The Bitcoin Hype Cycle
Most people are familiar with the Gartner Hype Cycle. It is a great framework for looking at the development of important technological innovations:
It is interesting to look at the price chart of Bitcoin in this context:
It sure feels like we’ve been through the technology trigger phase, the inflated expectations phase, and are now well into the trough of disillusionment phase.
What’s more interesting is the question of what will lead us onto the slope of enlightenment? I am thinking that we will start to see native applications of Bitcoin. These would be things that simply could not exist without this technology. Donating money to charity with Bitcoin is awesome, and I do it regularly, but it is not a native application of Bitcoin.
I plan to write more about these native applications because I think they are the key to getting to the next phase in the Bitcoin adoption cycle.
seeing the same at seed level. smart contracts are my favorite: http://blog.semilshah.com/2…
One native application may come in the form of new approaches to handle ones estate at death.
Hm… Interesting idea. I think I’ll blog about this tonight. Thanks Fred!
Alright, here we are: http://www.wadevaughn.com/p…
Interesting…I wish he’d called it the “Depth of Disillusionment” or even the “Dip.” But oh well. I’d like to read your thoughts on native applications. I’m sure it will get some wheels – and perhaps cogs – turning.
Are we not seeing what we want to see and are not we fitting what we wan to fit ….Gartner Hype cycle has a very-short waiting period ….OR it raises immediately just after the introduction…when people hear about it they immediately jump on it …. but bitcoin had a long (almost 4 years of waiting period) incubation or acceptance time … which says many things…i) it may not be a technological innovationii) People don’t have real grip of the innovation if any.iii) People are skeptical about its application or usefulness.iv) I (kasi) don’t understand Gartner Hype cycle nor bitcoin.here is the actual graph from the beginning and it no-way resembles Gartner Hype cycle curve…KasiP.S. choice iv seems more likely 🙂
I disagree completely, the internet was around for a lot longer until the dot com bubble. How about VR? Or even social media? Or internet of things? Honeywell or whirlpool had a smart meter 14 years ago.
oops – this comment has moved
If there is a long runway then there are 2-reasons…i) there is a lot of frictionii) there is a lot of fiction.in case of i) it will take off some day … in case of ii) it will fade-away some day.
#1 – ?????sure we should always maintain a healthy “window of doubt” as a basic operating principle but still #1 seems excessively doubtful.Replacing opaque networks of self-interest driven middlemen with transparently distributive algorithm based intermediation at scale, even if not yet perfected, smells like fundamental innovation to me and I’m a nut about keeping the windows open 🙂
Yes. I understand the origin of bitcoin is a marvel … but not a revolutionary innovation… but the usage or usefulness of it to a common man seems a distant future.My take is … it is one of those things like ‘pricing of Gold’ or ‘pricing of diamond’ … we all know the pricing of these 2-materials are not right … but can we do something to change it? Not in the near future.
Look I’m a known-nothing taking through my hat here(as usual) on a subject that engenders deep complexity.I know I’m just tossing out big picture generalities here, still it seems to me that disinter-mediating our present value-store/exchange system at global scale by replacing our present fiat-backed value-store/exchange system not just with an arbitrary commodity like gold/diamond/oil or the such but replacing that global fiat-backstop with the total area under the curve that represents the sun total of all human production/exchange seen like a potentially revolutionary innovation ?Sure the process of bullet-proof scaling that fiat-replacing global-production-backed currency-flywheel momentum to an irreversible tipping point is fundamentally another chicken/egg problem, still the gravitational payoff seems socially/economically irresistible/inevitable?In short BTC’s “plateau go productivity” seem unstoppable only its ETA is in question and to squeeze in just one more cliché, we are still operating on internet time – No?
Every underlying technology I can think of: Ethernet, Wifi, Cell Phones, PC Networking, PC’s, Internet has had gestation periods of many years where nobody has heard of it. Every single one. Some were decades.Nobody likes talking about these times because its not interesting. An overnight success is HOT baby! HOT I tell you. The press loves it, but it is not reality.
Agree that the root of all evil (brainwashing) is the press for sure.I stumbled upon the White House Correspondents Association website yesterday. Take a look at it. Look how impressed they are with themselves.http://www.whca.net/http://www.whca.net/officer…
I’m not actually ripping on the press. Its what the public wants.
