Consumer adoption of Bitcoin | A jobs-to-be-done analysis
January 21, 2015 4 Comments
Venture capitalist Marc Andreessen recently did one of his tweetstorms on the topic of Bitcoin, a technology he avidly supports. In 25 tweets, he talked about criticisms people have of Bitcoin. Including this one (#18) about “use cases”:
18/The third critique I call the “innocent” one — “Are there enough sufficiently compelling uses cases for Bitcoin to succeed at scale?”
— Marc Andreessen (@pmarca) January 5, 2015
Let’s acknowledge this: When you’re talking currency and payment systems, the use cases and relevant users are enormous. The whole planet, really, and all manner of transactions. Lots of places where Bitcoin could theoretically make an impact. In this post, I wanted to think through the consumer payment market, one of the bigger targets there is. According to the Federal Reserve, a U.S. consumer makes around 69 payments per month (pdf). Fertile ground for exploiting underserved jobs-to-be-done.
A powerful way to analyze any idea is to apply jobs-to-be-done analysis. Specifically, apply three jobs-to-be-done tests:
- Does the idea target an actual job-to-be-done that enough people have?
- Is the idea a meaningful improvement over the current way people fulfill their job-to-be-done?
- Does the value of the idea to customers exceed the cost of the idea to them?
In the above linked post about the three tests, I note that the output of the tests are really degrees of certainty about an idea. You can think of it as meters:
The more uncertain you are, the higher the adoption risk of the idea by your intended beneficiaries.
For this analysis, we’ll target a specific set of possible beneficiaries:
Bitcoin will become a frequently used currency for U.S. and European consumers, displacing dollars, euros and pounds.
Ok, on to the adoption analysis. Each test includes an assessment of its certainty.
#1: Targets and actual job-to-be-done of enough people
We long ago left barter behind as a primary basis for goods and services exchange. Currency offered many advantages: a way to exchange with you now, even if I don’t have a good you want; store of value of that outlasts many goods; ability to build up a supply of currency for larger purchases; immediate trust because the currency is known, as opposed to the risk of a receiving a deficient product in trade.
Currency won out over barter for many reasons. And to that end, Bitcoin addresses an actual job-to-be-done: a measure of value that can be exchanged for goods and services.
The level of certainty for this test:
| Targets actual job-to-be-done of enough people |
 |
#2: Better than current solution
Any new thing has to provide better outcomes than the incumbent solution. And not just a little better. Studies show people will undervalue the benefits of a new offering, and overvalue the benefits of an existing solution. This reflects the varying degrees of the Possibility Effect and the Uncertainty Effect people have. Providing a strong improvement in outcomes is needed to overcome the inertia of the Early and Late Majorities.
Put yourself into the shoes of a typical consumer:
- I need to pay for groceries
- I need to pay for my Amazon purchases
- I need to pay for school tuition
- I need to pay for gas
- I need to pay for rent
All these activities happen today with dollars, euros, pounds and so on. In what way does paying by Bitcoin provide better outcomes for my payment needs than the currency I use today? Among the Bitcoin improvements I’ve seen described:
Payment cannot be repudiated: The blockchain technology locks in the transmittal of the payment. There’s a full record of payment offered, payment accepted. Which is great as a record for the transaction. Except repudiation isn’t a material issue for consumers for today. They by and large don’t feel pain from it.
No centralized government control over the currency: Bitcoin is a distributed currency, with no central authority overseeing and manipulating it. The implied value is that issues like devaluation, inflation and governments tracking your spending are finally put to rest.
But stop and think about that. Who cares about these issues? Go find 10 neighbors. Ask them their level of concern that the money in their wallet is managed by a central authority. Find out what they think about the traceability of their spending. Many payment services companies actually offer traceability as a feature, not a bug (e.g. Mint, Yodlee, American Express, etc.). I haven’t heard much outcry about payment traceability among the general public.
Reduced identity theft fraud: Credit card numbers can be stolen and used by thieves. Marc Andreessen asserts that Bitcoin greatly reduces this risk. And I suspect he’s right, as far as we understand the risks today. But already, creative thieves are figuring out ways to steal Bitcoins. Innovation at its finest.
But getting better about reducing identity theft is a clear opportunity for better outcomes. Credit card companies have become quite advanced with this via big data algorithms, which spot out-of-norm transactions and flag them. Companies are also good at covering the losses resulting from payment identity theft.
Because Bitcoin is still experiencing losses due to fraud, it’s not clear in consumers’ minds that it’s less risky than current currency and payment methods.
The level of certainty for this test:
| Meaningful improvement over the current way people fulfill the job-to-be-done |
 |
#3: Value to consumers exceeds costs of new idea
In this test, you’re asked to look holistically at the costs of a new idea. Monetary costs, yes. But also other costs, such as:
- Connecting the new solution to existing infrastructure
- Loss of features you enjoy in current solution
- Giving up the uncertainty of the current solution
- New unwanted behaviors
Given the low (non-existent?) value of Bitcoin over current currencies, pretty much any cost will cause a high level of uncertainty for this test.
And Bitcoin has costs. Its current volatility makes it tough to rely on a consistent store of value. You receive $10,000 worth of Bitcoin today, what will that be worth in a month? There’s a learning curve for usage. You need to know how to operate a Bitcoin account, and retrain yourself to think in terms of Bitcoin values (like when you travel abroad and have to mentally calculate the local currency price into your home currency to understand what something really costs).
