcoin addresses.

    I think the experimentation in altcoins is great. Auroracoin is fascinating. I’m just not as optimistic about these altcoins as you are.

  10. scotthtaylor says:

    Would the likes of smart contracts be included in any of the above categories? e.g. based on the protocol (and maybe actually using bitcoin) in their core operation.

  11. I re-read this several times. How about decentralized apps? They can be powered by 2, 3 & 4.
    Also what do you think about the role of tokens in the blockchain, as a classification factor too.

    I personally think the crypto currency space formation is still in flux.

  12. dodgit says:

    That is what mystifies me the most about BTC valuation. It seems to be based largely on BTC being valued as the only cryptocurrency. However, I can see a large number of companies (off the top of my head: Apple, Google, Microsoft, Amazon, Facebook Visa, Mastercard, Amex, Walmart, any of the oil megacorps) being able to quickly crush Bitcoin with a cryptocurrency of their own. All of these have the consumer market to accept their currency, and have the technical ability and funds to build a network.

    Most would prefer using googlecoin except for the folks who got into BTC early. The major failing of those trying to use economic models to estimate bitcoin valuations is that they do not consider this obvious possibility.

  13. JoeyD says:

    You’re asking something like why would bittorrent be successful if there could be a napster. Do you actually believe that bitcoin is the first crypto-currency? There are plenty of company-coins allready (airmiles, casino chips, discount voucher etc), but as the name suggests they are not as universally useable as bitcoin. On top of that should one company coin become big enough to threaten the resident currency monopoly they will be made to disappear very rapidly, not unlike Napster. Also do you see Google accepting ICoin anytime soon or vice-versa Apple allowing droid-dollars?

  14. JoeyD says:

    Why should bitcoin solve problems like human nature? It just needs to be useable despite of human nature.

    And what is incorrect about the statement about thieves owning most of the money? Talking about comparing numbers have you any idea what small percentage of the world population owns just about all the wealth? Not talking a measly 4% of the global wealth and companies either. Unless you honestly believe that rich people actually did proportionately more work to earn it, all of the wealth is indeed in the hands of thieves. It’s a dog eat dog world, same in bitcoin or any other coin.

  15. Clément Francomme says:

    Apple already have point of Sale payment. I disagree that any major company can create their own crypto currency, except google. The reason is that it’s too far from their business model and Bitcoin was accepted because people have the choice to do so. Being created from a big company that will use a dark and unavailable source code: that will fail because that’s the all point: transparency.
    Marketing and cash power is not everything. If the service doesn’t meet (or create) the needs, it fail.

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