The market for cryptocurrency has been on the decline since January. In such a situation, many dark articles such as the death of cryptocurrency notes. I’m going to answer my own question about the future of the encryption market.
All new technologies have a characteristic of creative destruction. In other words, when more innovative technologies emerge, they threaten the technologies and products that are widely used in the original reality. But does all the technology have such destructive power as soon as it comes out? Never. It takes time and effort to develop and accommodate technology.
1. “How technology evolves: Technology S Curve”
New technologies, particularly high-tech technologies, are known to evolve in the form of S curves in a plane of time-performance, as illustrated below. The so-called “technology S Curve” means that the development of new technologies will not be successful at first, but will explode as efforts and time increases. Such mature technologies are widely accepted and increasingly stagnant, leaving room for new technologies.
Why does it take so much effort and time before going through an inflection point on the S curve? First, because of the scope of disruptive innovation. If the new technology is disruptive and innovative enough to change all the architectures of the existing technology, this is a costly, labor-intensive and time-consuming task. On the other hand, a new technology that can simply apply existing technologies could lower the demands of cost and effort. Second, there is resistance and regulation of existing technological forces. If the new technology is destructive enough, there are social forces that are trying to block or delay its introduction. However, technical progress can be delayed, but it is not possible to reject it. When new technologies reach a certain stage, they rapidly expand with increasing acceptance rates and become a driving force to change society.
In fact, the evolution of the use of technology has been made in the form of S characters. The figure below shows Asymco’s analysis, reconstructed by BlackRock, representing the acceptance rates of high-tech technologies from 1900 to recently. One thing to notice is that the speed of recent technology use is far faster than in the past. In the past, it took five to six decades for half of American households to adopt phones, but it took seven years for smartphones to achieve the same adoption rate.
2. What about the new technology, BlockChain?
Will the blockchain have an S-character acceptance cycle, as it has so far been with high technology? Well, this question is not easy to answer. However, the blockchain is a newly born technology, which will take more time. Why? Block chains essentially have to modify the architecture of existing technologies, and at the same time face regulatory resistance from a number of vested interests, including the financial industry. In fact, according to a Synchron survey, about 25% of financial institutions are waiting for regulatory guidance before accepting blockchain technology. These regulations are actually a barrier to action.
There are two other reasons why blockchain technology is so slow. First, there are many technical issues that need to be overcome, including scalability issues, to be applied in real life. In fact, blockchain technology is not a disruptive technology, but a foundation technology. In other words, the blockchain is a technology that enables us to update our economic environment, social systems and governance by distributing and sharing all the information. However, if the blockchain, a new foundational technology, is to be adopted and existing conglomerates and financial institutions can embrace it competitively, it must be able to solve the problem of scalability. If it takes a long time to deal with the vast volume of transactions, it leads to high transaction costs and does not feel the attractiveness that technology consumers will use. The true enemy of blockchain technology is already a commercialized network. If the actual speed and stability cannot be achieved for the actual user, it will disappear into history, being evaluated as ‘the idea was ideal, but the reality was empty.’
However, many blockchain projects are evolving themselves to overcome limitations. Attention to alternative technologies (Lightning/Raiden Network, Plasma and Shading) that have emerged to address scaling problems is also seen as an opportunity for the block chain to become practical and enter a real growth phase. Soon, alternative technologies, including lighting networks, will be tested. And I think that if we can reproduce the pace of speed in a blockchain environment equal to that of a traditional centralized network, then the amazing growth history of blockchain technology will only begin. Technology cannot change anything unless it is accepted and used. In this regard, blockchain is a newly born technology, but it has the potential to change the world.
Second, there is a shortage of experts needed to develop the project. While many futuristic companies are eager to develop a blockchain, the blockchain field is surprisingly low in experts compared to other areas. And one of the reasons why this lack of expertise is slowing growth. The figure below represents the segment of blockchain among empty jobs in the IT industry, indicating that companies are in considerable demand for blockchain specialists. However, according to a survey by Synchron and TABB Group, 40 percent of companies lack the expertise needed to apply the blockchain to their businesses.
3. Are you Early Adopter?
It is an intuitive common sense that blockchain technology needs to be introduced and commercialized in real life. But even though technology isn’t ripe enough, why is it that a lot of money has been put together in the cryptocurrency market and people have come together? In other words, why has Bubble issues been so vehemently raised?
To understand this, it is necessary to differentiate between blockchain technology and investment. As mentioned earlier, in the ‘technical aspect’, it is now a fresh start to technology, but not in terms of ‘investment’. Investors in this market have almost reached Early Majority. Although the public block chain, including Bitcoin, attracted attention to Early Adopters with innovative concepts, as the value of the market skyrocketed, people who lacked technological understanding also jumped into the market. This is the moment when new technology is inflated to a false expectation. As the market grows, even the worthless blockchain projects proceed with ICO, and investors put the money back in the belief that it will be a jackpot once a cryptocurrency is listed on the exchange. These self-fulfilling expectations are maintained to some extent. Investments that lack technical performance will eventually make bubbles, and this bubble will eventually go off regardless of whether it blows from the outside or from the inside.
What explains this is Gartner’s ‘Hype Cycle’ model. Gartner argues that technology should be distinguished from being accepted in society and getting attention in the market. And I think this can be applied reasonably to the current blockchain market. Despite the fact that blockchain technology is definitely in its early stages, too much attention and irrational expectations have driven bubbles in the market. And I think this is a situation in which the overrated value of it is being adjusted to some degree.
Blockchain technology is now a start, and numerous projects are well developed regardless of market value. Under such circumstances, it is premature to put blockchain technology on the test stage. What needs to be put on the test is a false expectation from someone who asks, “Is the coin dead?” One thing we should keep in mind is that the value of cryptocurrency depends on the success of blockchain technology. If we believe in the innovation of blockchain technology, what we need to focus on is, of course, the technological aspect. Early adopters are excited about the potential of technology, no matter what market value of cryptocurrency is currently recorded. It is the Early Adopter that acts as a barometer of technological success.
There are only two things we should do if we were Early Adopter. First, separate from market noise. Second, determine which blockchain project will change the world and be chosen by the public. If we can do this well, I’m sure that the world we see will be different when technology really gets on track and is recognized by the public. It’s time to start, please be the wave of technological change!
In the end, this is what I’m saying. “Are you Early Adopter?“