1/21/18

Human greed: The adoption curve for crypto

Cryptocurrencies like Bitcoin have been all over the news. There are some who are quick to judge it as a fraud, while others are bullish on the potential for the currency to break the monopoly on money / traditional fiat.

While too early to judge which way it will go, a significant wildcard as to whether it swings one way vs the other rests with a relatively new and unproven adoption mechanism inherent to cryptocurrencies.

Those that have been following the crypto-currency space, and in particular ICOs, have pointed out that cryptos provide a unique mechanism to drive adoption / scale up marketplaces.

In simple terms, it works as follows: through the issuance of tokens specific to a protocol/application, "potential" future value generated by the marketplace is brought forward in time, and given to early adopters willing to fund the risk. If the marketplace proves to provide real value to people, it will grow. Early adopters then can sell their tokens to future users - thus compensating them for the risk they took.

The structuring of tokens in this way creates powerful incentives that could drive unexpected human behaviors. While many have been quick to list the pathways in which Bitcoin could fail, it may be worth considering the flip-side. Human greed is a powerful mechanism which could drive adoption in unexpected ways. Consider this story:

1. Bitcoin created as a hedge against risks inherent to fiat currencies
2. Early adopters fund this experiment
3. By design, there is a fixed supply, which paired with increased demand, drives prices higher
4. This incites greed in non-early adopters  to "look into" Bitcoin
5. Some people buy the bigger vision, others buy the hype
6. Regardless, this creates an unintended consequence of accelerating adoption as more people now own it
7. As more people own Bitcoin, they want to find ways to spend it, as well as institute stronger governance
8. This drives new innovations and even further mass adoption.

If this adoption path is plausible, then provides a watch points for evaluating the maturity stage and risks of a crypto-based global currencies. More importantly, it provides a framework for managing/mitigating risk and optimizing for the upside.