or: Rethinking the Rules of the Bitcoin Economy
(Klicke hier für die deutsche Version.)
Bitcoin is currently revolutionizing the financial world, challenging our understanding of money and investment. While traditional fiat currencies are still considered a safe haven for investments, Bitcoin, as a deflationary currency, opens up new perspectives: the world is shifting from a market driven by technological possibilities to a demand-driven market. This transformation is especially reflected in how products are developed and investments are made.
At its core, demand orientation means that products are created to solve real problems for people. A product is valuable to people when it removes barriers that stand in the way of their needs. This perspective also shifts the focus of investors from speculative bets on the technically possible to real, tangible needs.
In this article, I will explore various forms of financing in a Bitcoin-based world and examine how they fit with demand-oriented product development. But before delving into these financing forms, I would like to take a look at the market shift.
From Technological Focus to Demand Orientation
Traditionally, markets have been shaped by technological possibilities, but for more than three decades, design thinking, user experience design, and similar approaches have placed the customer at the center. Companies such as the German automotive industry, which failed to keep up with this shift, are now facing existential problems.
This trend is also observable in the Bitcoin economy. While the early Bitcoin market was dominated by technological innovation — from blockchain technology to decentralized networks — the ecosystem is now shifting towards a stronger focus on demand orientation. New applications such as Bitcoin payment gateways, which revolutionize e-commerce, and DeFi platforms that allow loans without traditional banks, show how much the focus on concrete market needs has grown. Investors and companies are increasingly turning to applications that solve real problems and meet actual market needs.
This shift suggests that the future of the Bitcoin economy will depend on its ability to respond to the evolving demands of users and investors, and not just on technological innovation alone. This leads to the question of what financing options align with demand-oriented product development.
Saving and Reinvestment
The probably oldest financing strategy is the reinvestment of one’s own savings. While Bitcoin is well-suited for this purpose, using one’s own reserves also presents a risk. Those who pre-finance their ideas from their savings deny themselves early feedback. A lack of feedback could lead to the development of products that do not meet actual market needs.
Even wealthy individuals who could fully finance projects themselves often seek external investors. Investors are not just financiers; they also serve as a test for a project’s potential success. Their decision to invest signals that they recognize the demand for the product — a crucial demand check.
Donations
In addition to reinvestment, donations represent another form of financing that could gain significance in a Bitcoin-based economy. Demand orientation plays a key role here as well. People donate when they feel that their support addresses a real need. Bitcoin, with its transparent and direct payment structure, can facilitate donation campaigns and help solve real problems — whether through charitable projects, innovations, or social initiatives. This creates trust and engagement, as donors feel they are directly contributing to solving a problem.
Crowdfunding
With Bitcoin and the Internet, product development is increasingly shifting towards active market demand analysis. Bitcoin, as a deflationary currency, amplifies the incentive to avoid poor decisions, as the money potentially increases in value. Crowdfunding platforms allow companies and consumers to test demand orientation early on. Consumers can finance a product in advance, signaling its market value before it is even produced.
Historical misinvestments by large investors show how important this demand verification can be:
Quibi (2018–2020): Approximately $1.75 billion for a smartphone streaming platform that gained little traction.Better Place (2007–2013): Around $850 million for a network of battery swap stations for electric vehicles that never became commercially successful.Webvan (1996–2001): Over $800 million for an online supermarket delivering groceries to homes — a concept that was too early for the market at the time.
Crowdfunding allows projects with real user needs to be launched and helps determine early on whether a problem is being solved that truly concerns people. This pre-financing reduces risk and saves both time and resources.
Micro and Peer-to-Peer (P2P) Loans
Another example of demand orientation in a Bitcoin-based economy is micro and peer-to-peer loans. This form of financing allows borrowers to obtain small amounts of money from many individual lenders. In a Bitcoin economy, P2P platforms could be used even more to specifically finance projects that meet people’s needs.
