How fast is crypto growing?
The data shows us we really are just getting started
The crypto market has been booming over the past one and a half years. We’ve seen all-time-highs for nearly every project, entirely new sectors such as DeFi and NFTs emerge, and the crypto fever reaching nearly every corner of the world.
While crypto prices going up is great, they only tell part of the story of crypto adoption. Speculation still is rampant and although the industry has enormous potential, prices tend to overshoot reality.
A lot more telling is the number of people that are actually using the technology. Although prices of many assets are at incredible heights, the data shows us that we are in the early stages of mainstream adoption. What’s more, people from all over the world have started to use the technology because of its benefits, not just to make money.
But before we get into the crypto data, let’s take a look at the rise of the internet and the new dynamics it has enabled. This will give us a good idea about where the crypto market is heading.
The digital world in numbers
There are about 7.7 billion people on planet earth. Of this, an estimated 4.7 billion people (about 61%) are using the internet. This number is still growing, with the internet recently becoming widely and easily available in India and projects such as Starlink trying to bring the network of networks to the most remote places. Just as any useful technology, internet adoption is trending towards 100%.
Even though the internet now seems as abundant in the Western world as the air we breathe, there once was a time when everything was still offline. The World Wide Web was introduced to the world in 1991 with its very first web page. From that point onwards, it took the internet 30 years to go from 1 user to 4.7 billion.
First, the internet consisted of a few web pages that were used by small groups of pioneers. Then it was email, which is a lot more efficient for communication for companies and individuals than letters or the fax machine. Gradually, and then rapidly, people had hundreds of reasons to get online.
Network effects changed everything
The internet has laid the foundation for the most popular websites, apps and highest valued companies in the world. Many fortunes have been made through the internet, but only a few companies such as Facebook, Amazon, Airbnb, and Alibaba have grown bigger and more powerful than any other in history. This is because of network effects.
The textbook definition of network effects is “Network effects are the incremental benefit gained by an existing user for each new user who joins the network”. This means that every new user coming to the most popular websites and apps makes it a little more useful for the rest. The land phone, the internet, but also a language or a currency all have network effects. But none grew as fast as the winners of the web.
Every new seller on Amazon means more products available, and every new buyer is one more person to sell them to. Every new exotic location on Airbnb makes the app more interesting and every new Facebook user leads to a little more misinformation, exploitable data and cat pictures.
The World Wide Web has enabled network effects on an unprecedented scale. With billions of people around the world connected, new ideas, websites, and applications can spread incredibly fast. This has led to exponential growth, something which is notoriously hard to understand as we’re wired to think linearly. Once a network has strong network effects, it becomes almost unstoppable.
It all starts with Bitcoin
Bitcoin is designed as a network from the very start. The anonymous founder of Bitcoin, Satoshi Nakamoto, understood that the only way a form of money couldn’t be corrupted was to have it secured by a decentralized network. How this exactly works (LINK) is beyond the scope of this article, but simply put, the more miners and nodes the Bitcoin network has, the more secure the money is.
Besides its decentralized security, Bitcoin is also immutably scarce. There can only ever be 21 million bitcoins and the new inflow of bitcoins is hard coded into the protocol, for everyone to see. This makes it an excellent store of value, but has also created the strongest network effects in history.
Instead of every new user leading to more opinions or stuff to sell, every new Bitcoin user creates more demand for bitcoins. With a limited supply, this means that every new user marginally increases the value of everyone else’s bitcoins. These are network effects on steroids and have made Bitcoin the fastest adopted technology in human history. It has also set a record for the fastest asset in history to attain a total market value of $1 trillion.
Bitcoin’s meteoric rise in price and popularity have been leading to additional network effects. While we currently can’t spend our bitcoins at many places yet, change is on the way. Mastercard, PayPal, Revolut, and Cash App have all integrated bitcoin into their payments services. With every new company adding this option, Bitcoin becomes more useful for people as more merchants can easily accept Bitcoin.
Crypto adoption in numbers
This is the part where we have to label Bitcoin and all the other cryptocurrencies as “crypto”. While Bitcoin remains kind and queen of the market and determines its general direction, there is so much more going on in this wild industry.