In most cases I don’t have a problem with people that are just trying to make a living. It’s what I do. What I have a problem with is people cloaking what they are doing in respectability and gullible people thinking that others don’t have a particular angle and game to support and it’s not about mouth feeding (selling ads you know “editorial is separate from sales” shtickt. And that’s why they do what they do. but what they say is different. Call it ass talking. That’s what bothers me. That’s why I’m such a cynic and skeptic.Was having this discussion with someone the other day about the security industry. And how it’s presents such that disclosing security bugs is helpful and a benefit when in fact it’s really just about misfits earning merit badges  within their own community and pumping their own egos. I called it the “security industrial complex”. Between Apple, Firefox, Thunderbird to name just three I’m getting updates now on what seems like a daily basis plugging holes that these “boy scouts” have uncovered.
Thats a little harsh – No ?Maybe there is a place for everyone even the misfits ?
There is a long historical record of the Hype cycle phenomena – nearly 200 years worth: http://en.wikipedia.org/wik…
Are we not seeing what we want to see and are not we fitting what we wan to fit ….That’s exactly one of the reasons why I shut off when someone argues a point using numbers or cherry picked information.
The interesting bit about bitcoin will start as soon as it’s no longer seen as just ‘money’ but as an attribute of something valuable, like an e-book or some other digital property. This will make for exampe e-book tranactions easier and cheaper and also solves the ‘pirating-problem’, thanks to the blockchain.
Blogged about startups around blockchain technology recently http://www.adesblog.com
Pretty cool! and can be applied to some many areas of life.
the bite cycle
The slope of enlightenment will happen when, as part of Twitter’s BUY button and Amazon’s greater integration with Twitter to create commerce wish lists, users can donate Bitcoins with a similar mechanism to eBay’s “Do you want to donate to…”?Maybe someone needs to have that conversation with Jack Dorsey, especially since he’s already made Square Bitcoin-friendly.I’m thinking of going to Twitter’s first-ever Flight mobile developer conference on 22 Oct to propose and do some cool stuff with Twitter:* https://www.twitterflight.c…Except the time schedule might not work because it’s around my birthday and I’m always in a Guggenheim or other great art gallery for my birthday. It could either be Solomon R. Guggenheim or the Hermitage this year, :*).In any case, someone needs to get on Jack Dorsey’s case.[I don’t necessarily believe that either Twitter or Square have potential killer data and commerce propositions yet that can give them advantages over Amazon et al.]
Agree. Online tipping as is made possible by Changetip (https://www.changetip.com) is an obvious first example of this.
Change Tip:remove the “)” at the end of your Changetip linkYour Changetip link is presently ShortChanging us :-)https://www.changetip.com/
I think micropayments could be a great use personally. I’d happily keep a small amount of bitcoin in a wallet and the lower transaction costs should be appealing.
In all honestly Fred, your parallel is a bit of a stretch..Yes the price of Bitcoins skyrocketed, but I’d be curious to know what the volume bought and sold was during those days..As a former investment banker I know very well that it’s easy to push something into the stratosphere when the volume is very limited.. In those occasions whoever tries to draw a concluding from the sharp movement risks to make a serious misjudgement.. Let’s not forget that before Bitcoins went above 1000 very few outside the nerd circle had the slights clue about them.The same phenomenon, i.e. very limited volume, explains the sharp drop, the few lucky enough to have seen their holdings rise a thousand times tried to monetise their gains, and given the limited volume and very few buyers at those crazy levels every trade pushed the price down quite significantly..Now that Bitcoins have a much wider audience and hopefully a much higher number of buyer and sellers the price might start to reflect markets opinion on the new currency rather than lack of liquidity.So in a sense, the Gartner Hype Cycle mist still be in front of us…A much wider crowd might start believing in the potential of the new instrument (helped by the bullish visions of many VCs and by the increasing numbers of business accepting the new currency) and start accumulating bit coins. This will push price higher and attract even more buyers and more preachers praising the amazing potential of the new, free currency..But, as my decade+ in banking has taught me, a free currency is not a product that will be left free of determining its own fate, a currency is an instrument of power, and a free unregulated and uncontrolled currency will have a lot of powerful enemies. And when those enemies will start slapping limits, regulations and tax on top of it the Bitcoins engine will start loosing speed and a lot of people will try to run for the exit… That’s when probable see the “Trough of disillusionment”I am not saying that in my view Bitcoins are hopeless, but the sea they are trying to navigate is going to be a very rough one..And given that VCs are smart people they probably know that..
