Bitcoin's Brand Awareness
When the luxury goods maker Hermès released its Kelly Beach Bag in Japan about a decade ago, it had a surprise hit on its hands. Despite a hefty price tag, the canvas bag was flying off the shelves the moment it got to stores.
As related in a recent podcast, Hermès management sprung into action when it realized what was happening — but not, like most companies would have, to increase supply.
Just the opposite: They pulled the bag off the market.
Fearing its meticulously curated brand of exclusivity could be at risk, management's reaction to news of the hot-selling bag was "destroy it."
To understand why, consider that some Hermès products are available for purchase by invitation only. And, even with an invite, you can't just place an order online — you have to go to a physical store where the purchase becomes an hour-long ceremony involving champagne, tea and cake.
If everyone on the Tokyo subway was carrying an Hermès beach bag like they do Louis Vuitton purses, that ceremonial exclusivity would be all for naught.
This is why Hermès management spends much of its time strategizing not on how to sell more, but on how to sell less.
It may also be why much of the Bitcoin community was distraught at this weekend's news that its blockspace was being populated with NFTs.
Risking it all?
You'd expect this to be welcome news: Bitcoin has a life-threatening security problem that would most easily be solved by the fees that come with increased usage, be it for NFTs or otherwise.
But, as discussed yesterday by my newsletter understudy (prestigious job, that), the revelation that NFTs had found an inadvertent backdoor into the Bitcoin blockchain was so unwelcome that some suggested the transactions should be censored.
This may seem vitriolic in the context of permissionless blockchains (especially so given the libertarian ethos of Bitcoin), but it makes perfect sense to me.
Like Hermès, Bitcoin has an image to maintain.
The OG crypto has always been a bit humorless: Hard-money is a Spartan philosophy of liberation through suffering — a cross of gold and a crown of thorns, in the memorable phrasing of Williams Jennings Bryan.
As such, the idea that blockspace intended for transactions in the next global reserve currency could be used for memes, jokes, or playing Snake is understandably anathema to many.
Bitcoin's stoics do not want to be associated with monkey jpegs — anymore than Hermès wants to be associated with Louis Vuitton purses or Gucci loafers.
Doing so risks alienating the core constituency of believers that make Bitcoin what it is: the developers that write the code, the miners that validate the chain and the HODLERs that hold the coins.
With no tangible value to underpin it, Bitcoin's price is dependent on all of those constituents keeping the faith.
And its security is dependent on its price, so a loss of faith would be as existentially risky to Bitcoin as a loss of brand is for Hermès.
Hence the often vitriolic infighting among crypto's different camps: Any challenge to the consensus narrative behind a cryptocurrency can be a threat to its very existence.
Two bald men?
In one sense, an argument over whether NFTs belong on Bitcoin feels a bit like two bald men fighting over a comb: The Bitcoin blockchain is hardly being used at the moment. There is more than enough blockspace to go around.
But bitcoiners have a reputation to maintain, even if it means foregoing sorely needed revenue. And even if foregoing that revenue is a threat to the sanctity of the 21 million cap.
Because that reputation is worth quite a lot.
With a market capitalization of about 18 times revenue, Hermès is considered one of the stock market's most reassuringly expensive stocks.
By increasing production, the company could probably multiply its revenue tenfold. But they would dilute the brand in the process, which would lose it that lofty revenue multiple.
Hermès looks downright cheap against Bitcoin, however, which trades on something like 4,000x its annual revenue.
NFTs could probably 10x Bitcoin's revenue — or more. But would Bitcoin lose its lofty multiple in the process?
Be it stocks, blockchains or handbags, people will pay a lot for quality — or the perception thereof.
So, when you've earned that perception, you don't risk it lightly.
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