The music business is about to get its own alternative currency, called Songcoin (Update: Songcoin is now live).
The alternative currency phenomenon is real, as weird as that might feel to those of us who would never consider shelling out cash for points to buy special pixels for that Farmville game we never really got around to playing. Bitcoin, despite the issues mentioned below, shows that alternative currencies can become quite real to certain people, which can then make them real enough in general, causing them to take on a value of their own outside the traditional financial system.
As Forbes reports, we still don’t know how most governments will tax alternative currencies — which is, of course, some of the allure for people transacting in them. More seriously, Mt. Gox, the largest Bitcoin exchange, shut down this week amidst scandal, after revealing that it had lost an estimated $367 million in Bitcoins to theft due to a loophole in its software, casting the future of these currencies into doubt, as investors with Bitcoins held by Mt. Gox wonder whether their money is gone.
Mt. Gox’s own leaked document admitted, “the likely damage in public perception to this class of technology could put it back 5~10 years, and cause governments to react swiftly and harshly. At the risk of appearing hyperbolic, this could be the end of Bitcoin, at least for most of the public.”
Assuming that this week does not mark “the end of Bitcoin” and, by extension, Bitcoin alternatives – or even assuming that they have been set back five to ten years as Mt. Gox fears — the music industry will get its own alternative currency next week in “Songcoin.”
Songcoin is administered by Pimovi, whose co-founder and CTO Kasian Franks previously launched Seeqpod and Mimvi. Pimovi is a subsidiary of the natural gas exploration company Chancellor Group, Inc., which launched a technology division early last year.
The general idea with Songcoin, said Franks in an exclusive interview, will be to lower transaction and international wire fees within the music business, and to bake in pecuniary features that make sense for the music industry such as the ability to offer special promotions, leave tips for artists, and, eventually, buy concert tickets and more.
It’s basically an alternative alternative currency for musicians, fans, and merchants. Does it stand a chance? What will happen if it works? We spoke by phone with Pimovi co-founder Kasian Franks as birds tweeted in the background of his California backyard, to assemble the following Q-and-A, edited for length and clarity.
Eliot Van Buskirk, Evolver.fm: Why would someone want to convert U.S. currency into Songcoin?
Kasian Franks, Pimovi: For the same reason they’ve done it with Bitcoin. The premise behind Bitcoin was that people knew the value of virtual currency, because companies like Tencent in China did tons with virtual currency, and CyWorld in Korea did tons — they made billions with virtual currency — and then Farmville, Zynga… these companies have wedded users to the fact that they can use virtual currency because #1 they get better value. There are no transaction fees, unless you impose them.
And so people look at Bitcoin — especially after the 2008 [banking] crisis — as a way for them to have better control over the value of their currency, because after the financial crisis, the Fed started engaging in quantitative easing. They were just printing money and affecting the value of the dollar, and they printed enough money so they could save the banks, and save everybody that was worth billions from losing billions. When people saw that, they viewed it as unfair, and they looked at Bitcoin as a way to engage in a virtual currency, but at the same time protect the value.
People, especially in China and Russia, decided to take out futures on Bitcoin, to get as many Bitcoins as they could, either by mining for Bitcoins or purchasing them outright. Bitcoin did really well, so there were other alternative currencies that followed Bitcoin — LiteCoin was an alternative currency that made more money for people last year than Bitcoin did, because it went from a few cents to 20 or 30 bucks. When people saw this, they looked at other alternative currencies including NameCoin — and one of the co-architects of NameCoin is working with us on Songcoin now.
We’re looking at providing people with a way to not pay transaction fees, not go through international wires, and a way for people to just kind of have something pretty much alternative to a dollar, which kind of spreads their risk. The value of alternative currency has been proven by Bitcoin now, and has been proven by other virtual currency offerings throughout the last ten years, so people are comfortable with it — shops are opening up around the world that are beginning to accept Bitcoin now, on Craigslist there are people who accept Bitcoin now for a purchase of their car or home.
Evolver.fm: How does Pimovi plan to insert Songcoin into the music business?