It seems highly suspect to equate the trading price of a financial instrument (using the term charitably) and technology adoption/development.
Agreed. More appropriate to compare the price of btc to a market sentiment chart. I’m seeing discouragement, but tough to say if it’s just beginning or in middle of it. http://monevator.monevator….
Isn’t that sentiment-tracking currency-market behaviour just an example of the financial-market problem that BCT can potentially solve ?It would be very hard for sentiment-tracking strategies to move the BTC market if BTC reaches dominance as a global value-store/exchange.BTC’s value at some tipping point would become grounded in the sum total momentum of all human production/exchange with no centralized fiat sentiment makers ?Using global-production as BTC’s grounding inertia could potentially swamp out sentiment-tracking defectors in favour of fundamentals driven investment players?
there are reports that suggest the BTC rally was driven largely by fraudulent trading, akin to quote stuffing or wash trades on conventional stock exchanges: http://willyreport.wordpres…
good to see you back in the mix kid
The volume was extremely high while the bots had minimal impact. The spike in demand was driven by China.
Ny is trying to put some regulation on it already
At the end of the day isn’t it like trying to regulate the use of the wheel?Its potential benefits are simply to high and universally applicable to successfully regulate in the long run.There will undoubtedly be a lot of shot term gnashing of regulatory-teeth on the way to any universal-monetary promise land 😉
And when those enemies will start slapping limits, regulations and tax on top of it the Bitcoins engine will start loosing speed and a lot of people will try to run for the exit… That’s when probable see the “Trough of disillusionment”Something that fly’s under the radar doesn’t have any opposition. “No limits slapped”. But when it begins to fly in the radar then hopefully it’s got enough defenses and benefits enough people (who stand to lose) that they will try really hard to protect it against much of what you are referring to. (Think airbnb or Uber etc…)Here’s a small example of this phenomena. I didn’t really have an opinion plus or minus on bitcoin when it first came out. But now I am actually making money off it (not in bitcoin but from people who have invested in bitcoin) that I am likely to try to protect and encourage it’s adoption. Because I have a ox to gore whereas before I didn’t. It puts money in my pocket in a pick axe way.(That’s separate from comments that I make here btw which are for educational and entertainment purpose and in most cases near 99% what I really feel (got to have some wiggle room there..)
Its a mistake to conclude that Bitcoin is simply an analogue for how ‘money’ is currently used.. While people keep focusing on that, they will not see what it actually can do. But to be fair, this needs to be demonstrated, as it doesn’t have a current analogue.
Hi Fred, check out the video I posted… further down in the comments.
i saw itwill watch laterthanks!!
Fred, I’m fairly sure you’re right. As a venture investor and former technical trader, I’d like to point out that it’s no coincidence that the Hype Cycle / S-curve, and Elliott Waves all look the same…what these patterns are really describing is our basic human nature.Curious if you’ve ever looked at Elliott Wave theory?BTC looks to be coiling btw ~$350 and ~$550 in what Elliott Wave theory calls “a contracting triangle Wave 4” (aka trough of disillusionment).In an ascending market, this particular pattern in the price action tends to coil and then explode to the upside – diagram attached, more here – http://www.elliottwave.com/…We should expect to see trading in narrower ranges, as the triangle contracts over the next few weeks to months, followed by a huge explosion to new highs.Two good trades here – 1 is not for the faint of heart which is buy some here, buy more at any lower price action above $250. Another one is to buy over $525-$550 and trail your stops to capture the upside momentum.Of course, anything COULD happen…but I’ve seen this pattern too many times to have any other opinion at this point.This is an example of how tech and finance can learn from one another.Anyone reading this can feel free to get in touch with me if any questions, or if you’d like to see some amazing software platforms that are changing the face of institutional finance (my venture investing focus).
+1 charting pr0n !
