Cryptocurrency has had a heck of a run since Bitcoin was invented in 2008. It has taken full advantage of people’s natural excitement for revolutionary ideas and the fear of missing out. In fact, it’s been one of the biggest and fastest growing technological trends in history.
While looking at the price charts now, it’s obvious that the trend has cooled down significantly since the end of 2017 when Bitcoin was hitting its record highs. The fear of missing out has largely been replaced by the fear of making a bad investment. This raises an important question for those investing in cryptocurrency. Will the demand for cryptocurrency decline?
Crypto isn’t the hot new thing anymore
From around 10 years ago to the end of 2017, cryptocurrency was the hot new technology. It was constantly in the news and it had everyone talking. Many argued it was the most important technological invention since the internet, while many regulators, bankers, and investors were completely against the idea. It didn’t matter, the point was that it was driving the growing awareness and excitement.
Now, things look much different. Most people at least know what cryptocurrency is, and many people even own some cryptocurrency. What’s more, both the over-the-top hype and the skepticism have a lot less impact now. We’re aware that Bitcoin probably isn’t going to die anytime soon and there are definitely some important applications for blockchain tech. But we’re also aware that it’s going to take a while to impact the world economy in the ways it promised.
The technology hype cycle
The research and advisory firm Gartner has modeled how the perception and excitement around new technologies tend to develop over time. It’s called the technology hype cycle. The idea is that new technologies go through a few distinct phases in order: the inception of the new technology, a period of overinflated hype and expectations, subsequent depression and retractions, gradual enlightenment, and finally the widespread adoption of the technology.
Many technologies have gone through this process. For example, the internet itself in the 1990s and early 2000s. The key insight of this model is that people tend to overestimate the impact of a technology in the short term and underestimate it in the long term.
Where is cryptocurrency in the hype cycle?
Cryptocurrency’s technological trigger was the invention of Bitcoin in 2008. To those who have been keeping up with the crypto world, it’s pretty clear that cryptocurrency experienced its period of overinflated expectations in 2017 when the whole world went crypto-mad. The demand fueled mostly by media hype, wild price predictions and a widespread fear of missing out pushed cryptocurrency prices through the roof. When the excitement started to wear thin, there just wasn’t enough genuine demand to sustain the crazy price levels, and everything collapsed. It’s also quite clear that since then there has been a lot of disillusionment with cryptocurrency from all directions.
The good news is that the next stages are gradual enlightenment and a plateau of adoption. The bad news is that Gartner’s hype cycle model doesn’t give a timeline for how long that might take. Of course, this only measures public perception and assumes that cryptocurrency can maintain its technological relevance and utility.
Can the demand pick up again?
It’s unlikely that another purely hype-fueled rally will push cryptocurrency demand to new highs (although it seems anything is possible in the industry). People are much more aware and cautious about crypto now. Curiosity and fear of missing out have probably seen their peak.
So does this mean cryptocurrency is finished? Absolutely not. New demand for cryptocurrency needs to come from people around the world that want to apply crypto for real use cases.
If the demand for cryptocurrency is going to reach new highs, it needs to start fulfilling its role as the money designed for the global internet. The major hurdles to overcome in order to achieve this include:
- Tools to make using cryptocurrency easy and safe
- Bringing transaction fees down to near-zero levels
- Increasing scalability for global payment networks
- Decentralized applications with a better user experience than centralized ones
The tools available for using Bitcoin, Ethereum, and other cryptocurrencies are still difficult for newcomers and non-techy people, especially when compared to the slick online and mobile banking applications offered by many financial institutions. For non-crypto enthusiasts, this is a big barrier to skip cryptocurrency.
Another significant disadvantage comes from the fact that transactions on the Bitcoin network can get quite expensive. When the network gets congested, fees spike quickly to unusable levels, not to mention the extended wait times and unconfirmed transactions.
There are also many decentralized applications available that offer a peer-to-peer service to compete with popular apps with no middleman fees. The problem is that they are rarely as nice to use as their centralized counterparts.
Can these be turned around?
These are all big problems – luckily, they are all solvable. Tools for using Bitcoin, Ethereum, and other blockchain networks are being developed all the time. There’s even a whole new type of company that raises funds and solely works on building open-source technologies.
Scalability solutions for decentralized networks are also coming. Projects like the Bitcoin Lightning Network and Ethereum’s Raiden Network are well on their way and could help deliver cheaper, faster, lower-cost transactions. Decentralized applications are under constant development too.
Right now, in the depth of a cryptocurrency downtrend, it can feel like the good times are over. But this is commonplace for many new technologies. If the community of leaders, developers, and users can come together to take cryptocurrency from experiment to real-world applications, we will see a steady climb in demand to a time where cryptocurrency is one of the core technologies of the internet.