Crypto's knowledge gap: How did we get here?
The past 12 months have seen a growing discussion as to whether cryptoasset valuations have outstripped current adoption. What is discussed less, however, is that market growth has outstripped the average understanding of both the technical and financial elements of the system. This juxtaposition between an increasingly mature market and a broadly immature knowledge base is impacting the whole crypto space.
For much of the last decade the average competence level was high. This was driven by many factors, but the main reason was because barriers to entry were high:
- Mining, storing or using Bitcoin or other cryptoassets was technically demanding for the average person
- Buying cryptoassets was harder due to lack of facilitating services
- Awareness was low, or allied to non-desirable elements (e.g. Silk Road)
- Bitcoin (and cryptocurrencies more generally) were conceptually hard to accept
As a result, the space was generally the preserve of those who were more technical (and by that I don’t mean purely developers or engineers, just people who understood how blockchain functioned) or who grasped conceptual tenets integral to Bitcoin (such as the importance of decentralisation).
The explosion of cryptoasset prices in 2017 brought an end to this, as a swell of parties (which had grown by this stage to include a mass of developers as well as a diverse range of actively involved industry bodies, companies, regulators, mainstream media and other subsets) brought public attention. This interest was met by more user-friendly services (such as Coinbase) which had steadily been improving and growing in prior years. And with it the demographic changed accordingly, lowering the average knowledge dramatically.
An industry geared to marketing
The rush to speculate meant that services sprung up to meet this demand. But this demand was not for an understanding of DLT, it was desirous of trading. And solely trading. Information sharing reacted accordingly, with trade discussion dominating traditional media, social media, message boards and cryptoassets websites.
The overwhelming question changed from “How do DLTs work and why will that change the world (which will bring me, an early investor, outsized returns)” to “What is going to go 5x in the next two days”.
This led to the rapid expansion of crypto marketing. I do not wish to portray the pre-2017 years as some utopia where we all sat around singing Kumbaya whilst working to better humanity. There was, of course, a great deal of speculation. The quest for profits has driven much of the interest in the space. But the smaller nature of the industry, the relatively high degree of understanding and the limited mainstream attention worked to limit the scale of ‘shilling’. Simply put, there were not enough projects, not enough people to sell to and not enough money to make it as worthwhile as it is now. Again, the change was swift.
- January 1st, 2017. Only 24 projects are valued at over $10m, and only Bitcoin is valued at over $1bn. Daily trading volumes sit at a healthy c. $100m. ICOs raised c. $100m in 2016
- January 1st, 2018: 507 projects are valued at over $10m. 42 projects are valued at over $1bn. 3 projects sit at over $100bn. Daily trading volumes for Bitcoin alone are $17bn. ICOs raised c. $5.5bn in 2017
- July 1st: Prices may have fallen but ICOs have raised $6bn+ in the first half of 2018*
That makes for an average of $2bn a month raised for ICOs this year. It is hard to conceptualise what $2bn buys you, but be under no illusions – it buys a lot of marketing power. And this is what many ICOs use it for. Exaggerated ICO raises were used to transform teams with no need for that much money into hype machines. Digital adverts were bought. Publications were co-opted. Events and conferences sponsored. Numerous projects bought advertising space in prominent locations worldwide, including TV spots and prime real estate in locations such as Times Square. And people were also bought, retained as ‘advisors’ or ‘investors’.
Unfortunately, precious little of that money has been used on engendering people to actually use the networks or DApps. Too many teams (although there should be no doubts that there are a lot of sensible teams efficiently using funds) are generally more preoccupied with maintaining or boosting the price of their token rather than concentrating on wider adoption of their product. So many millions, billions, have been wasted on enticing the crypto community to buy in at crowdsale or propping up their token price with ridiculous schemes such as buyback initiatives, unnecessary exchange listings or buying supposed ‘partnerships’
This is how we've got here - Part 2 explores why it matters.