Global Crypto Adoption: Between Profit and Usability 

Photo by Saketh Garuda on Unsplash

Those of us in the crypto community know that the adoption of blockchain technology is growing. In this article I set out to analyze the current situation and future projection, based on data from various sources, to obtain better information.

A report published by the research platform Blockware Intelligence, in this month of June 2022, compares the historical curves of the massive use of various technologies, with the exponential growth that Bitcoin is reaching. 

The researchers note that Bitcoin adoption is currently in the early adoption stage. They argue that the true exponential phase of each adoption curve occurs when it exceeds the 10% threshold.

Considering this same analysis, we can see in another report, how modern technologies, which were invented or initially adopted in this century, have a much higher growth in their first 10 years than those of the 20th century, thus reaching the same conclusion, the exponential phase of the 10% threshold.

The adoption of the Internet, social networks and smartphones accelerated when their use exceeded the threshold of 10% of the population. We might well project similar adoption growth for the crypto space, and while the technology started in 2009, with the invention of Bitcoin, its adoption can be assumed as early as 2015, when Ethereum (in 2013) and other blockchains joined the industry. 

Many analysts attribute this boost mainly to the economic incentive, but this approach is partial, since it does not relate technology to the utility it provides. 

From the point of view of the consumer, the technologies of the past had incentives related to comfort and efficiency, to adopt them. For example, automobiles made it possible to gain more speed and comfort than blood-powered means of transport, or the mobile phone that allows calls to be made without being “tied” to the physical space of the landline phone. That is why usability must be considered.

It is difficult to measure the direct monetary value obtained, being an early consumer of some of these technologies, whereas, with cryptocurrencies, it is measurable, because they are fungible. 

The Game Theory (the interrelationship of incentives of all participants), is manifested in adoption, in the form of “adopt and maintain” to gain value in the future.

For example, for early adopters of Bitcoin they have the “hodl” incentive, it is a manifestation of Game Theory, in which the best response of all would be to keep the cryptocurrency. However, Bitcoin was thought of by Satoshi Nakamoto as A Peer-to-Peer Electronic Cash System, and that means spending the funds on goods and services, and not keeping them as a safe haven instrument, similar to gold. I re-emphasize usability.

For researchers, it makes sense that the mass adoption of blockchain technology is faster than that of other technologies, since the usability and economic value are fused in its users (consumers), considering the network effect, (Metcalfe’s Law), which is applied with greater impact than other technologies. Metcalfe’s law states that the value of a telecommunications network is proportional to the square of the number of users connected to the system.

For example, Twitter as a non-blockchain technology, but a telecommunications one, as it grows in users, it will have more economic value for its shareholders, but not for the users (consumers). 

On the other hand, Bitcoin or Cardano, as they grow in users, will have greater value for their users (consumers) and holders (“shareholders”) of their cryptocurrencies, since they are the same, and that is one of the incentives that generates the effect network, since as I said, usability is part of the effect, as a combination of both to achieve greater value.

The crypto ecosystem has developed rapidly in recent years (since 2009) from the creation of Bitcoin. Blockchain technology made its way, with a few innovators and visionaries who understood a deeper concept than digital evolution itself, and that is what it brings, “being your own banks” to have monetary autonomy without depending on a central authority. I mentioned usability earlier, right?

The generations born before the 90s, in the last century, are not digital, unlike the following generations. Those born between 1990 and 2000 understand technology a lot and also already have the income to be able to use it, but the younger generation, born in the first decade of this century, is the most adapted to technology, but does not yet have the funds, and this delays adoption.

Global Cryptocurrency Adoption

Index The Global Cryptocurrency Adoption Index of Chainalysis, the well-known blockchain forensics company, is made up of three metrics, which you can see in this report. The 154 countries that make up the study were classified according to each of these three metrics, and then the final value was normalized on a scale of 0 to 1 to give each country a score that determines the general classification. The closer the country’s final score is to 1, the higher the adoption.

The table below shows the top 20 countries in the 2021 Global Cryptocurrency Adoption Index, as well as their rankings on the metrics for the three components that make up the overall rankings.

