New technologies appear, disappear and reappear seemingly at random. Nowhere is this more apparent than in the world of Bitcoin and cryptocurrencies, which change almost every day.
This process is far from unique to Bitcoin — it’s a recognisable cycle that all technology goes through before becoming mainstream.
It’s called the hype cycle and it can help us understand what’s going on with Bitcoin and what might happen in the future.
What is the hype cycle?
The hype cycle describes the process new technology goes through before reaching mass adoption.
You’ve probably seen visual representations of the hype cycle under different names. The original was developed by tech consultancy firm Gartner. You also will have seen the cycle play out in real life, so even if you’ve never seen the graph before, you can probably grasp what it means straight away.
The hype cycle involves five steps:
Step one: Technology trigger
An innovative new technology develops and attracts attention.
At this stage, the technology is probably expensive, bulky, difficult to use and confusing to understand.
It’s unlikely to be anywhere near profitable and may need support from investors to continue developing.
The inventors gain attention, perhaps through launches and press releases. But it’s far from suitable for mainstream use and needs a lot more work. A handful of enthusiasts may come together — usually people in the tech industry or with a strong interest and understanding of relevant ideas.
Step two: Peak of inflated expectations
Then, something changes. You’ve seen this happen.
Seemingly overnight, everyone is talking about the new technology. It dominates the media. The news debates it endlessly, breathlessly covering every tiny development.
Success stories are everywhere. Everyone has ideas for its future. It seems like it could cure all our societal ills.
During the peak of inflated expectations, we tend to exaggerate just how much this technology is going to change the world. This is an exciting time for everyone involved in the technology.
But this is also the point where scammers might take advantage of the hype because many people don’t understand it and don’t want to miss out.
Step three: Trough of disappointment
Hype is unsustainable. After a while, the public loses interest. The media moves onto another topic. People are bored with hearing about the technology and may view it as a failure. Those who criticised it from the start feel like they’ve been proved right.
But that doesn’t mean the technology has gotten worse. Instead, it’s getting better behind the scenes.
The inflated expectations provide the awareness and funding needed to take the technology further. Even as the public stops caring so much, legitimate companies are working away to turn it into something worthy of the hype. The lull can make that easier.
The only difference is that people realise it was overhyped and become aware of the gap between reality and their expectations.
Earlier hype may have attracted some dodgy people and companies into the market which contributes to the disillusionment.
Step four: Slope of enlightenment
With time, the technology inches its way out of the trough of disillusionment. People understand the hype was exaggerated, but it still has important potential uses.
Maybe we find unexpected, yet valuable uses. Improved regulation and information make things safer and simpler for everyone.
This is when widespread adoption begins — maybe it’s slow, but people start making the technology part of their everyday lives.
Step five: Plateau of productivity
Remember the last time you started using a cool new piece of tech that seemed revolutionary at first? How long did it take for it to fade into the background and stop seemed so exciting?
The answer is usually months at best and more often weeks, even days.
For the world as a whole, that process takes a little longer. But eventually, the new technology becomes a mainstream part of our lives.
We forget the hype and the disappointment- until the next new thing comes along.
Where is Bitcoin in the hype cycle?
Once it’s all over, the hype cycle is obvious. In the midst of it, things are less clear. This is because the hype cycle is not in any way scientific and it doesn’t predict anything. Think of it as a guideline.
The main lesson we can take from the hype cycle is that our perception of a technology doesn’t always reflect its actual quality and value.
Everything new goes through ups and downs. There are always critics and naysayers. But all that matters in the long-term is that we continue moving forwards towards an improved future. And that brings us to Bitcoin.
Bitcoin is going through a distinct hype cycle.
The first step (technology trigger) happened in 2009 when a person or group known as Satoshi Nakamoto launched Bitcoin.
At first, only a handful of people knew it existed: those who received the white paper (explaining what Bitcoin would be) on a mailing list and a few developers who worked with Nakamoto to make things work.
After Nakamoto stepped away from the project, new people joined the team and news spread through forums.
Unsurprisingly, early adopters were mostly people interested in cryptography and with anarchist leanings. They believed in it from the start because they understood both the technology and the mission.
But where is Bitcoin in the hype cycle now? That depends who you ask.
One line of thinking suggests Bitcoin hit step two (the peak of inflated expectations) in 2016–2017. Prices exploded. Everyone wanted to jump on the bandwagon. Companies added ‘Bitcoin’ to their names to boost stock prices. Thousands of new cryptocurrencies developed.
You couldn’t glance at a news site or social media without hearing something about Bitcoin. Everyone had an opinion. It’s likely people overestimated how fast Bitcoin would grow in the short term, without considering the long-term.
It’s widely believed Bitcoin is now at step three (the trough of disappointment) or step four (the slope of enlightenment.) We’ll only know for sure in the future.
The signs that Bitcoin might be in the trough of disillusionment include:
- Prices have dropped since their heights — a possible indication of public sentiment
- There are reports of scams which are off-putting to some people
- It’s apparent many companies and ICOs made unrealistic promises or exaggerations
The signs that Bitcoin might be on the slope of enlightenment include:
- Bitcoin is gaining acceptance in various industries, including the mainstream financial industry
- More and more companies accept Bitcoin as payment
- Traditional investors are getting involved and buying Bitcoin
- Numerous companies are researching how it could improve their businesses
- The technology is improving and become far more usable — faster, cheaper and safer
- People are starting to fit Bitcoin into their lives and use it to solve problems
- The price is now linked to the value of the technology, not just hype
What does this mean for the future?
Sadly, we can’t predict the future. But we believe we’re moving towards the point where widespread adoption of cryptocurrency is possible.
One of the main barriers so far has been the difficulty with finding a trustworthy exchange and wallet provider. Another is with finding comprehensive, accurate information about Bitcoin that anyone can understand without needing to know the finer details of the technology.
Luno is filling in those gaps and providing the reliable, secure infrastructure necessary for Bitcoin to climb the slope of enlightenment. We believe that the plateau of productivity will involve a frictionless financial system that’s equal for everyone.