Xapo And The Bitcoin Startup Paradigm
Two weeks ago, I wrote a post entitled “Bitcoin Debit Cards May Not Be As Exciting As They Seem,” that explored some of the ways that bank-style payment cards backed by bitcoin combine the worst of both worlds. Now, it looks like bitcoiners have a high profile disappointment in Xapo to drive home the point.
Xapo was one of the first online wallet providers in the United States to advertise a payment card that would allow users to spend bitcoins anywhere they could use a credit card. The product would cost $15 to purchase, and would then be free to use. However, it seems that Xapo’s idea of free and customers’ idea of free were not the same.
The rise and fall of Xapo’s payment card falls into what I’ll call the “bitcoin startup paradigm.” This cycle, which repeats itself with disturbing regularity among high profile bitcoin start-ups, goes like this:
- Think of a great idea which would have been impossible to implement (or much more difficult) without bitcoin.
- Pre-sell the idea to get the funds to develop it. Set an ambitious release date.
- Find out that the idea isn’t as easy to develop as you thought because of regulation/technical problems/money. Push the release date back (or just miss it and disappear for a few months).
- If the idea is good enough, get venture capital on the strength of public interest and pre-sales to get it to market.
- Find out that your idea won’t make money (usually, this would be pointed out by your new investors), so change it into something that will.
- Deliver less than what was promised, later than promised, and suffer the wrath of your (now former) customers who are angry that you deceived them. Alternatively, go out of business and deliver nothing at all.
Does this sound familiar to anyone?
Bitcoin is a spectacular innovation for startups. Removing banks from the loop (or making them optional) empowers entrepreneurs to pursue ideas that they never would have been able to if they had to ask permission from regulators or banks. However, removing most of the “gate keepers” has also removed many of the checks that would have prevented bad or incomplete business ideas from reaching the market.
Just because you can get your product or service to market today or find someone to give you money to pursue it doesn’t necessarily mean that you should.
