Has it really been just over ten years ago since the global economy was heading towards a recession, that the idea for a digital currency was being created online?
It has indeed! Bitcoin was born on Oct. 31, 2008, and in the past 10 years, it has evolved to a household name on Wall Street from being a hobby among coders.
• Bitcoin went from an anti-establishment fad on the internet to a multi-billion-dollar market in just 10 years.
• Its underlying technology, blockchain, is being embraced by banks such as J.P. Morgan and tech giants such as Amazon and Facebook.
• The market is still maturing, with no lack of skeptics who doubt bitcoin’s legitimacy as a means of payment or a sound investment.
• The entire cryptocurrency market capitalization is now $200 billion, and bitcoin makes up more than half of that total, with a market value of about $110 billion, according to CoinMarketCap.com.
Despite the considerable monetary value the crypto-market has accumulated over the past decade, it has had its share of busts, epic booms, savage swings, scam accusations and a lack of real-world implementation of the underlying blockchain technology, which has led many to dismiss the technology as over-hyped and worthless.
I would say that would be a myopic, premature, and superficial view, as upon a more analytical examination, the phases that blockchain and crypto have gone through are astonishingly similar, if not the same as that of many other contemporary, leading-edge technologies. Let’s consider The Gartner Hype Cycle for Emerging Technologies. It is considered as an institution in high tech as it postulates a standard adoption model and measures that emerging technologies go through as they develop. As per Gartner’s website:
Our 2018 Hype Cycle reveals five emerging technology trends that profoundly shift experiences in our spaces, blur the lines between human and machine, and enable AI ubiquity that will propel organizations to connect into new business ecosystems to become competitive over the next decade.
A potential technology breakthrough kicks things off. Early proof-of-concept stories and media interest trigger significant publicity. Often no usable products exist and commercial viability is unproven.
Early publicity produces a number of success stories — often accompanied by scores of failures. Some companies take action; many do not.
Interest wanes as experiments and implementations fail to deliver. Producers of the technology shake out or fail. Investments continue only if the surviving providers improve their products to the satisfaction of early adopters.
More instances of how the technology can benefit the enterprise start to crystallize and become more widely understood. Second- and third-generation products appear from technology providers. More enterprises fund pilots; conservative companies remain cautious.
Mainstream adoption starts to take off. Criteria for assessing provider viability are more clearly defined. The technology’s broad market applicability and relevance are clearly paying off.
Gartner provides invaluable advice on how to interpret technology hype, how to use Hype Cycles, as well as how they work (as they have drilled down into the five key phases of a technology’s life cycle listed above)
Clients use Hype Cycles to get educated about the promise of an emerging technology within the context of their industry and individual appetite for risk.
Should you make an early move? If you’re willing to combine risk-taking with an understanding that risky investments don’t always pay off, you could reap the rewards of early adoption.
Is a moderate approach appropriate? Executives who are more moderate understand the argument for an early investment but will also insist on a sound cost/benefit analysis when new ways of doing things are not yet fully proven.
Should you wait for further maturation? If there are too many unanswered questions around the commercial viability of an emerging technology, it may be better to wait until others have been able to deliver tangible value.
If we go through each stage of Gartner’s cycle, this is how they apply to blockchain:
Without a doubt, the innovation trigger for blockchain was the white paper published in 2008 by the infamous Satoshi Nakamoto. (Satoshi Nakamoto is the name used by the unknown person or people who developed bitcoin, authored the bitcoin white paper, and created and deployed bitcoin’s original reference implementation. As part of the implementation, they also devised the first blockchain database.) Titled Bitcoin: A Peer-to-Peer Electronic Cash System, in which was outlined the conceptual and technical details of a payment system that would allow individuals to send and receive payments without involving any intermediary financial institutions. This was also the birth of bitcoin. The proposed decentralized payment system was exciting in and of itself, however, it was the technology behind it and how it worked that was truly revolutionary. The main technical innovation is not the digital currency itself but the technology behind it, known as blockchain.
As word began to spread amongst technology insiders, businesses and at conferences in upcoming years, the world saw the birth of altcoins such as Namecoin, Litecoin, OpenCoin (Ripple) and other more privacy-focused coins like DASH, Monero, and ZCash.
The peak of inflated expectations spanned over the period of time from 2014–2017, with the advent of Ethereum being the impetus that started it all in 2014.
Ethereum is a decentralized platform that runs smart contracts, which are applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference. This capability allows developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other projects that may not have even been invented yet, all without a middleman or counter party risk. For the first time, developers had a platform from which to build and expand decentralized applications. In addition, Ethereum also created a platform for a new fundraising mechanism called an Initial Coin Offerings (ICO), which sent the crypto-space to a pinnacle of inflated heights.
The duration of 3 years between 2014–2017 saw expectations reach remarkable heights as hundreds of startups and tokens began to be created, some seemingly overnight, and billions of dollars invested in projects with little promise. The outcome has been that most of the projects initiated at that time have either altogether failed, failed to gain traction, or have also been exposed as scams that took advantage of the delirious and delusion expectations of the public.
As rumours of the potentially revolutionary nature of blockchain technology hit its peak and expanded to a larger segment of the population and business community, some companies, like the Long Island Iced Tea Corp., only needed to rename themselves to include the word ‘blockchain’ in order to see their share price soar 289%. At a time when the tech and business community were seeking new and innovative solutions, blockchain technology was idealized as a panacea to every known problem in the world and became THE hot topic.
When corporations began R&D initiatives focused on a more in-depth exploration of the technology through consortiums with some producing working prototypes and testing the technology in the real world, legitimate solutions started to emerge. Established multinational companies in industries such as banking, insurance, healthcare, amongst others, were the ones to take the first steps in this direction.
As we near the end of 2018, it can be said that it has been a turbulent year leading to where blockchain and crypto are now. With significant price drops, projects failing at high rates, and people unsure about whether the technical issues impacting adoption such as scalability and usability can be overcome, it is clear that the overall bias is one of skepticism and caution. Publicly available blockchain solutions are relatively few in number and real-world use cases are still being defined when compared to the technology’s level of hype.