But what’s the time frame.Also, there will be government interference if Bitcoin gets too far down the road to acceptance
Working on a blockchain-based voting system with Myriadcoin.
Hi Fred – If you haven’t watched the James D’Angelo talk “Why Bitcoin Growth is Normal & the S-Curves You Could Never See” it makes a great case for what you are describing:http://youtu.be/qHUPPYzzZrII was first introduced to this during The University of Nicosia Introduction to Digital Currencies course which also has great information concerning Bitcoin growth and trends.
I haven’t seen it. I will check it outThanks
He mentioned that bitcoin will not have an IPO, well i guess you could argue that a coinbase IPO or the wink etf could be considered its IPO
Very true. I guess you could say that Satoshi made the initial public offering by creating the Genesis Block. Bitcoin is public for anyone to purchase, use and sell. That being said I believe there will be much wealth created through digital currency and the blockchain by firms building upon these concepts.
I don’t think we’ve reached the peak of inflated expectations just yet…
Oh yes, the ever-present technology hype cycle post. This is so 2011.http://www.chrisnorstrom.co…The market cap is well under $15b. You geniuses really think this was the last parabolic spike? Welcome to bitcoin, noobs. Better get some glass cleaner for those crystal balls…
I’m proud to have participated in the creation and institutionalization of both the Hype Cycle and the infamous “magic quadrant” myself when running research at Gartner. Though most of the credit for both must go to a brilliant man named Mike Braude. Those are contributions that continue to hold relevance 3 decades later. That was a very different era of technology thought leadership and innovation! BTW – this year marks the 35th anniversary of Gideon founding his ground-breaking IT research company!
wow. i am proud that you stopped by and commented. thank you.
Kind of you, but any contributions I’ve been able to make to the world of tech innovation to date pale in comparison to yours. Of course I am a regular stopper-by… I always enjoy your perspective (as well as your compact delivery format!). Thank you.
it takes a village to raise a child
I feel like the child, often as not.
It would be good to brainstorm about native cryptocurrency applications. Probably a hackpad with one line entries will work.I think silk road kind of markets, virtual goods, open source projects, startup funding are some of these.
yes! I was thinking Hackpad too.
There’s also messaging, peer to peer lending, and betting.
i don’t think any of those are native because they can all be done today. bitcoin might make them better, the way the browser made the NY Times better (for me anyway). but they exist already.
At some scale doesn’t quantitatively-recombinat change actually convert into qualitative change ?
we are doing something like that at USV. it probably makes sense to do it in public via Hackpad. thanks for the suggestion
Just started this “Native Bitcoin Applications” Hackpad…https://hackpad.com/Native-…
The Bitpay/Paypal arrangement announced yesterday. I think it relates to this post. Thoughts anyone?
Let’s be clear about Cause and Effect. The Hype cycle is an effect that we can look at in the rear view mirror. The real cause behind that is the availability of:1) A (solid) INFRASTRUCTURE that is spread2) MIDDLEWARE SERVICES that build a useful layer on Top of the Infrastructure3) APPLICATIONS typically thrive on top the Infrastructure, and their proliferation is aided by the Middleware that facilitates their development. Of course Applications will copy existing functions first, but later we start to innovate with things we couldn’t do otherwise.
There’s another minor factor to Bitcoin’s evolution: USERS!!!!Right now, the major users are Developers. Developers are working on various technology pieces, but they cannot, alone, dream-up all the applications possibilities. We need more users with experience, and they will then start to demand and dream-up new native applications.
Customers never tell the market where to go, it needs to be imagined first.What is an experienced customer anyway?
In my mind, it’s a step-wise process. First, you use something in its most basic mode, then you become more experienced at using it, and you want more or different things, based on your prior usage and demand patterns.I do believe that users can start to imagine things beyond the initial creator’s imaginations.
You think the chicken was before the egg, for me, the egg was always first ;))
If you follow the evolutionary trajectory of chicken & egg it follows a very long evolutionary regression back to some form of single cell beginning as in no egg and no chicken.So at what point in the evolutionary trajectory does the chicken or egg get to claim FIRST prize ?It seems more like a cascading feedback loop as is evolving customer feedback.”Customers never tell the market where to go”but they do shed a steady stream of hintful feedback to fuel the creative types.Two mints in one !
