The Evolution of Cryptocurrencies

In the last decade, the cryptocurrency space has evolved at a blindingly fast pace, from the introduction of Bitcoin in January 2009 and the first pizza purchased with a cryptocurrency (10,000 Bitcoins!) in 2010, to the introduction of Ethereum and the explosion of dApps the past two years. In spite of all the excitement this has engendered and the growth in interest in blockchain from the mainstream financial community, real world usage of cryptocurrencies has largely remained limited to tech geeks and investment enthusiasts. For crypto to truly gain mainstream acceptance, more people must learn about cryptocurrencies and become comfortable purchasing and using them.

In the classic technology marketing book “Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers”, management consultant Geoffrey Moore suggests that there are 5 stages in which different groups of people accept a new product or innovation. The new product is first adopted by innovators, followed by early adopters, the early majority, the late majority, and the laggards. Together, these stages of technology acceptance form a product life cycle. The proportion of each type of adoption can be shown on a Bell curve, as shown below. The figure shows that there are fewer innovators and laggards, and that most people belong to the early majority and late majority categories.

Innovators aggressively seek out new technologies. They are excited by advances in technology, and will often actively seek out new technology in the very early stages. They then work to improve and “hack” the new technology, often finding new use models or improving upon features in the process. The Innovator is like the geeky friend of yours who began to experiment with building new apps as soon as the iPhone came out.

The early adopters also buy into new technology concepts very early in the process, but unlike the innovators, they don’t have the technical abilities to drive the new technology forward. Instead, they are non-technical people who can easily understand and appreciate the benefits of the new technology. Think of the friend who has to own every new gadget, and downloads every new app as soon as it’s released. Because they themselves are not ingrained in the technical world, but instead rely on their personal vision of what technology can achieve, early adopters are the key to the initial opening of any high-tech market.

The early majority share the early adopters’ ability to grasp new technology, but they are more driven by a sense of pragmatism. They feel that many new inventions end up being nothing but hype, so they prefer waiting to see whether a new technology really “catches on” before they purchase and use it. They want to see other people praise a new technology before they themselves begin to use it. As the chart above shows, the early majority forms a large part of the population, and winning their support is the key to significant profits and market growth. The people who didn’t immediately get a Netflix account, but who signed up for Netflix after they saw how seamless the viewing experience was at a friends’ house, would be an example of the early majority.

The late majority shares the early majority’s concerns about new technology, but don’t have their comfort with new technology. As a result, they wait until a new technology has become an established standard before they adopt it. The people who were never comfortable using a personal computer until Windows and Microsoft Office made the operating system and common applications completely standardized would be an example of the late majority. By the time the late majority adopts new technologies, most of the necessary initial sales and R&D costs have already been amortized, making any additional sales to this group highly profitable.

The laggards are people who don’t want anything to do with new technology, whether out of an irrational fear of change, an inability to grasp new products and services, or a lack of economic resources to participate in new technology. Laggards don’t interact with new technology unless it is buried deep inside products and services they are already comfortable with — such as a computer chip being buried inside a microwave. If you have a grandparent who refuses to touch anything related to a computer or smartphone, then they would be considered a technology laggard (though I’m sure that grandparent is still a wonderful person!).

So, what does all of this have to do with cryptocurrencies? It seems that at the moment, distributed app (dApp) based projects have mainly been adopted by the Innovators and Early Adopters. Most people who use cryptocurrenices are hardcore cryptoenthusiasts who hold multiple tokens. In fact, it isn’t uncommon to see the founders of one cryptocurrency project holding and using cryptocurrencies for other projects. In addition, it’s not uncommon to encounter speculative investors who initially purchased cryptocurrencies in the hopes of earning returns later realize the amazing potential of blockchain technology. These investors then participate in the blockchain ecosystem by using their cryptocurrencies to access goods, services, and dApps. These “Innovators” and “Early Adopters” are the same people who are attending Ethereum meetups and Bitcoin conferences, and regularly posting on blockchain forums. They are deeply passionate about the potential of blockchain, and are actively exploring new applications of the technology.