Until recently, Bitcoin was the first crypto most people would buy. As real use cases started coming to Ethereum, this became an alternative point of entry. Now, there are dozens of cryptocurrencies people buy first, including Doge, Shiba Inu or that one tip your cryptocrazy friend told you to buy.
Additionally, pure Bitcoin maximalists that only own Bitcoin are a dying breed as most investors who dip their toes in the crypto market generally own a basket of different cryptocurrencies, or even skip Bitcoin completely.
In a Crypto.com report published in May 2020, the team estimated that the global crypto population was at 65 million (0.83% of the world). An elaborate research conducted by the University of Cambridge concluded that in September 2020, there were 101 million (1.31% of the global population) unique cryptocurrency users.
Crypto.com published a second, highly elaborate study estimated that there were 106 million (1.38%) crypto users in January 2021. This number doubled in just 6 months to 221 million (2.86%) crypto users in June.
The studies of Crypto.com and the University of Cambridge used different methodologies, which explains the growth gap between September 2020 and January 2021. The adoption figures remain estimates and come with many challenges such as multiple wallets and the use of multiple exchanges per individual and lost private keys. Because of these problems, all wallet and adoption data is more an estimate than something precise. However, they are very capable of showing a trend.
Based on these figures, the adoption rate of crypto is estimated to be twice as fast as that of the internet. The internet had an average adoption rate of 63% per year, while that of crypto is roughly 113% per year.
As a network grows, the rate of growth in percentages slows down. If we take this into account and decrease the growth rate to 63% per year, which is the average adoption rate of the internet, we will end up with 1 billion users by 2024, or 13% of the global population.
Given the global rate of internet penetration and the general adoption of technologies by the so-called late majority, we use a 17% growth rate from that point on. This estimate puts us at 3.5–4 billion users (45/50%) by 2030.
While the pace of crypto adoption is breaking all technology adoption records, the path of this adoption is nothing new.
In June 2021, 2.86% of the world was using crypto. Using the growth rate of 113% per year, this puts us at roughly 350 million people or 4.5% at the end of 2021. This means that we’ve just crossed from the innovators stage to the early adopters stage. The network effects are just getting started.
Crypto adoption around the world
Crypto is the first technology ever that is natively digital and global. This new economy is accessible to anyone with an internet connection and a device, and this has led to crypto being adopted in different ways in different places, but all at the same time.
Crypto research firm Chainalysis did an extensive research on exactly this. In their 2021 “The Geography of Cryptocurrency”, the team studied how crypto is being adopted globally.
One amazing conclusion from the report is that adoption truly is global, with developing nations leading the way. Their methodology focuses on actual usage and transactions and takes the general wealth of a country’s populace into account when measuring transaction value. This shows the adoption by ordinary people and reduces the effect on total transaction value of professional and institutional investors.
According to the study, the adoption of crypto jumped 880% (!) over the period July 2020 — June 2021. Top ranking countries may come as a surprise.
The main reasons for the adoption within these countries are; currency devaluation, high costs of transferring money, no access to a bank account and international business transactions. Crypto improves on all of these and is rapidly adopted as a new financial system. For example, the African crypto market grew 1200% in the period of the study.
Peer-to-peer markets in many of these countries have exploded, as many people do not have a bank account nor access to centralized exchanges. The report also indicates that P2P platforms have been the key driver for adoption in emerging markets. Because of these, tens of millions of people have been onboarded to the digital economy. They can now participate in ecommerce, provide their services to the global market, invest in many assets and preserve the value they created with their time and effort.
Decentralized Finance (DeFi) is the most used application of blockchain technology. The adoption of DeFi is quite different from general crypto adoption. DeFi has blossomed in high-income countries, especially among professional investors hungry for yield. However, DeFi is gaining ground in developing nations too as everybody likes a good interest on their money.
