Gyft’s Network Effect for Mainstream Bitcoin Adoption
A prevailing question that continues to surface about alternative currencies is whether they have a practical use for everyday consumerism. Gyft Inc, a Silicon Valley-based company that entered the $100 billion gift card market in 2012 with its mobile eCards has fueled speculation about bitcoin’s long-term, mainstream adoption potential.
In short, Gyft is an online platform that connects retailers with consumers in the United States; the latter being able to conveniently upload, purchase, send and redeem gift cards from a computer, mobile phone or tablet. The company was arguably the first to adopt bitcoin as a payment system option for electronic gift card purchases. All payments in bitcoin come with an incentive – 3 percent back in Gyft points whenever a consumer buys a new card.
At Consensus 2015, a one-day forum that brought participants together to dialogue about real-world problems and find solutions on bitcoin and the blockchain, Gyft co-founder, and former CEO Vinny Lingham spoke about the challenges he’s witnessed with respect to fostering bitcoin adoption among consumers. He’s noted that when bitcoin was first integrated into the Gyft system, it amounted to 90 percent of the company sales. Since that integration in 2013, bitcoin usage has seen a precipitous 80 percent drop.
This comes on the heels of a massive growth spike in the overall popularity of plastic gift cards as an easy, cashless means for making purchases. Despite this, questions remain as to whether bitcoin will see a widespread adoption tipping point associated with this emerging trend.
According to the Ninth Annual Tower Group Report, U.S. gift card spending was projected to hit$130 billion in 2015, a more than six percent increase over 2014, Moreover, CEB estimates that e-gifting will account for $18 billion by 2018, representing about 11% of all gift card spending.
The belief here is that as growing numbers of consumers worldwide discover Gyft cards, awareness will grow around the enormous benefits of an alternative currency for everyday use. Gyft’s rapidly expanding retail network, which includes the likes of Starbucks, Nordstroms and Whole Foods, combined with First Data’s deep worldwide presence suggests that international expansion efforts should be imminent. Add bitcoin boundaryless payment network and you have a highly viable proposition for fueling global commerce.
Mainstream Bitcoin Adoption: A Network Effect?
Network Effects are economic and social tipping points that occur when an increase in the popularity of a good or service ensues from a significant uptick in mainstream use. It’s here where the potential for bitcoin’s continued rise holds sway.
Prior to Gyft, bitcoin-using consumers had no real “go-to” platform for practical everyday purchases that impact their lives. Now as more users begin to understand that they can purchase digital gift cards with bitcoin and use them at a highly recognized retailer like Starbucks or Whole Foods, the value, credibility, and even the price of bitcoin increases exponentially.
During its very early infancy years, bitcoin demonstrated traces of what economists called Autarky Value, defined as the inherent value of bitcoin absent of any users. Now the focus rests on what’s known as “Synchronization Value,” which reflects the robust use and adoption of bitcoin within an ecosystem of market players. It’s this latter value that symbolizes the true nature of network effects.
Certainly we see this network effect currently playing out in some measure relative to the volatility of the bitcoin price. In other words, the value and subsequent price of bitcoin as a currency are largely predicated on the extent to which consumers utilize it. Moreover, these same trust and acceptance effects play out in terms of businesses and their decisions as to whether to accept bitcoin as a payment option. And because Gyft involves cash transactions ( i.e. bitcoin is loaded onto a card as cash when purchased by a Gyft member), it is in a sense indiscernible to businesses in terms of where the funds are being derived from.
So what can be done to capitalize on Gyft’s network advantages to boost bitcoin adoption? For starters, retailers and other businesses on the Gyft network could be doing a better job of promoting bitcoin as a payment option. Capitalizing on bitcoin’s natural intrigue would likely boost interest and, at a very minimum, spark a loyal following of buyers from the bitcoin community.
Then there is the Gyft Block program, an ambitious effort to digitize gift cards so that they can be openly shared and traded on the bitcoin’s public ledger. Developed in collaboration with the blockchain security company Chain.io, the infrastructure provides account numbers that change so that if they are transacted between two parties in any way, the original owner would relinquish access.
Since Gyft was acquired by First Data, a global leader in payment technology and global solutions, in 2014, the opportunity is there for Gyft to expand to countries beyond the United States. This expansion would be key to greater adoption.
But there’s an even a larger argument for the continued proliferation of eGift cards in terms of their value to both businesses and consumers alike. It’s called Security. By way of example, on February 5, 2016 users of the Gyft network received notification that their information may have been compromised through unauthorized accessed by an “unknown party.” Gyft leaders noted that no credit card or personal identification information was compromised. But the underlying point here is this: Those who purchased Gyft cards with bitcoin had no reason to be concerned because no consumer information is revealed with these sorts of digital transactions.
In the end, the combined forces of Gyft and the bitcoin payment system offers an unprecedented opportunity for propelling the digital currency movement forward worldwide. But will it take hold? That’s anyone’s guess but if it does, the effect on global consumer commerce could be profound.