What is the user need for cryptocurrency?


I was at an event a few months ago, where someone from the Bank of England was talking about understanding the user needs for cryptocurrency.

One of the things people do when trying to create a new product or service is to write little user stories to illustrate the problem they're solving. You've probably seen this sort of thing:

  • As a… busy parent, I want… a push alert from my washing machine; so that I… can stay on top of the laundry.
  • As a… citizen, I want… an online passport application process; so that I… can save time and money.
  • As a… corner-shop owner, I want… a simple way to accept credit cards; so that I… can attract younger customers who don't carry cash.

Stories are not always good nor, indeed, accurate. But they help you and your team explore what sort of problems you're trying to solve. Ideally, they're backed up with user research - but even if they're just figments of your imagination, they give you something to work towards.

One of the (many) failures of Cryptocurrencies is that they have a weak to non-existent set of user-needs. Very few of the "whitepapers" even discuss users, except in the abstract. They ones that do talk about specific needs are really just addressing the fact that the USA has an antiquated financial system - they are mostly ignorant about the financial services which exist in the modern world.

Let's take a look at one of the ur-texts of this movement - the original BitCoin paper. The problems it identifies are that users want:

  1. To "transact directly with each other without the need for a trusted third party."
  2. Lower transaction costs, because high costs are "limiting the minimum practical transaction size and cutting off the possibility for small casual transactions".
  3. Protection from fraud via "Transactions that are computationally impractical to reverse".

And that's it as far as end-users are concerned. There's a little bit about privacy - but it doesn't discuss whether users want it. There is, I suppose, an overarching need for an honest network - protected by cryptography.

It is obvious that BitCoin has failed on its first two user needs. It is impossible to transact without being online and trusting thousands of third-parties to process the transaction. There's no way to hand over, say, a USB stick full of bitcoins without the risk of double-spending.

Similarly, the transaction costs of BitCoin (and most cryptocurrencies) are comically high. In the UK I can send a single penny to any other UK bank account and it doesn't cost me anything.

What about (3)? Does BitCoin protect users from irreversible transactions? Yes! But do users want that? No!

Let's take a look at that whole sentence from the paper:

Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.

(Emphasis added).

Both buyers and sellers want escrow. There will always be a user-need to mediate disputes. One of the reasons users love credit cards is that - in the UK at least - there are incredibly strong consumer rights laws. If a merchant screws you over, you can ask the card company to refund you. Try doing that with a cryptocurrency exchange!

Creating Some User Needs

I think one of the reasons NFTs got so much (brief) attention is that they had identified a well-understood problem and proposed a fix for it.

  • As an artist, I want to receive a percentage of any future sales of my artwork, so that I see the gains in any future popularity.
  • As a customer, I want to invest in something which might grow in price, so that I can resell and make a profit.

That's it. That's all there is to the NFT value-proposition. NFTs were never about supporting artists; PayPal and bank transfers has that covered. NFTs are deeply flawed in many ways, but they relentlessly focused on those two user stories - and users flocked to them. For a while.

So, what might a user want from a modern, digital currency? Here's my attempt to sketch out some idea. You will notice that many are contradictory! Users are not a homogenous blob and may have needs which can't be satisfied at all times.

Instant payments

These are part of those "parity with cash" needs. If I hand you a fiver, the transaction happens instantly & no-one takes a cut. Similarly, all online money-transfers is instant & free. Any future currency must meet those user expectations.

Low / No Fees.

In the UK, I don't pay anything for access to a credit card. I don't pay for cash withdrawals or deposits. I can transfer tiny or large sums of money instantly without a fee.

Now, the flip of this is that merchants pay a fee for handling my credit card transactions. They also bear the cost of transporting and insuring cash. Banks don't charge for current accounts or transactions - but do have huge fees for overdrafts and the like.

Crypto tends to evenly split this cost between the customer and the merchant. That's probably a fairer way to do things. But it is unusual - and will take some work to convince users that it is sensible.

Evading Capital Controls

Some countries place limits on how much money can enter or leave the country. Try wandering through an airport with a large suitcase full of cash and see what happens!

So, "As a user, I want to move money in and out of a country without a trace, so I can ..." what exactly?

Insured Funds

One of the things the BoE talked about was what to do if someone lost their wallet. If your cash gets shredded, you can usually send it back to the bank for a replacement. If your bank goes bankrupt, a central bank insures your money.

How could a digital currency provide that service?

Escrow

A customer wants refunds, but a merchant disputes that. Enter an escrow service. A middle-man to hold on to the money /goods until both parties are satisfied. In the non-crypto world, this is commonplace. Smart-contract sort-of provide this for digital exchanges. But they're unregulated.

Your story here

It's late and I'm tired. The original BitCoin paper didn't analyse user needs - and has manifestly failed on 2 out of its 3 identified needs.

If digital currencies are to thrive - they need to be attractive to real users. It isn't enough to make something mathematically perfect, or which only appeals to gamblers, or con-artists. Products live and die by addressing problems faced by users.

One of the many reasons crypto is dying is that it still doesn't have a compelling user story other than "number go up".