To the extent that economic cycles will inevitably continue, you need to get used to no central authority intervening to help stabilize things. It’s not clear what a Bitcoin-dominated world would look like in terms of economic stability. Likely, though, this uncertainty doesn’t weigh into consumers’ calculus of costs.
The level of certainty for this test:
| Value to consumers exceeds the cost of the new solution |
 |
Wrapping up
It’s hard to see how Bitcoin becomes a regular currency used by consumers. It doesn’t offer sufficient improvement over incumbent currencies and the cost is hard to overcome with any potential value. One possibility: if the lower fraud rates associated with Bitcoin are reliable, perhaps merchants will offer discounts for use of them. That could spur some people to switch to Bitcoins.
The bigger story of Bitcoin is actually the blockchain technology. The ability to ascertain easily, without an intermediary, that a transaction (e.g. document signing, receipt of something, etc.) has occurred seems to offer tangible value over current solutions. That may be Bitcoin’s true legacy.
I’m @bhc3 on Twitter.
About Hutch Carpenter
I'm Not Actually a Geek 
Hi Hutch,
In your JTBD analysis, you overlook perhaps the most important thing, which is outcomes that consumers desire which no current alternative adequately addresses. i.e. things that currency should be able to do, but can’t. You also focus all of the attention on consumers, but currency is, by definition, a classic (and pure) multi-sided platform with many different segments getting different levels of value from its properties and exchange.
Here are some possible jobs/outcomes that existing currencies don’t address or have exceptionally high costs attached.
– foreign exchange (both for business and consumers). Banks and the interchange markets extract a huge rent to convert currencies. If, for example, you charge something to your credit card in euros and pay it in dollars, the bank is going to take at least 6% where if you were actually working directly with a currency exchange, the cost of the transaction is .004%. The spread between buy and sell rates for consumers is typically about 12%. Even on a transaction valued at $100, this is usurious, but on $10k, we’re talking real money. The fees for an exchange of this size would be $20-50 in a transparent and competitive market, and the cost doesn’t change linearly with the size of transaction, so the more money being exchanged, the higher the profiteering by middlemen (banks, mostly).
– trans-border, and especially overseas e-commerce. Today, most online merchants will not accept orders from outside the country because the risk of fraud is too high, and losses are all but unrecoverable. Some brave merchants in the US might accept orders from Canada, but nowhere else, and even orders from Canada have higher risk than domestic sales. A very small number will accept orders from Europe, and almost none will accept orders from the far east or any 3rd world countries. Because cryptocurrencies have the potential to reduce exchange and payment handling costs to near zero, it becomes worth it to look at international sales as a potentially large growth opportunity for many online merchants — especially of specialty and unique items like antiques and artwork, where a larger market likely means higher prices and faster turnover. The irrevocability of a Bitcoin transaction is a huge plus for this. The consumer would probably want an escrow service to ensure fair and satisfactory delivery of goods before releasing payment, and the merchant would be motivated to agree to this, as there is no such thing as a chargeback, which is easy to do on a credit card, and impossible for a merchant to challenge on international sales.
– although you think most consumers don’t think about government currency manipulation, that’s only true to a point. Ask Greeks, Argentinians, Russians and Brazilians how much they trust the stability of their currencies and their respective governments’ tinkering with it. US citizenry might not care or be conscious of it, but over the last 20 years, the government has enormously undermined the strength of the US dollar with unsustainable debt loads and huge increases in the money supply (quantitative easing) to try to stave off depression. In the long run, there are only three possible results: rampant inflation, crippling taxation, or currency collapse, and probably some combination of all three, and any of these outcomes will be accompanied by huge job losses. Unlikely you say? It was unlikely in the Weimar Republic (Germany in the 1920s) before it happened. It was unlikely in Argentina before it happened. Our own financial collapse in 2008 was unlikely before it happened. While most haven’t lost faith in the US dollar (yet), that doesn’t mean that the faith is warranted, or that any number of global crises couldn’t trigger the pin prick that explodes the bubble. No currency can survive a crisis of confidence, because the only value that a currency has is because people trust that they will be able to exchange it for a certain amount of goods or services — if that trust evaporates, there will be a stampede to safety, or at least a more trustable currency. Bitcoin is immensely more trustable, and that will eventually lead to its adoption globally. (And, if not Bitcoin, some other crytocurrency that is immune from government fiscal policy.) There is no national currency today that could effectively serve as a single global currency (a current unfilled job). Bitcoin has that potential, and if it becomes normalized and accepted in half a dozen important countries, it will rapidly sweep the globe and start to replace national/government-issued money because of this global property.
There are several other outcomes I could describe that are desirable, but just these three are large enough that any one of them could be the foot in the door that enables widespread adoption. There are also many other players (governments, payment system providers, exchanges, for example) who gain value from Bitcoin (or are possibly harmed by it) and will support it as a multi-sided platform because of how it kills transactional inefficiency and cost.
Your title focused on consumer adoption, but the reality is, consumers will adopt it if other consumers and businesses and governments accept it as payment. Not everyone, initially, but enough to be sustainable and to eventually threaten national currencies, such as the US dollar when some major event triggers a desire to switch.
I fully agree. Of course, the dashboard is only visualisation, but the concepts are certainly true.
I hope you won’t mind if I link this article from my blog http://inspiredproductmanager.wordpress.com
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