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From Blockbuster to Bitcoin: How Netflix and Litecoin Prove Second Movers Often Win

First Movers Lose, Early Entries win.

It's Friday night, and the girl you've waited all semester to ask out has finally said yes. Dinner at the Sizzler went great, but now she wants to know what's next. Wandering the aisles of the Blockbuster video, you find yourself fighting for the last copy of Batman and Robin. Blockbuster is nearly as ubiquitous as McDonald's; it's the reigning king. As you are bumped into the candy rack, it's impossible to imagine that any of this could ever change, but Blockbuster has just turned down an offer to buy a 49% state in Netflix for only $50 million dollars. The aisles and shelves will soon be emptied, and the lights on their iconic signs switched off. Despite massive name recognition, Blockbuster Video will be gone.

One of the prevailing myths in crypto is that first-mover technologies, or companies, have an almost mystical advantage that imbues them with dramatically outsized value. Those of us from the business world, however, know that approximately 50% of first-movers fail, and only around 10% ever retain their market share or dominant position. Ask AOL, Netscape, or MySpace how it's going for them these days.

Apple, Google, and Microsoft didn't have any first-mover advantage; instead, they benefited from the trials and errors of those who came before them. You must maintain a technological edge over the alternative movers to be one of the few technologies that benefit from first-mover advantage. Polaroid had a name recognition that few companies have ever enjoyed, but it fell behind in innovation. Eventually, it was forced to file for bankruptcy. If the market is increasing rapidly, any first-mover advantage diminishes in importance. Personal computers are an example of a fast-moving technology where a company like IBM only remained meaningful for a short period.

Bitcoin is inferior to many other cryptos in speed, cost of use, and fungibility. It will have to concede that it deserves its place for the same reason as Litecoin, which exceeds its older brother in all the previously referenced areas to maintain its value. Inexplicably, bitcoin maximalists insist on undermining Satoshi Nakamoto's thesis by embracing second-layer solutions to address these shortcomings. One of the primary reasons Satoshi invented bitcoin is the risk of providing trust to other parties. He argued that institutions like central and commercial banks had violated the people's trust through currency debasement and fractional reserves. Embracing solutions against an asset or company's original mandate is a surefire way to lose any first-mover advantage.

Coin maximalists have tried to imbue first-mover advantage with almost quasi-religious importance. However, the belief that scarcity can be created "only once" defies historical logic. One of the factors causing such confusion is that there was indeed a brief historical window during which a POW decentralized digital currency could be safely established. Because of the necessity to survive its vulnerable infancy without being successfully attacked, such examples are exceedingly rare; however, the existence of Litecoin proves that there is more than one. Could this be the source of Bitcoin maximalists' ire towards Litecoin?

For every successful first-mover like Gillette, there are far more Pets.coms, and even the former still has substantial competition. Even if you believe in first-mover advantage, despite the almost 90% that don't retain their position, it is an even more significant leap of faith to think that dominance equals never having to share the marketplace.

So what should determine value? Adoption, use case, network effects, security, scarcity. Bitcoin's first-mover advantage will not likely retain its value for long, as it finds itself in an asset class with rapidly moving technology and numerous other entrants and digital assets. However, if bitcoin maximalists conceded that its value is money and not technology, they must also admit that Litecoin is one of the sole alternatives that share the same characteristics. The spread in the ratio between these assets, however, is currently unjustifiable, and failure to admit as much opens bitcoin to the choppy waters of competing as a technology in seas where it is already falling behind. Either bitcoin maximalists should acknowledge Litecoin's value, or we should all question whether $BTC in fact has any.


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