ChangeTip’s humble origins began in the earlier days of Bitcoin, when it wasn’t as strong of a talking point of conversation for social analysts today. ChangeTip, when it was just BitcoinTip, saw early on that the Bitcoin community wanted and needed a way to show off how the technology works and promote it to people through social media.
To those that may not have seen a ChangeTip bitcoin transaction take place on Reddit or Twitter, ChangeTip is a tool to send bitcoins quickly and efficiently to one another in the form of “tips.” If people see something they like online and want to show the originator that they appreciate the content, they can simply enter a command and send a few bits to that person. With a few clicks, the receiver collects the bitcoins, and the transaction is complete, all in the eyes of the public.
The best caveat of ChangeTip is that it happens out in the open. On Reddit, users simply type in a command in their comment with the amount they want to send, and ChangeTip verifies the transaction. People often marvel at how amazing the technology is and question what they just saw take place, lending next-to-free advertising of Bitcoin technology to the spectating audience.
ChangeTip served its purpose as a tool thus far, but now a professor of Cornell University named Emin Gün Sirer says it’s time for ChangeTip to die. On top of that, his argument is quite compelling.
Through his personal research, along with the fascinating implications of a decentralized public ledger system, Sirer checked how many bitcoins ChangeTip keeps in its cold storage wallets. It turns out that ChangeTip holds 155 bitcoins, or less than $60,000.
ChangeTip recently came into about $3.5 million in seed funding led by Pantera Capital. Now that the company has investments backing it, it needs to stop being just a tool for tipping and turn a profit; otherwise it’s useless to the investors. To turn a profit, ChangeTip is passing fees onto its users to withdrawal bitcoins. Their plan is to implement a small, one percent fee to withdraw from user’s ChangeTip wallet.
Unfortunately, as Sirer pointed out in his argument, even if every ChangeTip user withdrew their money once the fees were in place, the profit ChangeTip would take in would only amount to $600.
“To help visualize that, $600 is roughly equal to the average Bush tax rebate per household, which most people squandered on a set of wireless speakers. And that’s revenue, not profit. Assuming a multiplier of 20X, the total value of the company is a big fat $12K.”
Sirer continued, looking at optimistic opportunities for ChangeTip.
“Let’s assume, wildly optimistically, that ChangeTip will usher in a new era of free-flowing tips, and we will transform from major industrial power that landed a drone on an asteroid to a society that runs on baksheesh. Let’s also assume new money flows coming in and out of the system, even though one would expect most of the money to churn internally, with very limited cash flow across the service boundary. But let’s conservatively double our estimate: that yields a company whose net worth is the same as a low-end Volkswagen, one that will develop electrical problems the day after you roll it off the lot. Yet they raised enough cash to open a dealership through two rounds of funding.”
All of this analysis brings us and Sirer to the major question at hand. How did ChangeTip possibly raise $3.5 million for a product worth so little? What could people possibly be overlooking?
It’s a speculative assumption, but Sirer points out the ChangeTip has access to the linkage of users social network identities across multiple platforms. While bitcoin is anonymous but traceable, he says it would be invaluable to annotate different wallet addresses with the slew of social network profiles at hand. But thanks to tipping, ChangeTip has that power.
As to whether or not it’s fair to speculate that ChangeTip will sell user information to advertisers, Coinkite CEO Rodolfo Novak summed up his foresight clearly when talking to CCN.com about this topic.
“I can only speculate. I don’t know how those guys plan on making money, but we all know how Facebook turned out.”
Even to the most socially conscious internet user who may have multiple ChangeTip accounts for every different Reddit username, Twitter profile or Facebook page, there are opportunities to sell information. For every person that exercises extreme caution toward permissions, there is a slew of lazy people that will, as Sirer said, “install flappy bird apps on their phone with enough privileges to launch nukes.”
Does it seem as though ChangeTip plans to sell user information to advertisers? It’s currently unclear. But they do have all of that valuable information at their fingertips and venture capitalist investors like Pantera Capital aren’t known for handing out money to gold mines in return for aluminum foil.
Images from ChangeTip and Shutterstock.