Defining and Benchmarking Crypto Adoption

The rise of the crypto ecosystem has often been compared with the early years of the internet. In addition, the peak of the crypto asset bubble in December 2017 has been compared with a (smaller scale) dotcom bubble. Beyond parallels in price inflation, many also hope the ecosystem is a similar inflection point in terms of innovation and adoption. As the chart above shows, the dotcom collapse was merely the beginning of the internet revolution which led to unimaginable innovation and near-universal internet adoption. Is this where we are on the crypto adoption curve?

Defining Adoption

Before attempting to answer that question, we first need to ask ourselves what crypto adoption really means. One option is to equate this with growth in blockchain wallets and active Bitcoin and/or Ethereum addresses. The challenge with this is twofold: (1) The same user can have multiple wallets or addresses, and more importantly, (2) wallet and even transaction volume growth largely measures growth in speculation, not meaningful usage.

Crypto”currency” is really a misnomer because payments have become an insignificant use case even for major payment-themed crypto assets. For example, Chainalysis recently revealed that Bitcoin payment volume was just $60M in May 2018, while that for Bitcoin Cash was just $3.7M. This amounts to roughly 0.5% of total transaction volume for both “currencies” during the month. Even at their peaks, payment volume accounted for just 2–4% of total transaction volume. While payments could be an eventual use case for these assets, it is unlikely to be near-term due to volatility: Sharp price gains make crypto payments too risky for buyers and sharp declines make it too risky for sellers.

The other widely publicized use case for crypto assets is being a “store of value”. The challenge here is that it is difficult to be viewed as a long-term “store of value” in a vaccuum, i.e. assets become valuable because of other real-world uses. This helps us fine tune our original question to: What crypto use cases have real-world adoption and how do we benchmark it? Beyond payments and store of value, the primary use case for crypto assets is to enable fundraising, i.e. ICOs. While speculation is at play here as well, it is tied to eventual real-world use cases. Beyond the novel fundraising mechanism, ICO projects are a good parallel for early websites on the Internet.

Websites vs. ICOs

In the early internet era, website projects saw steady volume growth until we saw the first inflection point in late-1994 with the birth of e-commerce. Based on this trajectory, it appears the crypto ecosystem is slightly behind the pace of internet innovation in 1994 (ICO data in the chart above is from Jan-Aug 2018). The counterargument against this is the sheer number of ICO projects that have turned out to be scams. However, this is no different from the deluge of e-commerce scams we saw in the 90s. Innovation has always attracted people looking to make a quick buck.

Internet Users vs. DApp Users

If we’re roughly at 1994 in terms of innovation, where are we with adoption? For this, we’d have to compare actual usage of these ICO projects (or rather Decentralized Apps / DApps) with internet usage. The picture here isn’t pretty.

It’s difficult to say with certainty if we’re measuring apples to apples here (monthly internet users to monthly DApp users), but the broad implication is clear. DApps today are incredibly hard to discover and even harder to use. Part of this is linked to the scalability of the underlying protocols itself. Nonetheless, there has been a lot of focus on the protocols themselves and very little on the value proposition for end users. To some extent this is natural, but we need to see dramatic improvements on this front if we are to make reasonable comparisons between the crypto ecosystem and the internet era.