The First Mover Fallacy, a Bitcoin Reality

Whether it's about Ford, Intel, Google or Bitcoin, the first mover fallacy is a dominant narrative in pop-marketing and investing, but when we actually look at the historical developments of new sectors and technologies, we find that it's actually quite the opposite, even the most success of first movers only maintains their advantage for a period of time.

The Bitcoin Maximalist argument is quite simple. Bitcoin is best because it was first. It has name recognition, network effect, along with with being the most time tested blockchain and its simplicity best suits it to do one job -- being the world's underlying monetary system -- and do it well.

They could be right. As we all love to say, no one has a crystal ball. But what we do have are history books. And in these books we have example after example of a first mover having significant market dominance, until they didn't. But in almost every single example, across sectors, technologies and time periods, we find that the first mover dominance only lasts so long. Of course, over a long enough time period, nothing is permanent. So in this case, we need to consider from the time of inception of the technology, to it's initial introduction, through to it's early and mainstream adoption.

Because Bitcoin overlaps with the modern computer technology sector, there's a lot of tendency to look to this sector for examples. Of the now dominant FAANG companies (or one of the other similar acronyms), I think we will all know the answers to which were and weren't first movers.

Facebook was a direct response to Myspace and some also suggest the earlier Friendster. Apple clearly has a multidecades long history of back and forth market share with other PC, operating system and smart phone creators. Leader amongst a group, is fair to say. But first mover seems like a stretch, and certainly they've never held top positions when they've had it. Amazon was in a crowded space of online retailers, and only was able to separate itself after years of competition. Netflix, this one is a bit harder for me to define. They didn't start and video streaming, they came up with an innovative alternative to movie rentals, and they also innovated within the video streaming sector. I think in both cases they should be given credit for their innovation, but depending on how we define they sector they were either a first mover, or an innovator of an existing service. Lastly, we have Google, and we know they weren't the first search engine, but they did come up with some novel methods for searching data. In fact few of their products have been original (gmail, android), but rather they innovated on simple but new technology, and made it much more dynamic and useful while bring it to a wider audience.

You may or may not agree with my exact breakdown of each of those companies, but I think it's fair to say that none of them have a clear first mover association to their success. In fact, what does seem to be a recurring theme is innovation within their sector of the product they're creating. At the same time, it should be mentioned that they all are "one of the first" or early mover, which does certainly help their success in a less competitive pool.

A lot of racing sports, such as bicycling and running, work in a similar manner, in many cases, if you are at the front of the pack, you have to work harder to keep your pace, yet don't have benefit of knowing your competitions position. Those in the 2nd and 3rd spots can benefits both from the physics of reduced resistance (drafting), while also having a physical metric to gauge your own pace and performance. With the idea being that you conserve your energy and then when the time is right, you can try to make your move and surpass the pack leader.

Time and time again, when the development of new technologies and sectors play out, we see this. I used recent examples of tech companies, but I could have as easily done consumer electronics, video games, cars, and likely just about any other sector you can think of (I'd love to hear companies that buck the trend).

Now if we go back to our lovely Bitcoin, and at the very least, for the sake of argument, we accept that first mover is clearly Bitcoin's advantage in the early stages of the technologies development, but will become increasingly less able to determine success as the sector matures and competition increases, then where does that leave the argument that Bitcoin will succeed simply because it's the first mover?

Based on historical precedent, it seems at least plausible -- if not likely -- that it will become increasingly difficult for Bitcoin to maintain it's market dominance as the sector of cryptocurrencies develops. Bitcoin of the last 2010s until at least now, and seemingly the foreseeable future, has lost it's narrative as a means of payment for the masses. At the same time, we have countless cryptocurrencies that could -- and do -- serve as that purpose.

This in itself doesn't mean Bitcoin has failed or is diminished (but we do need to acknowledge that it hasn't directly fulfilled it's initial intended purpose of being "e-money"). However, if Bitcoin is not going to serve as the means of payment, its use cases become more limited. Store of value and "digital gold" seem to be the narratives of the current era. What this actually looks like and how it will impact society is not yet clear, but it currently seems like the most likely "long term adoption" scenario for Bitcoin.

However, we have to ask ourselves, what is the reason that Bitcoin specifically would be the monetary technology which would wind up serving this purpose? If the argument needs to go beyond first mover and name recognition, what will it be? Current common points tend to include limited supply and proven technology. These two points are true, however they seem to ignore that there is nothing that limits these features to Bitcoin. If we come up with other cryptocurrencies which offer limited supply (many do), and have a proven technological underpinning (newer technologies are always at a disadvantage for a time, but eventually we always shift to something that is newer, when the features offer enough benefit, and the risks are manageable).

Here's the big issue I see, Bitcoin is not innovating as a technology. Now some will claim this is a good thing, because we don't want our monetary system to constantly be changing and updating. I happen to think there is validity in this point -- but up to a certain point. If we didn't want any updates, then we wouldn't have left commodity backed currencies.

The greatest issue that Bitcoin faces in its journey to changing the world's monetary system is that of innovation. In the space of about a decade, bitcoin went from being the most innovative monetary system, to the least innovative cryptocurrency. At this point smart contracts are probably the most distinct feature set missing from Bitcoin. So on one hand, Bitcoin has abandoned its effort to be a means of payment, on the other hand it hasn't innovated to incorporate more modern cryptocurrency technologies such as smart contracts. It has simply relied on its first mover status, name recognition, simple and robust technology and the speculative attraction.

It might very well be that these are the perfect parameters to see Bitcoin become the foundation of global monetary system, but I think we should also consider past historical trends regarding first movers and innovation as well as look at current and near future innovations in cryptocurrencies when we consider what is the likelihood that Bitcoin will maintain and solidify its top spot, as opposed to a transition over the coming years and decades of more sophisticated and innovative cryptocurrency technologies which will eclipse Bitcoin.

While it seems foolish to bet against Bitcoin as the dominant cryptocurrency, there was also a time that it seemed first mover market leaders had near untouchable dominance and positioning over their sectors. And yet, none of those companies now maintain the dominance and prestige they held at their height.

If we look at the moment, it seems crazy to bet against Bitcoin. But if we look at history, it quite simply seems statistically unlikely that Bitcoin will continue to reign supreme over the other cryptocurrencies -- especially since it seems to have taken a path of minimal innovation.

And if that day ever comes (the so called Flippening), what will happen afterwards? Will it simply be a slow decline, as the writing had already been on the wall for a while, or will it be cause for another monetary calamity, as significant portions of the world's economy realize they had bet on the wrong horse, and quickly have to scramble to diversify their crypto strategies?

Since none of us know any of the answers to these questions at this time, it brings me to the conclusion that Bitcoin maxis are a little too fixated on their own bias, too proud of their own early success in getting Bitcoin, and would prefer a simpler narrative where Bitcoin reigns supreme and all they have to do is HODL.

At this point in the crypto saga, if they're right, we have a sense of how the story will play out, in a general sense. But what if they're wrong? Is the cryptoverse really ready for a flippening? What do you think is the most likely scenario?



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