Painted doors 🎨🚪 for crypto custody
plus reader questions about optimism, user value, and market timing
It’s been a harrowing three weeks since my last post. About 2 of those weeks were spent battling a family case of RSV. Everyone is healthy now, but it did put a dent in my productivity. Stay safe and healthy, everyone!
Today, I am sharing my plans for two “painted door” tests: a way to test user interest without actually building a product. In the coming weeks, I plan to share with this community and potential customers via user research interviews. As a quick reminder, I’m currently focusing on building a cryptocurrency custody solution (i.e., making it easy for people to own cryptocurrency).
T+5 Weeks Update
Metrics
26 of 50 user interviews are completed! Thanks to all who volunteered (🙏).
Quick updates
Building 2 painted door tests website using Webflow.
Several folks read the blog posts I mentioned last update (🙏). I have decided not to post, but you can see the draft if you’re curious. Here are some takeaways:
My personal and public thesis will probably be different, and my personal thesis might change. By not publishing, I am giving myself wiggle room.
Writing up the “How to own your money” post motivated me to:
Crystalize my opinions about a custody recommendation for the masses
Build a painted door test because almost no one was going to read it :)
I’ve now had several interviews with folks outside my Silicon Valley bubble, and the #1 reason folks haven’t invested in crypto is that they don’t feel like they know enough about what it is. Bitcoin is the most commonly known name, with NFTs being a close second. Almost everyone has 1-2 people in their lives who have dabbled in crypto.
Where I could use your help
Is anyone willing to review the painted door sites? Looking for product/marketing and content feedback from folks who don’t know much about crypto.
Info Diet
The main writing worth highlighting from the last several weeks is Matt Levine’s cover-to-cover “The Crypto Story” for Bloomberg Businessweek. Although Matt Levine is somewhat mixed in his review of the technology and the economic tool of cryptocurrency, he finds the ecosystem fascinating. The fact that Bloomberg decided to elevate this topic to full cover-to-cover status is an anointing of its importance (they’ve only done this once before for “What is Code?” in 2015). I was also struck by how hard it was for Matt Levine to explain cryptocurrency without assuming his audience had a basic understanding of databases. I still think we’re a long way from mainstream adoption.
Painted doors 🎨🚪 for crypto custody
My TL;DR product hypotheses from my blog post exercise were:
I firmly believe that most people should buy a modest amount of crypto assets as “insurance.” I believe financial inclusion and equity are possible in a world where most people have bought just a little Bitcoin (and an even smaller amount of Ethereum).
I believe most US customers will want a company to custody crypto for them.
Many of the reasons why people have historically bought crypto will not apply to the next billion users.
Suppose I believe that 3rd-party custody is the correct answer for most people. In that case, I shouldn’t bother educating people about their custody choices but instead recommend a custody product solution.
With that last bullet in mind, I started thinking about what product solution I would recommend. This seemed like a perfect opportunity to utilize a “painted door” test. To make a painted door, you pretend a product or feature actually exists, and create the “door” to the feature, but instead of building the feature, you lead people to an interest form. If there’s a lot of interest in the product or feature, then you have the contact info of future customers. If there isn’t interest, you know you need to do something different.
So I got to work on developing some product concepts. Lack of knowledge is the #1 adoption barrier for non-crypto owners. But there’s something I haven’t decided yet:
Is it a better product strategy to help users make informed decisions or incentivize the same outcome without user education?
To start to answer this question, I’m going to build two painted door sites using Webflow and test them with users:
Project Launchpad - Offer lightweight education and a customizable savings plan. The idea here is to sand off as many rough edges as possible: make crypto education accessible, build trust with customers, and then encourage micropayments (i.e., dollar-cost-average) towards acquiring crypto assets. I’m exploring framing around micro-investing for generational wealth.
Pros: Directly addresses cited user reasons for not owning crypto and provides an easy on-ramp and a long-term relationship.
Cons: So far, explaining these basic concepts has been challenging, and I’m beginning to wonder if it’s possible or just a red herring.
Project Star - Sometimes people want to buy their friends/family mementos and novelty gifts, like when grandparents gift paper bonds. This site would allow people to gift crypto to loved ones + offer to encode a message of choice on the blockchain. If you can’t get someone to do something themselves, make it fun for others to do it for them. :)
Pros: Inherent viral loop through gifting. User education doesn’t matter as much.
Cons: It’ll be tricky to transition these users / the product into something more valuable and sustained.
I plan to instrument the sites with Google Analytics to observe what people click on, and I also have an interest capture form if anyone wants to sign-up for either service. I’ll be looking at metrics like conversions, time on site, and trends in site navigation to understand what piques users’ interest.
To generate feedback, I’m planning to:
Ask y’all to review. Let me know if anyone wants to give a quick review in the next two weeks; then, I’ll share links in my next update for broader consumption.
Present these painted doors in user interviews with non-crypto users to get reactions.
Flyer a couple of locations nearby and see who clicks through.
Any other ideas?
I’ve been extremely energized imagining products in this space, and learning a new tool has been fun. I’m also excited to discover answers to my questions, but I know it’ll be humbling in the coming weeks.
