Can ‘Dogfooding’ Altcoins Find Real Users in 2020?

This post is part of CoinDesk’s 2019 Year in Review, a collection of 100 op-eds, interviews and takes on the state of blockchain and the world. Leigh Cuen is a reporter with CoinDesk. These are her personal views.

If 2017 was the token boom and late-2018 was a crypto winter, then 2019 was the year of “dogfooding,” or “using your own product.” 

Throughout 2019, leaders from more than a dozen leading crypto projects told me they were distributing tokens to stimulate usage, development, and growth. Which raises the question: If companies are giving tokens away, do they have a legitimate business with organic demand? So far, it appears there’s more supply than take-up for many altcoins. 

As a reporter, I can sympathize that the crypto industry is still struggling to find a target audience beyond speculation-driven traders. In some ways, airdrops are reminiscent of how newspapers sometimes boost their circulation by dumping free copies into the hands of commuters. Sure they’ve distributed more papers, but to what gain?

Just to list one example of token hopium announcements from 2019: Ripple’s investment arm Xpring gave over 1 billion XRP tokens in a bid to foster a community of “creators, consumers and strategic partners.”

It’s these sort of moves that inspire blockchain consultant Maya Zehavi to define dogfooding as “when an organization uses its funds to eat its own product,” or when “when investors double down to fund projects that build on a protocol in their portfolio.”

“It reeks to me of desperation,” Blockstream engineer Warren Togami said of token incentives. “Marketing didn’t work, so instead they’re throwing money at the problem assuming competent developers and use cases that make sense will magically appear.” He thinks dogfooding is more successful when it isn’t strictly reliant on monetary incentives.

“What I’ve seen with both Linux from the late 90s and early 2000s, and Bitcoin, is the top developers are those who were passionate about working on it before money was offered. They cared most about the problems they were trying to solve,” he said.

Free or open source software projects, including Linux and Bitcoin Core operated according to different principles than simply giving tokens away, Togami, Red Hat alumnus and open source greybeard, said.

“Bitcoin had only volunteers for years, then more recently people working full time sponsored by companies, but with independence to do whatever is the right thing to for bitcoin,” Togami said speaking of Square Crypto, Chaincode Labs, DG Lab, Blockstream, and several others.

Other projects like the Neo Foundation operate a circle of companies using its technology and assets (formerly Antshares). The projects all rely on NEO. Meanwhile, horizontally-integrated projects like the ethereum-centric ConsenSys mesh dominate the broader cryptocurrency industry.

Shake my hand, I’ll shake yours

Few projects are relying on developers to “dogfood” new software quite like Handshake, a project spearheaded by co-creator of bitcoin’s lightning network, Joseph Poon, Purse CEO Andrew Lee, and Private Internet Access founder Andrew Lee, just to name a few.

Handshake was in development throughout 2019 and is expected to launch a mainnet in 2020.

Today, certificate authorities like GoDaddy dominate the market for buying and proving ownership of website domains. Handshake believes it can reduce the power of such centralized authorities while helping us evade government censorship.

The plan is to airdrop roughly $100 million worth of Handshake tokens at launch to thousands of developers with active GitHub accounts. Meanwhile, Coinbase is considering listing Handshake tokens on its exchange.  

Investor and contributing developer Steven McKie, founding partner of the venture firm Amentum and co-founder of the independent Handshake Alliance consortium, told CoinDesk this strategy will accelerate the decentralization of Handshake’s blockchain network.

A token can only incentivize someone who wants it.

“We all have a for-profit incentive…to build the infrastructure,” McKie said, referring to exchanges and freelance developers who will receive the airdrop. “We can all bring in our different skill-sets and networks to make this thing whole, widespread on the first day.”

Primitive Ventures co-founder Eric Meltzer told CoinDesk his firm will run a Handshake node at launch. New startups such as the crypto exchange Namebase.io and the developer tools startup Urkel both plan to launch alongside the Handshake mainnet. VC firms like A16z Crypto, Polychain Capital and Draper Associates have all invested in the project.

But it’s questionable if there’s organic demand for the product among developers with the skills to develop protocols related to the internet’s core infrastructure. A token can only incentivize someone who wants it. Farsight Security CTO Ben April, who specializes in security solutions at the startup spearheaded by DNS (Domain Name System) co-creator Paul Vixie, said he’s not optimistic about Handshake because it doesn’t address surveillance of a censored website’s traffic.

“There’s a historical pattern where a new technology comes along and someone says I can apply this to DNS,” April told CoinDesk. “DNS is the wrong technology for [censorship resistance] …If I’m able to watch the network you’re on, I’m able to see you are getting there anyway.”

April doesn’t see much need for Handshake. Certificate authorities are already pretty diverse and open source efforts led by groups like the Internet Engineering Task Force are slowly addressing security concerns without any tokens or extra work maintaining a duplicate namespace. He thinks the process is already more decentralized than Handshake can offer in the short-term, and, even in the long-term, he doubts the benefits of Handshake would outweigh the hassle.

A token can’t create value, although it might help facilitate interactions on a network if players were to already believe it has value. 

“Re-factoring everything I’m doing to a new model would require that the new model be clearly, head and shoulders, more valuable than what I have today,” April said. “I need to see critical mass.”

Requiring “critical mass” to succeed is precisely the challenge underlying the search for “mainstream adoption.”

It did not come in 2019, and I would be surprised if the Blockchain Fairy Godmother suddenly plops it on our doorstep in 2020. That’s why ConsenSys engineer Shayan Eskandari is talking to the incumbent nonprofit Internet Corporation for Assigned Names and Numbers (ICANN) about Handshake and other groups associated with core internet protocols.

Although CoreDNS contributor Michael Grosser, founder of the DNS provider GitNS.com, agreed with April that Handshake doesn’t offer full stack censorship resistance, he was more optimistic about the Handshake Foundation offering an alternative to ICANN. Community building takes time.

Applying that insight more broadly, the few crypto companies that didn’t collapse or struggle have conservative strategies focused on research and development, such as Tendermint. They aren’t reliant on tokens. They view blockchain technology as a prospective alternative, not as an immediate source of revenue or public infrastructure replacement.

There is perhaps no system on the planet that exemplifies Zehavi’s above-mentioned variety of dogfooding better than ethereum.

Ethereum cofounders like Joe Lubin (of ConsenSys) and Vitalik Buterin have poured their wealth into a thousand ideas aiming to incentivize both ethereum development and “decentralized finance” (DeFi) experiments, including MKR tokens. 

This strategy has become the envy of altcoiners everywhere. Placeholder’s Chris Burniske and Electric Capital co-founder Avichal Garg both praised this method when discussing their visions for the future of the privacy coin zcash. But it remains to be seen if this new type of dogfooding, arguably a bastardization of the original term, works in the long term.

This is still a matter of fierce debate within the industry.

Former Bitcoin Core contributor Jeremy Rubin tweeted in May 2019 that blockchain enthusiasts need to come up with better ways to fund their work. Blockstream’s Togami retorted that merely being an open source project doesn’t mean the team is entitled to funding, especially not via tokens traded by retail users. The technology still needs to make sense and solve a problem.

As it stands, Togami said 2019 continued to show him that token incentivizes are “perhaps not the best way to attract top talent” for such problem-solving.