To your first point–you crack me up.To your second. Of course. I call bullshit on any activity that starts with asking your customers what they want.
What they *want* or what they *think* ?Now, there’s a question…
Bingo.There’s a world of difference between asking–tell me what you want from this multiple choice questionaire that you control. And finding a way to plumb the thoughts and emotions of customers in a way that they are in control and feel empowered to respond.That’s the gold!
To me, bit coin isn’t a thing until it replaces cash at the farmers market
slowly it’s infiltrating…almost everywhere.
I don’t see bitcoin replacing cash at Farmers Market anytime soon. I see bitcoin potentially becoming a settlement currency between issuers of local currency-denominated assets, such as bank deposits and prepaid cards. For Farmers Markets, products like prepaid tabs make more sense in the short-term particularly because prepaid acts as a way to do CSA without subscriptions. See my work on prepaid tabs for food businesses at https://credibles.org
This google trends chart further validates Fred’s point.
Here’s the chart
Applications that make things convenient and better illuminating the value of the block chain vs the emotional nature of Bitcoin(currency) would help. Maybe even Peter Thiel will convert!
I would liken this to PayPal applications… all kinds of betting, purchases of “semi-legal” substance like marijuana and prescription drugs… anything where folks are concerned about identifying the transacting parties…Once that becomes the dominant platform for those transactions, then the next phase of real groth can begin
These native applications will grow in numbers with the number of people owning bitcoin. Also, we need to keep it circulating and not just save it up to get rich.Bitcoin as a technology should be analysed separately from bitcoin as a currency.
Perfect use of the Hype Cycle would be on all emerging trends. The right question to ask (and this is why I like Gartner) is when would you hit the plateau … the coindesk graph shows a double dip (so expectations are still falling for bitcoin)
The article from Lewis has some implication: especially the IEX part. http://www.bloombergview.co…
it’s shocking to me that even among Fred’s huge following of “tech” enthusiast the lack of interest in bitcoin … based on # of comments over past few months. I became a believer when i actually used it. @fredwilson, you haven’t done a pool lately – I’d love to know how many of your followers have actually used bitcoin.
a poll .. not a swimming pool 🙂
Speaking of pools does this pool party seem ridiculous or what !!This simplified overview seems somewhat useful but the idea of turning bitcoin mining into an Amway style home business opportunity just seem silly ?http://www.youtube.com/watc…
sounds like a great idea for a post
Can we include those ones using testnet and regtest networks 😉 ?
WSJ ad attached, in marketplace section was about 2 days ago.
Is that an Amway company by any change 🙂
Fred, here’s one of our beta testers talking about our native Bitcoin application. This project was first planned 8 years ago, but we had to wait this long for Bitcoin to arrive to begin to enable it. Technically, Bitcoin is not without its problematic issues, but a dedicated sidechain may enable us to get the functionality we need to scale. ~ But as regards the message inherent in this article… If we are a car, Bitcoin is our Gasoline. (see: http://www.bittunes.org)https://www.youtube.com/wat…
Developers are going to choose to build on Ethereum over Bitcoin
What are its key attribute advantages ?Does it extend basic BlockChain exchanges/tracking or does it mandate a more complex more granular exchange of functions/tracking ?BTC’s more limited approach might make it a better candidate as a universal exchange vector ?
Every month that communities and users push for Bitcoin to be used in places, instead of just purchasing it on speculation, it becomes more viable.For us at Beacon, figuring out demand is simple with crowdfunding. So we launched a bitcoin project here where you can only pay in bitcoin.http://beaconreader.com/bit…I’ll let you know how it goes!