These loans could be applied in areas where investors see a clear benefit for the community or a specific target group. This type of financing makes investments more targeted and less risky — for both lenders and borrowers.
Bank Loans
For banks, a Bitcoin economy brings fundamental changes, as the possibility of money creation disappears [1]. However, the trend toward demand orientation could still have a positive impact here. Banks could leverage their millions of customers [2] to conduct market demand analyses and specifically support projects that address real needs. P2P platforms, as they exist today, still cannot compete with this [3].
By integrating crowdfunding models and microfinancing, banks could expand their traditional role and act as intermediaries between borrowers and a large customer base. In this way, they could not only organize the required Bitcoin capital but also help test the real market demand for a project.
Tokenization of Company Shares
The tokenization of company shares represents an innovative financing alternative with the potential to fundamentally change the way companies raise capital. At its core, tokenization involves converting assets into digital tokens that are managed within the Bitcoin network. This can be done through second-layer solutions like Omni Layer or Taro (Taproot Asset Representation Overlay), which allow companies to issue their shares in the form of tokens.
Efficiency and Cost Savings
One significant advantage of tokenization is the reduction of costs and complexity compared to traditional financing methods like Initial Public Offerings (IPOs). With an IPO, companies must meet extensive legal and regulatory requirements, which can be time-consuming and expensive. In contrast, companies can raise capital relatively quickly and cost-effectively through Initial Coin Offerings (ICOs). ICOs provide the opportunity to issue tokens without the extensive infrastructure and bureaucracy of a traditional stock market listing, which is particularly attractive for startups and smaller companies.
Market Demand Analysis
Issuing tokens based on Bitcoin allows direct interaction between investors and companies. The price of the tokens is regulated by supply and demand, and thus reflects the market value and expectations. Investors can express their assessments directly through token prices, making capital raising and market orientation more efficient.
Challenges and Risks
Despite the advantages, tokenization also presents challenges. The lack of regulatory standards and the risk of fraud are two major concerns. In the current landscape, there are many cryptocurrencies and tokens that often have little to no substance. This leads to uncertainty and mistrust among investors, who have difficulty distinguishing between legitimate offerings and fraudulent projects. Therefore, a clear framework for Bitcoin-only tokens would be necessary to build trust in this new market and fully exploit the benefits of tokenization.
Equity Capital
Even in a Bitcoin-based economy, equity capital will continue to play a role, as investors will still be interested in companies that meet real needs. The value appreciation of company shares will continue to be an incentive to invest in growth-oriented companies that solve existing problems through innovation.
Conclusion: Today’s Needs vs. Tomorrow’s Purchasing Power Gains
In a Bitcoin-based world, technological advances and deflationary effects are expected to increase purchasing power. Still, the human need to solve problems within a lifetime remains. After all, we all strive for more comfort and useful innovation.
The main difference from the fiat system is that Bitcoin will make investing a more conscious process. The “investment pressure” of fiat money will give way to a more thoughtful, demand-oriented approach to investing — similar to the time of the gold standard, which brought forth great inventions and progress.
***
Did my 9,083 characters give you a new insight? Honor them with a donation via Lightning. You want to read more from me? Support my work with a few Satoshis. Understanding takes time. Your promotion gives me time to organize my thoughts and write them down.
Bitcoin Lighning address: eltankred@getalby.com
***
References
[1] https://www.bundesbank.de/de/service/schule-und-bildung/erklaerfilme/wie-entsteht-geld-teil-ii-buchgeld-613628 as of 10/31/2024
[2] https://www.modern-banking.de/marktanteil_direktbanken.htm as of 10/31/2024
[3] https://financer.de/geldanlage/p2p-kredite/p2p-lending-in-deutschland/ as of 10/31/2024
Image
https://pixabay.com/photos/place-name-sign-road-useful-use-822236/
Bitcoin And The Future Of Investment was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.