Reader Questions
Thanks so much to the folks who read the last issue and sent questions. I’ll finish this newsletter with some responses to encourage more questions and explain my thinking.
How do you think about the user value of crypto? To any user, to any form of value? Why do crypto? - VB
This is something I answered for myself in my blog post exercise. Here’s a summary:
I think there are three main use cases for crypto: transacting, trading, and storing.
Transacting is most important for folks who have unstable local currencies (e.g., Argentina / Lebanon) or are looking to transact across country borders.
Trading is valuable to folks who like to play risky games with money.
Storing wealth is valuable to everyone.
Storing wealth with crypto, which is not managed by a central bank or a central entity, has the anatomy to be a hedge against global monetary policy.
I think that global monetary policy is poised for some dramatic shifts in the next couple of decades. It’s reasonable for everyone to own a modest amount of crypto as insurance.
I think “modest amount” is critical here; I think anyone who owns large amounts of crypto is mostly making a long-term financial bet, more akin to the trading and only applicable to a few users who have more to lose and are risk tolerant—owning a small amount (e.g., <$2000) and holding it for a long time is more affordable and applicable to more people. It will be especially valuable if the global economy gets chaotic.
Why is now the right time to enter this market? You have a compelling answer to why it’s not too late, but why is it not too early (to you)? - AM
For a market to be ready, I think there have to be at least two things in place:
The technology needs to be established - Is the crypto tech stack solid enough to build on? There's a world where cryptocurrencies could fail. My partner, Tyler, did a pretty good writeup on all the ways Bitcoin could die, and there are similar (and more) arguments to be made about Ethereum. That said, Bitcoin has been around since 2009 and is a ~$400B market cap at the time of writing. The longer something has been around, the longer it will probably stay around (aka Lindy effect). There are also market signals that crypto is ready for growth on top of the existing protocols: VCs invested ~$14B in the crypto market in H1 2022. I could wait around for cryptocurrencies to be "proven," but I think every venture assumes some risk, and Bitcoin and Ethereum have sufficiently derisked themselves technically that I'm not counting that as an additional miracle that needs to precede my plan.
There needs to be a mainstream use case - I think crypto has suffered to find a mainstream use case. On the one hand, some techno-idealists imagine a digital utopia of DAOs, NFTs, and metaverse applications. I think the average user dismisses these use cases as fantasy/sci-fi. On the other hand, there are financial games that lure folks with promises of 10x wealth... and those applications are mostly scams. I believe the mainstream use cases fall into two categories: 1) something we haven't imagined yet or 2) something dull, like storing wealth. However, increasing currency instability and inflation will make #2 look much more interesting in the coming years. I.e., I believe the boring use cases are bigger than we think.
How will mass market participation in crypto technologies open up opportunities for more miracles? How might it open up opportunities that don’t already exist? - JD
Yay! Let’s dream together. :)
Per the above, I think the best use cases haven’t been invented yet. I’m the most excited about a store of wealth; it can give folks access to money they can genuinely own without intermediaries involved.
Beyond crypto as a store of wealth, there’s a lot of excitement in Web3 about decentralized organizations (DAOs) and creator compensation. There are also fun fashion applications, ownership verification (think objects or real estate), micro-payments for content ranking, etc.
Web3 innovators describe a crypto future as “imagine what you could do with a decentralized database.” I’m not sure yet, but it’s fun to think about.
Naively, hasn't Coinbase "solved" the custody problem as best as any vendor can? If not, why not? In other words, what gives you conviction you can solve it better than others? - JS
I think every entrepreneur has to have a little bit of (potentially unjustified) confidence that they can solve a problem better than existing players, but here are a couple of thoughts:
I’m not sure Coinbase has the right incentives to custody at scale - The Coinbase business model relies on customers making transactions, which seems to be about 75% of all its revenue. After years of building UIs, I know how easy it is to motivate behavior to improve your bottom line. If Coinbase were the only option for folks to custody their crypto, many would be encouraged to take unnecessary risks. It’d be like hosting your savings account on E-Trade. Sometimes separation of use cases is good.
Crypto custody still hasn’t seen ubiquitous adoption - Just looking at the demographics of who owns crypto in the US, you can see a) 71% of US citizens have not invested in crypto, and b) ownership is still asymmetric. For instance, I’d love to see a world where crypto adoption is equal between men and women, but it isn’t yet. So I think that whatever Coinbase is doing, it’s leaving a lot of potential on the table.
Coinbase doesn’t need to be a direct competitor - Much like there are many investment firms and banks in the US, I think that crypto custody will be similar. Financial companies have different brands, user bases, and services; e.g., some people choose Bank of America, and others choose their local credit union.
How are you taking all [these updates about the crypto market] with the plans you have for a startup? Optimistic? - EW
For those who missed it, there’s been a big meltdown in crypto (again), with Binance acquiring FTX to solve liquidity issues within about 24 hrs. It echoes the speed and magnitude of the Terra/Luna meltdown in May. That said, my excitement to be in crypto hasn’t flickered. Like the ICO craze of 2017/18, the companies falling this year are clearing out dead brush like a forest fire. New and better things will grow. Optimistic? Yes. I’m just sad that retail investors get hit when stuff like this happens.
Thanks for reading! - Laura