Industry News & Events, Mobile App Growth
In the first of our series on cryptocurrencies, I examined how cryptocurrency is changing financing and monetization of mobile apps through ICOs and crypto-monetization techniques, and the future implications of these developments. In this installment, I’d like to focus on the benefits for app developers, and discuss some of the technical barriers in producing and scaling a crypto-based app.
Cryptocurrency is enticing (and growing), but does the opportunity of quick settlements, lower fees, and decentralization outweigh the challenges of building and maintaining apps that rely on distributed databases? If you haven’t built a distributed app before, or researched what’s involved, it can be a headache-inducing experience.
The first step in this discussion is to define what crypto means from a technical standpoint, and identify the business implications for developers.
The underlying technology of cryptocurrencies—blockchain—refers to a distributed database constructed of data blocks that contain a timestamp and link to a previous block, making it an ideal technology on which to build and run an anonymous, P2P system for transactions and currency exchange.
Cryptocurrency is digital, so arbitrary reversals or chargebacks are largely eliminated. Settlement is real time, and there are no 3rd parties between developer and buyer, so fees (for now) are lower. Whereas credit cards work by the receiver ‘pulling’ data, with crypto the user determines to ‘push’ data, limiting transactional exchange to essential data access (i.e no personal information is exchanged).
Cryptocurrencies may be particularly attractive to app developers in emerging markets where: a) most web-connected users are entirely mobile-first and, b) many consumers don’t have access to traditional financial institutions or exchanges. In such markets, it is reasonable to assume that users who’ve skipped over desktop will adopt cryptocurrencies, which leapfrog legacy transactional systems, such as credit cards. In some regions of Africa and the Middle East, ‘unbanked’ users account for between 85% and 98% of the population.
Cryptocurrencies may be particularly attractive to app developers in emerging markets.
Of significance for app developers, blockchain decentralizes traditional finance by allowing users and developers to jointly manage the underlying database. By operating on this peer-to-peer (P2P) basis, cryptocurrency strips control from a central authority and is therefore not restricted by a tangle of interest rates and transactional charges. That means transactions are faster and comparatively inexpensive — salve for developers challenged by long settlement periods and the many mouths fed via traditional programmatic ad techniques, even if crypto programmatic ads take a little longer to process, for now.
In a crypto-powered, P2P environment, the programmatic script changes significantly. Jesse Chenard, co-founder and CEO of MonetaGo, which works with private financial institutions to provide blockchain solutions, put it this way:
“Crypto-based programmatic ads will be great for devs because for the first time publishers, agencies and advertisers will have a single, auditable record of impressions and actions. This will reduce ad server discrepancies to near zero and remove a lot of overhead associated with reconciliations.
In the future, we will see many AI and big data applications being built.”
Collectively, these market factors offer a rich, though sometimes messy creative sandbox.
“In the future, we will see many AI and big data applications being built.”
However, developers in the US likely won’t be able to integrate cryptocurrency for payments. Both Apple and Google have strict policies against integrating alternative payment methods, as each company gets a 30% cut from in-app purchases and subscription sign ups (this drops to 15% after a user has been subscribed for a year). Microsoft recently removed bitcoin payments due to the volatility in the currency’s prices, but there’s a chance the company will bring it back once the crypto market settles.
Google Play and the App Store are the marketplaces for app developers. In exchange for connecting you with users they monetize by taking a percentage off the top. It’s been a good enough system to grow the apps industry to where we are today, but it can also be a limiting environment.
For example, you can only market your app the way Apple or Google allows, and in a structured format. Apple and Google get their money first (and right away), but you have to wait for yours. If there’s a chargeback – at any time – it’s the developer who is on the hook, not Google or Apple. Even IAPs can be refunded.
Cryptocurrencies like AppCoins use tokens that allows users to pay developers directly. That bumps Apple and Google from the role of distributor, porting more dollars to developers, much sooner, and eliminates international exchange fees (an Ethereum token is worth the same in Chengdu as it is in Chattanooga).
While that’s a great jumping-off point, there are hurdles to consider, as well. As is often the case with evolving techs, blockchain’s greatest asset—decentralization—is also its most concerning risk.
Distributed apps run by managing transfer of data between different instances of the application. This architecture is solid in that it mitigates impact of failures in any one part of the networked environment, but concerning in that there is no guarantee that, when data is added or changed on one part of the system, updates will register in others — a broken telephone effect.
This means a token could be potentially be exchanged more than once before a transaction is registered across the network. The way Bitcoin and Ethereum approach this problem is meant to solve the problem of real-time consistency, but we’re not there yet.
So, if the user and developer disagree on whether a transaction is valid, they may well find themselves embroiled in a difficult-to-diagnose settlement issue. It’s also important to note that building distributed apps can be tough going for mobile developers. Quoting TechBeacon:
“Testing and debugging software that must coordinate with other software over a buggy network is hard . . . Be prepared to deal with heisenbugs when developing your distributed application. You can also expect mandelbugs, where the cause is so obscure and complex that the observed behavior appears to be a good example of chaos theory in action.”
Developing and maintaining distributed apps can be more difficult, and expensive, than may appear at first glance. Keep that in mind as you chart out production and support costs, and calculate net ARPU and cost of retention.
Crypto, for now, isn’t going to change the mobile app industry. But the underlying technology like blockchain offers developers the potential to change how apps are developed, distributed, and maintained. We’re not there yet, but it’s increasingly difficult to ignore the implications that cryptocurrencies have for the future of mobile app development.
