Muneeb Ali, co-founder and chief executive officer of Blockstack Inc., speaks during the Token Summit in New York, U.S., on Thursday, May 16, 2019. Photographer: Alex Flynn/Bloomberg

© 2019 Bloomberg Finance LP

For as much as entrepreneurs in the crypto space can be frustrated by regulation, at times governments and their enforcement agencies serve as useful scapegoats to explain why many blockchain-based applications (aside from exchanges) fail to gain meaningful traction.

Now, this cover may be receding as one of crypto’s leading startups, Blockstack, received approval from the SEC to sell digital tokens under Regulation A+ (part of the 2012 JOBS Act), a less expensive and burdensome means of raising capital from the public, sometimes referred to as an ICO-lite. Probably the most notable aspect of a Reg A+ offering is that unlike traditional filings, these sales can target retail investors in addition to institutions and wealthy individuals, ensuring a wide distribution of tokens and assets. There is hope that other companies will follow suit, and in fact another company, YouNow received approval for their Reg A+ filing on the same day.

Blockstack’s True Test

However, now that Blockstack has received SEC approval, its network will face its true test, which is whether or not it has the ability to drive meaningful engagement on its platform. As noted in its Offering Circular, although the company has 115,780 registered accounts, only 9,555 of them “had social proofs that could be verified with a link that was still working.” These numbers are underwhelming, though they can be partially justified by the fact that the network only went live in Q4 2018. That said, the stakes for Blockstack are high in more ways than one. First, without users the network will likely atrophy. Second, if the company does not obtain 1 million verified users by Jan 30, 2020 (6 months from now), it will have to return millions of dollars in capital back to its investors and suffer reputational damage regardless of how the public offering goes. Third, the fallout may not be restricted to Blockstack itself, as it could reverberate around the cryptoverse.

Therefore, it is necessary to understand Blockstack’s growth strategy for the rest of 2019 and beyond, as it will have broad implications for the future of crypto as a whole.

Blockstack is a Worthy Case Study

However, before diving in, it is important to further explain why Blockstack serves as a very interesting and representative example for analysis. There are three primary reasons:

  • It secured the first Reg A+ approval from the SEC and has already commenced the sale of $28 million worth of their STX tokens (pronounced Stacks), aimed to ensure a wide disbursement of the token
  • Unlike most developers in the space that are focused one issue, Blockstack already has 170+ applications running on its blockchain focused on a wide range of consumer and enterprise use cases covering everything from email to photo storage
  • Blockstack was founded in 2013, which means that it even predates Ethereum (founded in 2014). Given that the company has had 6 years of developmental lead time, it should be a good barometer to assess the industry’s progress as a whole.

Privacy by Design is Not Enough to Move the Needle

To investigate further, I had the opportunity to speak with Blockstack CEO Muneeb Ali. In my conversation with him, he made it clear that Blockstack’s raison d’etre was to help consumers protect their data and privacy by ensuring that none of the applications on their network can access customer data without their consent. However, he is also aware that users are unlikely to migrate away from today’s technology oligarchs such as Google and Facebook based on ideological conviction alone. To build a base of users Blockstack would need to provide a diverse set of applications that fits current and future consumer needs and have the intuitive UI/UXs that have become commonplace today.

It is for this reason that the company has embarked on an ambitious strategy to overcome what he characterized as the “chicken and the egg” problem. By referencing this idiom, he highlighted the fact that it is difficult to get users onto a platform without compelling applications, but it is also difficult to onboard developers without a ready-made user base.

Marketing to Developers

To tackle this problem Blockstack first sought to attract a deep base of developers with incentives and subsidies. In fact, for the last 6 months Muneeb mentioned that the company was in “developer attraction phase”. In order to gain traction from developers, the company uses an innovative approach referred to as “App Mining”, whereby every 30 days developers of the best apps (based on a user rating system) receive payouts in the form of STXs. When it comes to “App Mining” anyone can participate, as opposed to submitting an application in the hopes of obtaining funding, and the company uses a novel game-theory approach to rank applications based on their overall quality. According to Muneeb, “Developers have real incentives to get featured as the highest quality applications because they are getting these tokens that are worth something to them.”

To quantify the size of the rewards, prior to the filing Blockstack the App Mining program was in a pilot mode, where the the total payout is $100k per month. However, moving forward the rewards could be increased 10x to $1 million a month.

Ensuring a Smooth User Experience

Additionally, now that the developer incubation and marketing strategy has been built, the company is taking extra care to ensure a smooth, intuitive, and consistent UI/UX across the 170+ applications that are on the network as a way to onboard users. As most readers are already aware, lack of education and even fear of blockchain technology is a major inhibitor among would-be customers. In fact, many target users may not be aware that Blockstack’s system can run on every major web browser today.

Speaking to the enormity of this challenge, Muneeb told me, “This is extremely important. As computer scientists we figure out the underlying scalable computer platform, and that’s great, but to get it in the hands of the average user and to get to mass adoption of the technology we absolutely have to nail the UX.”

Through the use of a single set of login credentials Blockstack wants to make it as simple as possible for users to register an ID on the network and sign up for multiple applications. For example, Muneeb told me that, “[They] have a very structured process where we do UX testing, we analyze results, we do A/B testing on different types of interfaces.”  Furthermore, the company is even taking things a step further in an effort to ensure intuitive experiences for users when they are engaging with an application, because it employs using a 3rd party vendor to provide constant feedback to onboarded products. Muneeb mentioned that the company is “Incentivizing our developers to do the same thing because we have a reviewer who effectively gives apps scores based on how their UX is. So, they have an incentive now every month to improve their UX.”

Looking Ahead

It is clear that with the Reg A+ filing out of the way, Blockstack is now trying to accelerate adoption and use of the platform among developers and customers alike. In some ways the company has been building towards this moment for 6 years, which is reflected by the technical developmental roadmap that Blockstack has followed, as well as the care that it is taking in ensuring that the best and most intuitive applications get prime placement on the platform.

However, company executives will be the first to tell you that for all of their efforts, success is far from certain. Furthermore, they are already behind as they admit in their circular that they are not on track to meet the 1 million user target to unlock the next traunche of funds. Additionally, this observation is taken with the assumption that nothing goes terribly wrong on the platform such as a major cyber breach or illicit misappropriation of one of the applications running on top of it.

Yet with all of that said, Blockstack has a solid foundation and is off to an auspicious start given the overwhelmingly positive response to its filing.

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