September 6, 2022

What the Internet's Adoption Cycle Can Teach Us About Crypto

Matt Hayes

Cryptocurrencies will experience a cycle of public expectations––some realistic, and others not so much.

Internet as a corollary for crypto

The word is getting out on crypto, and people are beginning to understand its benefits both as a means of payment and as a secure, long-term store of value. Like all burgeoning technologies, cryptocurrencies exchanged on the blockchain will experience a cycle of public expectations––some realistic, and others not so much.

The Gartner consulting firm produced this graph to explain the natural stages of a cycle of public expectations upon a new technology, where interest is tracked over time. Initial interest is peaked by the appearance of the new technology, and as possible applications are discovered (or imagined), expectations and interest grow. Unfortunately, many of those expectations will be exaggerated and unrealized, leading to disillusionment and a loss of public interest. But, after a while, as the technology is properly applied, the interest in it will be perfectly balanced with its usefulness.

The internet, as a reference 

We saw this happen with the internet, for example.

[Source of graph:

After its invention in 1983, interest began to grow. Low interest rates in the late 1980s and early 1990s encouraged investments in internet-based companies. Many launched IPOs that traded successfully from the jump, creating a "gold rush"-like mentality: everybody wanted in. As a result, internet-based companies could raise significant venture capital in spite of never realizing material revenue.

In the 90s, web browsers like Mosaic appeared on the scene, making it easier for consumers to use the internet, which contributed to home ownership of computers soaring from 15% to 35% from 1990 to 1997. This graph shows the share of the world population that used the internet, and you can see that it really started to take off in North America somewhere around ˜1993, and has grown pretty steadily since then. 

On December 9, 1999, VA Linux Systems went public and gained 698% that day. This was the height of the internet bubble––the peak of exaggerated expectations.

By the end of 2000, internet stocks had lost 75% of their value (a total of $1.7 trillion in losses). According to Challenger Gray & Christmas Inc. (a human resources consulting firm), the year 2000 alone saw over 22,000 jobs cut and 16% of companies go out of business. 

Most of the failed dot.coms were either web-based retailers (who underestimated the infrastructure and logistics necessary to succeed in the retail space) or companies banking on profitability through advertising revenue. While advertising revenue is material and can be profitable, the supply of advertising space far exceeded the demand. There just weren't enough companies buying ad space, and those who were, placed their ads on the largest, most high-traffic sites.

Some of the companies that failed when the internet bubble burst were:

  • A website that sold pet supplies and operated for 2 years before closing in November, 2000.
  • Webvan: A web-based grocery delivery service that operated for 3 years before filing for bankruptcy in June 2001.
  • A British retail company founded in late 1998 that closed in 2000.
  • TouchWave: A network switch provider founded in 1997 that produced a phone system that incorporated internet features. It sold for $46 million dollars in 1999, but was largely unsuccessful in the hands of Ericsson Communications.

It wasn't all doom and gloom, though. Some of the companies that were founded around the height of the internet bubble made it, by adapting and providing real (profitable) value: 

  • Amazon: Originally launched as an online bookstore in 1997, Amazon focused more on brand recognition than turning a profit. After the internet bubble burst, through shrewd management and diversifying into general retail, Amazon finally reported profits in Q4 of 2001. It has since become the largest online retailer.
  • eBay: Following the crash, eBay saw its valuation drop. In response, they expanded their product categories and added new auction models (like "buy now" set-price). 
  • Booking Holdings (formerly After the Sep. 11 terrorist attacks in 2001, the whole travel industry was facing challenges. As a website designed to help users find discounts on airfare, car rentals, vacation packages and hotels, adapted by expanding their market into Europe and rebuilding their network and brand around hotels rather than airfares.
  • Cisco Systems: As opposed to many of the companies that failed in early 2000, Cisco Systems was already a profitable business, posting 55% revenue growth, 66% gross margins and had a 14% return-on-equity in 2000. 

The nonprofit lag

Citing lack of funding and training barriers, most nonprofits are slow to adopt new technologies.

Such was the case with the internet. In a 2005 survey of nonprofits, all the participants indicated that they viewed having a website as a necessity for their organization. But in 2011, when Dave McMahon studied 120 churches in the state of Washington, he found that only 46% of them had a website. Among small churches (less than 100 members), only 32% had a website, while 87% or large churches had one. 

That rate of adoption is roughly half of what we see in the for-profit sector in 2011, when 81.4% of UK businesses had a website.  It's also lower than the nonprofits' own stated necessity, which reached 100% in 2005.

What it means for crypto

After its invention in 2009, Bitcoin inaugurated what has become a novel field of digital and electronic payments. Alternative coins with diverse uses have appeared, collateralized and uncollateralized, to meet the sundry exigencies of our ever more digital age. 

As was the case with the internet, some of the expectations heaped on crypto were unrealistic. Stories told of overnight millionaires are perhaps overemphasized. Alas, the crypto market is subject to the same swings of public perception, vulnerable to sentiments of optimism and pessimism. It will expand and contract. 

Bitcoin recently reached a record-high price of $66,935 on Nov. 9, 2021, igniting the excitement of crypto holders, and encouraging new individuals to enter the arena. All are finding out the hard way that exaggerated expectations peaked, and the trough of disillusionment has begun to set in, as Bitcoin is currently trading at ˜$20,000.

But, as was the case with the internet, this is not likely a signal of the end of the industry. Rather, it might be more accurately viewed as a reset, where crypto is more accurately and sustainably repurposed. To substantiate this suggestion, consider the results of a recent poll of philanthropic donors from over 100 countries, which showed that 55% prefer to make their donations online via electronic payment, while only 8% prefer to give cash. 

And, once you factor in the prospect of tax relief stemming from donating non-cash assets like crypto, it's easy to connect the dots and project the direction in which philanthropic giving is headed. 

One of our chief priorities at Engiven is to prevent another adoption lag in among nonprofits. By providing donors with a pathway to donate crypto, nonprofits can position themselves to tap into this new field of wealth, and receive more funding, more often, and more safely than ever before.