Something that I believe may be overlooked by many is the importance of the blockchain concept – a decentralized public ledger not reliant on a trusted third party. Besides financial transactions, nearly anything may be embedded within the blockchain – academic credentials, contracts, property deeds, etc. Some are even looking into having a blockchain based voting system.In terms of digital currency, an emerging BTC market is the unbanked of the world. BTC offers a way for the unbanked to transact quickly without meeting stringent bank requirements. Regions such as Africa may lead the way in BTC adoption and skip traditional currency, similar to bypassing LAN lines and going straight to mobile. As these emerging markets continue to come online they could drive BTC adoption as global businesses generally follow the money. In the meantime SMS based BTC transactions are becoming increasingly popular.I believe it is going to just take time for the mainstream population to wake up to the benefits. It takes ten years to become an overnight success 🙂
Economist Timothy Taylor (no relation) has a post where he puts the bitcoin price on a log scale. Very interesting idea. Perhaps bitcoin’s price is not as spikey as the linear scale implies. In that case it’s less clear whether the erratic but steady (on a log scale) price gains tell us that much about where we are in the hype cycle.Bitcoin linear price charthttp://1.bp.blogspot.com/-i…Bitcoin log price charthttp://1.bp.blogspot.com/-i…Full posthttp://conversableeconomist…
Bitcoin log price charthttp://3.bp.blogspot.com/-1…
The closer analogy might be the “stages of a bubble” chart, as FT Alphaville notes…http://ftalphaville.ft.com/…
Perhaps there are native apps waiting to be implemented, but I think the more interesting possibility is that the blockchain enables an entirely new genotype of organizational structure. Specifically, distributed applications (aka DApps, DAOs, DACs, insert your preferred nomenclature here).Are traditional corporate structures deprecated? Developers can now create verifiably honest applications without central points of failure that are resilient against outside interference. In-app currencies can power these network by providing proper incentives to developers, investors, employees, and early adopters.The last breakthrough innovation in organizational structure happened over a century ago with limited liability corporations, so we’re certainly overdue…
I am also excited by the possibilities the blockchain has to offer. I hadn’t considered the impact on organizational design although I am intrigued by this aspect as well now that you mention it. Really intriguing comment!
love you, but its a stretch …no real pain at all yet
what price does pain start and when will there be capitulation?
The stages of a speculative bubble maybe more a proposhttp://en.wikipedia.org/wik…What do you think about Stellar? Seems like an attempt to use the Bitcoin blockchain as ‘Internet of payment’ without the absurdities of Bitcoin mining and speculation.
I’d suggest that rather than focusing on the price of Bitcoin, a more relevant metric to judge its adoption and traction would be the number of transactions recorded to the blockchain per day (the transaction volume). If Bitcoin was becoming increasingly successful as a currency or otherwise, it would seem to follow that you’d expect to see the volume increasing as well. Instead, transaction volume has been remarkably flat at 60-80k/day. To me, this suggests that while Bitcoin may have tremendous potential, it has yet to take off in any meaningful way in the real world, despite the massive media coverage over the past year.
My personal BTC price analogue has been the price of gold from when it started to float, which BTC has been following pretty well albeit at a faster pace. The initial wave of price appreciation was driven by the ‘Bitcoin as currency of the future” thesis. I believe the next one, which may take a year or more, and may see 1 BTC = thousands of dollars, will be “Bitcoin as platform” i.e. Bitcoin as settlement currency between a variety of local currency denominated products like bank deposits, prepaid & gift cards, stocks, etc. Most of us will not own bitcoin, but will be using it without knowing it.
Bring the DAC/DAOs
A native app will probable use a complementary blockchain technology.
Great post Fred, your right about the similarities, even if a lot of that chart is based on a massive spike in BTC trading volume coming out of China late last year.It seems like the limiting factor for now is how many people actually have Bitcoin as a store of value around which to build applications that can use that store of value for purchase or to compel contractual performance through something like multisignature escrow. Hopefully awesome things like Coinbase’s merchant integrations and Coinapult’s awesome Locks feature can help speed consumer adoption.I think what might take off even sooner is applications that put other types of information into a blockchain and don’t require user’s to have Bitcoin, that way Bitcoin circulation isn’t a limiting factor, but these other types of data can still benefit greatly from the trust that blockchain-based storage of valuable data can create eg: eliminating counterparty risk by matching buy/sell orders on a blockchain network’s nodes, at the protocol level.
Looking at the BTCUSD charts from mid 2012 and 2013, we could in both cases have argued the same thing and assumed to be in the plateau already. And then the price skyrocketed again and again… Not so sure about the validity of the analogy with Gartner…
swarms of businesses coordinating ops via blockchain is a bitcoin killer app I am betting on
very puny 🙂