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Cryptocurrency’s Moment In History Is Happening Right Now
If you could go back to the 1990s and invest more heavily in the internet, would you?
The dot-com boom is arguably the most famous bubble in the past several centuries. During this time, from 1995 to 2000, the Nasdaq rose 400% before crashing and losing most of its gains.
Back then, internet-related companies were popping up left and right, and success was easy to find. Money was flowing, and valuations were growing. The pace was unsustainable, and when the bubble burst, it took many businesses down with it.
Still, it was an important moment in the history of the internet, and I bet if you had the chance to go back and “get in early,” you would.
The explosion of new companies isn’t what made that period special— it was the disruptive technology that was moving in and taking over. According to the US Department of Labor, the percentage of households in the United States owning computers increased from 15% to 35% between 1990 and 1997 as computer ownership progressed from a luxury to a necessity.
Computers and the internet had moved from being a thing for nerds and scientists to being a thing for everybody.
Diffusion of Innovation Theory was developed by E.M. Rogers in 1962, and he used the concept to explain how products diffuse through a population. His research divides the population into five distinct groups: innovators, early adopters, early majority, late majority, and laggards.
Essentially, adoption moves from left to right on the scale, and for mainstream adoption by the majority to take place, a product must first be accepted and embraced by the innovators and early adopters. Evangelization by these groups is enough to prompt the early majority, and the late majority will follow suit, usually due to convenience or non-preference. Finally, laggards join when there’s no other choice.
In his book Start with Why, Simon Sinek points to the diffusion of innovation as a reason for TiVo’s failure to launch. Rather than obeying the laws of diffusion and gaining the acceptance of early adopters, they instead chose to go right for the majority. Without the experiences and advocation of early adopters to rely on, the early and late majority were unwilling to take the plunge.
In other words, the method by which the population adopts a technology or product is perhaps as important as the technology or product itself. When we look at the current state of cryptocurrency, it’s okay — even expected — that it’s been embraced by just a small percentage of the population. Those are our innovators and early adopters. The majority is still looking on, acknowledging the possible benefits and advantages while retaining their skepticism.
Geoffrey A. Moore proclaims that making the jump from early adopters to the early majority is both challenging and most critical to gaining mainstream adoption in his book Crossing the Chasm. If you can make the jump, particularly with disruptive innovations, it can create a bandwagon effect, build momentum, and become the standard.
The Tipping Point by Malcolm Gladwell supports a similar concept. Gladwell’s 80/20 Principle states that roughly 80 percent of the “work” will be done by 20 percent of the participants. Again, we see the earliest adopters taking charge and making decisions for the rest of the population — you simply need enough people with enough belief.
The dot-com bubble was created because personal computers and the internet crossed the chasm and reached its tipping point. The early adopters convinced the early majority that the world wide web was worthy of our time and resources, and online was where the action was.
It was an exciting new world, and our hunger for exploration and demand for innovation created the tidal wave of new ideas and businesses that fueled the bubble. We’re just now reaching that point with cryptocurrency and blockchain technologies.
According to a survey conducted by Finder, the percentage of Americans who own a cryptocurrency has grown from 7.95% in 2018 and 14.4% in 2019 to more than 23% in 2021, and they estimate that 59 million Americans own some form of crypto.
Census data on Infoplease indicates there are 209 million adults in the United States. Here’s an article that says 46 million Americans own Bitcoin, and here’s another from 2020 that estimates at least 30 million. These numbers suggest that somewhere between 14.4–22% of adults in American own crypto.
It’s clear that the adoption of cryptocurrency is in that sweet spot where we found the internet in the 1990s when computer ownership increased from 15% to 35%. For the years leading up to now, Bitcoin has been used by a small, niche population. But now, it’s in the headlines of just about every major publication; it’s being accepted in an increasing number of mainstream locations; and it’s getting more attention than ever from financial institutions like traditional banks, PayPal, and Square.
The future of cryptocurrency isn’t all roses, though. CoinMarketCap currently lists more than 10,000 cryptocurrencies, and more are being added every day. Like many of the internet startups of the dot-com bubble, most of these projects are capitalizing on the newness of the technology, don’t have a clear vision or ambition for the future, and are destined to fail.
Make no doubt about it; there will be a reckoning.
The world will learn that we don’t need so many projects and blockchains solving the same problems. The cream will rise to the top, and the rest will fall into obsoletion as funds and excitement dry up.
According to this article, more than half of dot-com companies founded since 1996 were gone by late 2004, and of the survivors, many had lower valuations. I expect we’ll see similar attrition with crypto projects.
I’ve told friends and colleagues that I love cryptocurrencies and defi because it reminds me of the internet in the 90s — and I’m referring to the experience when I say this, not the investment opportunity. Everything’s a little unintuitive and takes a few extra steps to figure out, but it’s exciting and new. Sure, there’s a lot of risk, too, and it’s hard to be sure if you’re getting in early on the next big thing or setting yourself up to be rugged.
That’s a reason to be cautious, though; not a reason to stay away.
We’re standing on the edge of the next technological revolution — one that has already begun and cannot be stopped. One that will be led by the likes of Bitcoin and Ethereum. Cryptocurrency has crossed the chasm. It has reached its tipping point.
The masses will continue to flock to it, and the bubble will expand. Growth and collapse are both inevitable, and when the bubble pops, we’ll be left with a strong foundation on which to build.
Herein lies the opportunity, and there is risk in waiting and in not.
The blockchain-based giants of tomorrow are here today, rising to challenge traditional banks, insurance companies, internet service providers, cellular networks, social media, and to disrupt countless other industries.
It’s not a question of if cryptocurrency projects will succeed but which ones. Choose wisely, and you may find yourself holding the future’s equivalent of Google, Apple, or Facebook stock. It’s easy to pick winners right now during the mania that comes with mainstream adoption sweeping over the population, but many will fail or lose value with time.
Learn from the past. Do not buy into a project because it’s the new hotness like Pets.com was in the 90s. Bitcoin is being recognized as legal tender by countries. It’s not going away, and its hard limit will make it more valuable with time. Ethereum is transforming industries with its smart contract. It has a solid first-mover advantage. It’s not going away, either.
Invest in projects with stability and advantage in the space and make small bets on projects with clear visions, ambitious goals, and strategies to achieve them. Cryptocurrency and blockchain will have a profound impact on our lives for decades to come. You can stand on the sideline and shake your head, or you can open your eyes, see what’s happening, and embrace it while there’s still time to get in early on the projects that will shape our future world.