The “Early Majority”, on the other hand, are those people who have heard of cryptocurrencies, but have not yet purchased or used any. They constitute a very large demographic, and are driven largely by a “sense of pragmatism.” Rather than adopting new technologies simply because they are excited by it, the “Early Majority” must understand the tangible benefits it can provide. In “Crossing the Chasm”, Moore considers the leap from serving “Early Adopters” to serving the “Early Majority” the most important step in the growth of a tech company; the titular “chasm” refers to the gap between the two groups. Moore’s techniques for crossing this chasm include choosing a target market, positioning the product, and choosing the most appropriate distribution channel and pricing.

Charities as the Next Step

Charitable giving in the US topped $400 billion in 2016, amounting to more than 2% of the US GDP. Between 70 and 90 percent of Americans give to charity in any given year! Among that group, there are a lot of potential Early Adopters, making charitable donors an ideal target market for cryptocurrency projects.

In “Crossing the Chasm”, Moore suggests that companies trying to market to Early Adopters should focus their resources on a strategic initial target market (a “beachhead”), and expand to other markets once they have captured this initial market. The company should start by clearly understanding a target market that faces a problem, and focus all their energies on creating a product that solves the problems of this initial market. Moore gives the example of the Apple Macintosh computer: its initial target niche was the graphics departments of major corporations. From “Crossing the Chasm”:

“This was not a particularly large target market, but it was one that was responsible for a broken, mission-critical process — providing presentations for executives and marketing professionals. The fact that the segment was relatively small turned out to be good news because Apple was able to dominate it quickly and establish its proprietary system as a legitimate standard within the corporation (against the wishes of the MIS department which wanted everyone on an IBM PC). More importantly, however, having dominated this niche, the company was then able to leverage its win into adjacent departments within the corporation — first marketing, then sales. The marketing people found that if they made their own presentations they could update them on the way to the trade shows, and the salespeople found that with a Mac they didn’t have to rely on the marketing people. At the same time, this beachhead in graphics arts also extended out into external markets that interfaced with the graphics arts people — creative agencies, advertising agencies, and eventually, publishers.”

Do charities have a problem that cryptocurrencies can solve? Research shows that trust in charities is at an all-time low. Many people report that they are unsure if the funds they contribute to charities are actually going to the causes they believe in. Cryptocurrencies are a logical solution for this problem: by recording how the cryptocurrencies are used on a public ledger, the charity can be completely transparent to its donors. In addition, Smart Contracts can be used to ensure that future cryptocurrency donations are only released to the charity after certain public good objectives have been met (for example, a certain amount of Bitcoin is released to a charity every year as long as the rate of malaria in an afflicted community drops by a certain amount). Multi-signature wallets can even be used so that multiple trustworthy individuals must verify specific objectives have been met before the charitable funds are released.

Given the problems they face and the solutions blockchain can provide, charitable donors seem like an ideal market for cryptocurrency. Adoption of cryptocurrencies by charities and their donors can go a long way towards increasing familiarity and comfort with cryptocurrencies more generally, benefiting the entire blockchain ecosystem. In addition, very few blockchain companies have focused on this market so far, making it a relatively uncontested “Blue Ocean” market that has abundant opportunity for profitability and growth. By starting with the charitable giving target market, organizations can pursue a strategy to establish a “beachhead” among the Early Adopters, expanding from there to other adjacent uses of cryptocurrencies. At the moment, the few players in the charitable cryptocurrency space include WeTrust, Pineapple Fund, and GiveCrypto.

By making charitable giving a major next step in cryptocurrency acceptance, blockchain projects can achieve a win-win-win situation: charities can accept a new source of funds, charitable donors can gain additional trust in where their donations are going, and the blockchain ecosystem benefits from growing acceptance of cryptocurrencies.