Several countries in emerging markets, including Vietnam, Pakistan, Kenya, Nigeria, and Venezuela, rank highly in the index, largely because they have high transaction volumes on peer-to-peer platforms ( P2P), when adjusted for Gross Domestic Product per capita and population using the Internet. 

Adoption and Regulations 

The crypto industry still has several significant barriers to entry to overcome, such as increased simplicity for users, greater real-world utility, and a greater general understanding of self-custodial assets. 

But let’s face it, and although not giving up custody of cryptocurrencies is touted, most people feel more comfortable if a third party “helps” them, and thus they do not have the “huge” responsibility of keeping the cryptographic keys. So mass adoption, I think, will be through banks. And the banks have already seen the business of the crypto economy.

The only way that financial institutions, regulated by Central Banks, can access the crypto market is with regulations on the ecosystem (1).

The regulation of cryptocurrencies has become, in recent months, a priority issue for most governments in the world. Stablecoins have always worried them, particularly Tether (USDT), for being the first, and today, the one with the highest volume of daily transactions, and also for the opaque management of its reserves. You can read my article on that topic (2).

The collapse of Terra (LUNA) and the stablecoin UST, which occurred last May 2022, was the straw that broke the camel’s back. 

The dilemma facing regulators is whether to regulate or not. Of course there are grays, between both extremes, and it is where most of the countries are located. 

With more friendly cases to the crypto space, El Salvador and the Central African Republic, which decided to declare bitcoin as legal tender, while others actively prohibit cryptocurrencies, as happened in China and Turkey. A third batch of countries opts for intermediate nuances. 

This map shows the regulation of bitcoin for the end of 2021, so it does not include the case of Central Africa, since it occurred in 2022.

Cryptographic Adoption Curve

The adoption curve of a product shows five different groups of people who want to try the novelty . For cryptocurrencies, this is no different, and the graph is adapted to them, considering Bitcoin halvings as milestones in time to mark changes. 

Below is the (theoretical) adoption curve, which takes a Gaussian bell, that is, a normal distribution over time, but hey, I’m not going to delve into statistics, there will be those who understand it. 

Many believe that CBDCs (Central Bank Digital Currency), i.e. crypto money issued by governments, will dominate the cryptocurrency space. I wrote an article on the subject (3).

I believe that there will be coexistence between centralized government blockchains and permissionless, public and decentralized blockchains. 

A survey by crypto platform Gemini found that 41% of global respondents bought crypto for the first time in the past year: 2022 Global State of Crypto.

The Gemini study surveyed nearly 30,000 adults in 20 countries between November 2021 and February 2022, exploring attitudes, individual motivations, the adoption of this new asset class, and how it is being implemented around the world.

One of the report’s key findings is that inflation and the devaluation of fiat currencies were powerful drivers of adoption, particularly in emerging markets.

In India, 54% of respondents made their first purchases last year, in Brazil and Hong Kong 51%. Approximately 45% did so in the US, Latin America and Asia Pacific, and 40% in Europe.

Compared to the global landscape, Europe had the lowest crypto ownership rate at 17%.

Another source of data, Finder’s Cryptocurrency Adoption Index, measures the growth of cryptocurrencies worldwide through an ongoing survey of Internet users in 27 countries.

Final Words

I have presented different sources of information as I anticipated at the beginning, and they all show a clear growing adoption over time.

The first graph is convincing, in that the adoption of new technologies is not linear, but exponential, due to the network effect.

I have also expressed that the adoption will be mainly driven by banking entities, with a custodial format, as I believe, something that simplifies usability for people with less knowledge of technology, but contradicts the concept of self-custody, with which this document was created. technology, “be your own bank” or “not your keys, not your cryptos”.

The price also has a great impact, and although it is one of the incentives for adoption, usability will prevail in the future. Today volatility tempts people who seek quick profits, but of course, with huge risks of loss.

I believe that this disruptive evolution is just beginning, and by the year 2030 the adoption will be greater than 10% and will enter the acceleration phase. 

You are one of the “early adopters”, congratulations.

(1) The Crypto Industry and the Incoming Regulations (back to reading)

(2)The Obscurantism of Tether (back to reading)

(3)CBDC: Government Centralized Money (back to reading)

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