Examples of real-world adoption
El Salvador was the first country to officially make Bitcoin legal tender, and the law came into effect on the 7th of September. The El Salvadoran government works together with Jack Maller’s Strike to help its citizens onboard the Bitcoin network. This is done via the Lightning wallet, which is a wallet that leverages the Lightning network to enable cheap and fast Bitcoin transactions. Now, more El Salvadorans have a Bitcoin wallet than a bank account.
Soon after, Panama introduced a similar bill, Paraguay proposed new crypto regulations. The first Bitcoin ATM opened in Honduras, Cuba officially approved the use of cryptocurrencies, Ukraine legalized Bitcoin and other cryptocurrencies and Laos did a full 180 on its Bitcoin and crypto ban.
Revolut uses Bitcoin to pay for its WeWork office space. The mayor of Miami Francis Suarez pledged to receive a paycheck in Bitcoin. A week later, the upcoming New York mayor said he would take his first three paychecks in Bitcoin As a response, the Miami mayor decided to take his entire salary in Bitcoin. Miami also has their own city crypto and a NYC-based community is launching one too.
In the Philippines, thousands of players of the Play-to-Earn game Axie Infinity have been lifted out of poverty by playing the hyper successful game and the explosive growth in price of the game’s assets. Now, the Philippines is looking to change tax regulations. Dozens of new Play-to-Earn games are emerging and are attracting hundreds of thousands of users from all over the world.
In Thailand, NFTs are the number 1 trend and were banned for a while because regulators didn’t know what to do. In India, over 15 million citizens hold crypto, the government had to reverse an earlier proposed ban and its native TikTok competitor, Chinagari raised $40 million in a token sale to bring crypto and NFTs to its 50 million active users.
Adoption goes in cycles
Will the market just continue to go up until we’ve reached the whole world then? Definitely not.
The monetary network effects of crypto are also leading to rampant speculation and highly inflated prices, which is leading to bubbles. These prices have to correct downwards at some point. If you zoom out, these are typical market cycles.
Although severe crashes in the prices for many crypto-assets seem inevitable, they do have a strong positive effect on the industry. Each new bull market moves a lot of money from investors into the hands of developers. When prices correct and the hype wanes, the builders of this new internet continue to create new use cases and applications, which lay the foundation of the next cycle.
The technology and especially the user experience do still have to improve before the crypto industry can truly reach mass adoption. While there are approximately 350 million people using it, only a small percentage of this is actually comfortable storing assets in their wallet and using dapps. Just as with a smartphone and the internet, people don’t want or need to understand how something works, they just want to use it.
Technology always improves based on the needs of the masses, as that’s where most money is to be made in crypto. Once blockchain applications can compete at scale with their web 2.0 competitors such as tech giants and neo-banks, the market will take off as no other market ever has.
We are just getting started
Global crypto adoption is clearly exhibiting powerful network effects and truly is a global phenomenon. What’s striking is that people from different parts of the world adopt the technology for different reasons.
On the one hand, people in developing nations such as Vietnam, Nigeria, and El Salvador have started to use it out of necessity to protect themselves from currency devaluation and to get access to financial services. The more people own Bitcoin or use DeFi, the more they will be able to use it in those regions.
On the other hand, crypto still is predominantly used in economically stronger countries as a way to generate alpha returns and high-interest rates. New use cases such as NFTs and open Metaverses seem to be popular no matter the region.
When it comes to the use cases of blockchain and crypto, we are still in the innovation stage where most still has to be discovered. The outstanding thing about this industry is that all software is open source, meaning that each developer can build on the work of others. This is a network effect on its own and is leading to exponential growth in the development of the industry.
The total market value of crypto is roughly $3 trillion at the time of writing. This may seem like a lot, but is tiny in the context of the world of finance which is worth hundreds of trillions. Both Bitcoin and DeFi are set to attract a sizable share of this value.
A global ecosystem of organizations, developers, and investors has emerged to grow and support the industry. Regardless of prices, these will continue pushing the technology further and further until it reaches mass adoption.
With adoption at roughly 4%, a huge obtainable market in terms of capital and new users and a technology slowly but surely becoming something people really want and need, we are set for a wild next 10 years in crypto. Sit back, zoom out and watch this space grow exponentially to a 100x from here.
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