Crypto is about to hit its “sediment of disillusionment”. Like the internet, the next phase will be better
At the height of crypto’s hype, proponents proclaimed that it was going to solve every problem under the sun. Artur Widak – NurPhoto – Getty Images
In November 2001, The New York Times declared: “The dot-com is gone, and the dream with it.” Three years later, Mark Zuckerberg launched Facebook from his Harvard dorm.
The Internet’s rise, fall, and eventual resurgence is an important lesson for today’s cryptocurrency skeptics: technological innovation often follows a predictable pattern, and crypto’s golden days may just be ahead.
The public’s response to new technology often follows a predictable “hype cycle”, defined decades ago by the consulting firm Gartner. It starts with a pop of inflated expectations – the hype that new technology will transform everything. But when the new technology is inevitably misused by bad or marginal actors, public opinion quickly falls into a “trough of disillusionment”.
Eventually, innovators and policymakers work together to promote good use of technology and limit abuses and excesses, reaching a “productivity plateau.”
Working at the company Lime, I saw politicians struggle with this cycle just a few years ago with the introduction of e-scooters across cities. After the initial hype surrounding their introduction, I saw many local legislators jump to ban them after the first accident or the first scooters thrown into the local river. It’s a tempting reaction—but it’s unwise if you consider the cycle of technological innovation. What policymakers failed to see was that the adoption of new technology is never linear and that the inevitable small number of bad actors is manageable.
Likewise, the early days of Internet politics were full of bad ideas that were the precursors to better ones. Kozmo.com flopped, but led to the more durable Doordash and Grubhub model. Napster and Kazaa broke copyright laws, but showed that consumers wanted a better way to consume music, so iTunes and Spotify were born.
Crypto is no different. While clear regulation is necessary, policymakers must be careful not to overreact to the recent downturn, or risk missing out on the next Doordash, iTunes or Spotify.
A year ago, crypto ads dominated the Super Bowl and Web3 was the frothy buzzword du jour. Proponents of a decentralized banking system proclaimed that the emerging industry would solve every problem under the sun, from bridging global wealth disparities to unifying the Internet of Things. Optimism about the growing digital asset industry even spurred a rare bipartisan “crypto caucus” in Congress.
It was the height of inflated expectations. And that’s OK—techno-optimists should be excited about the potential of the next new thing.
But now it is clear that the industry has entered a difficult situation. Bitcoin has fallen in value, the industry has undergone massive layoffs, and the arrest of FTX founder Sam Bankman-Fried has captured global attention.
However, that doesn’t mean we should throw in the towel.
The crypto industry can also recover and emerge better than before. Like Facebook’s rise after the dot-com bubble burst, the killer app for Web3 may not even have been invented yet. Mastodon, which was created in 2016 as a decentralized alternative to Twitter, has only recently gained traction.
In the case of scooters, cities that stuck it out through the bottom of disillusionment and eventually learned ways to regulate the use of these vehicles, built scooter parking areas to clear sidewalks, and found an equilibrium where e-scooters now provide essential transportation for citizens and negative effects are reduced.
Similarly, we should not conduct a postmortem on the crypto industry just yet. We should focus on developing necessary regulations while avoiding over-correction of policy. Some policymakers are already preparing to crack down on the crypto industry, and they must be wary of over-regulating to the point of preventing crypto’s maturation.
So let’s punish the bad actors – hard. Let’s adopt new rules to promote responsibility. And let’s retain a sense of optimism about the new services that decentralized technologies will eventually bring.
Adam Kovacevich is the founder and CEO of the Chamber of Progress.
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