Franks: Let’s say an artist has a tip jar. They can now tell their fans, ‘I accept Songcoins as tips, so you can go over to Pimovi and get some Songcoins.’ Pimovi will give them away for free, initially, to help with circulation, and then they’ll take on their own value, because other virtual currencies have proven that they can do this. We have a huge opportunity by focusing this on the music industry, and we can change things a little bit hopefully.
Evolver.fm: So, what does Songcoin do that Bitcoin can’t do? Why would an artist choose to accept Songcoin?
Franks: Well, we’re going to be the operators of Songcoin, and we’re going to make sure that Songcoin has built-in features that cater specifically to musicians and their fans — discounts on certain things that we can build into the currency, and we can control any transaction fee. As the stewards of this thing, with a healthy amount of experience with the music industry, we can gear this towards the music industry.
Evolver.fm: So how would the discount work, if it’s built into the Songcoin? How might that look?
Franks: If you use Songcoin to purchase a concert ticket, then we can work with ticket vendors to build in discounts so that if you use Songcoin, you’re going to get a cheaper rate, for example. It’s like using a specialized credit card that gives you mileage or discounts on certain things. We’re going to start by building a music recommendation system, sort of like what we had at Seeqpod but much better, and if people can use this system to discover music, we can put tip jars next to each artist, and let the artist know that we’ve set up these tip jars, and eventually, Songcoin will take on a nice valuation, so Songcoins will be worth more and more.
It’s analogous to what happened with Dogecoin. It was kind of a joke currency that they set up, based on that Doge meme. The weird thing is, they issued about a hundred billion coins, and then the coins began to take on their own value, because people loved that they could get a hold of these coins that were based on something fun, and today, I think the entire coinbase is worth $10 or $20 million — and even weirder, the VCs went to the creators of Dogecoin and said, ‘We want to invest, here’s $500,000,’ and they turned it down.
Evolver.fm: So, I guess the idea here is, if someone did that as a joke and it worked, then if you’re trying to have it actually work, it should work.
Franks: Exactly — and directed at a specific purpose, which no other alternative currency has done before.
Evolver.fm: One of the big themes with music is that artists don’t get paid. So what would you say to an artist who says, ‘I’ve been complaining about what I get from Spotify, and now you want me to accept something that’s not dollars, and it’s not Bitcoin — why should I do that?’
Franks: It’s about the value going up, and that it’s designed for something that you enjoy, that you do. But more importantly, if someone came to me and said, ‘Hey, Kasian, there’s an alternate currency called Songcoin, and we’d like to tip you in this virtual currency, and we’ll see how it goes,” I don’t even know how anybody would turn it down. Not only musicians and artists, but music journalists as well should be tipped… you just cut and paste the code into an article.
Evolver.fm: So, if I have Songcoins, and I want to turn them into dollars, how does that work?
Franks: We maintain the servers, we build the architecture, we repurpose the open-source version of LiteCoin, and as operators, we act as the stewards of the software architecture that allows people to extract or mine Songcoins. In terms of cashing them in, people can use Coinbase and other transaction houses to cash in their Songcoins.
Evolver.fm: So how do you guys get paid? For that matter, how does any company that launches a virtual currency get paid?
Franks: What happened with Bitcoin was that this Japanese guy who they can’t really find right now for some reason pre-mined a million Bitcoins for himself. Eventually, if he wanted to cash them in, he’d be able to cash in one billion dollars’ worth of Bitcoin. We also want to provide consulting services and other products that surround Songcoin — licensing, ways for people to transact Songcoin differently, and partnerships. We also want to take a one-percent transaction fee in some cases.
Evolver.fm: So, when does this happen?
Franks: We’re going to be launching and pre-mining for Pimovi in about a week… once we announce, individuals or companies around the world can begin mining Songcoin. Something interesting happens with a new alternative currency: It’s put on a list of new alternative currencies that people can now leverage, and instead of just being overly leveraged on Bitcoin or the other alternative currencies, they take a position in new alternative currencies to hedge, and properly spread their risk. So we’re looking at that, as well as working with transaction companies to have Songcoin be part of their transaction layer.
Stay tuned for more digital music news and analysis.