The market cap of cryptocurrencies dropped almost 50% from ~$820B to ~$420B in the last month. This is not the first time cryptocurrencies have experienced such significant losses (though it’s one of the fastest) and it certainly won’t be the last. Crypto-cynics and unfriendly media were jubilant in their choruses of “I told ya so”. There was much hand-wringing and regret expressed by some investors, especially those who only recently acquired their positions, who doubtless sold during the plunge.

Yet, throughout, there remained a population of crypto holders curiously unfazed by the debacle and the clamoring. These investors call themselves “hodlers”. They have held cryptocurrencies such as Bitcoin for extended periods, some for many years, and they have weathered downturns like this before. Why did they buy crypto so early? How have they remained so serene when so many others in the market are panicking? Are they crazy? Or is blockchain a religion for them?

The answer is simple: hodlers recognize the true potential of blockchains and this allows them to adopt the long-view on their cryptocurrency holdings. Like value investors, short-term pullbacks in price mean little to them. Rather they relish when prices collapse because it lets them acquire more coins, cheaply.

In this article, I will provide a historical analogy for blockchains which will help you adopt the long-view on cryptocurrencies.

But first, we must dispense with an analogy you might already be familiar with: blockchains are like the Internet in the 1990s.

It’s not an uncommmon insight:

Packet switching: 1960

ARPANET: 1969

Internet: 1973

Mosaic browser: 1993#Bitcoin & #blockchain: 2009

WE’VE GOT TIME — Chris Burniske (@cburniske) October 22, 2016

Blythe Masters on Blockchain tech: “I would take it, as seriously, as you should have taken the concept of the internet, in the early 1990s” — Tuur Demeester (@TuurDemeester) June 5, 2015

It’s so obvious to me now that #cryptocurrency, #bitcoin and #blockchain in 2015 is exactly like the internet in 1994. #disruption incoming. — notsofast (@notsofast) November 8, 2015

29/ The question to me is not “Is blockchain the next internet?” I think it’s clear that’s the case. — Taylor Pearson (@TaylorPearsonMe) October 27, 2017

Is it just me? I haven’t felt this much excitement in tech scene since ’97. Between blockchain & machine learning, it’s like New Internet 🤔 — Venkatesh “Tetris” Rao (@vgr) May 20, 2017

“Blockchain (Bitcoin) has the potential to be as significant as the internet” – Direct quote from Microsoft — Roger Ver (@rogerkver) July 19, 2016

And it’s true: the “Internet in the 1990s” really is a good historical analogue for the blockchain in many ways. Blockchains are digital, networked, and will change society, just like the Internet did, so the analogy is sticky. And who didn’t love the 1990s, amirite? A 32-bit era of wunderkind programmers evolving crazy, ambitious startups to speciate a new niche. Crypto-pimps and cheerleaders love using the Blockchain::Internet analogy, because it suggests fantastic, abundant, imminent growth. Invest!

The diligent remember that most tech startups of the 1990s would eventually fail, even some which had tremendous funding. The NASDAQ spike and crash reminds older investors of the “Bitcoin bubble” or mania over ICOs. Crypto-cynics and haters love the Blockchain::Internet analogy as well because it suggests caution and the need for due diligence in the face of irrational exuberance. Caveat emptor!

Both of these perspectives on the Blockchain::Internet analogy are correct. Like the Internet in the 1990s, blockchains are poised for tremendous growth, so investing in the right tokens & teams may yield once-in-a-generation returns for investors (the crypto-equivalents of Google, Amazon, Facebook, &c). Yet many (most?) current projects will probably still fail (Pets.com, Webvan, eToys, &c.).

But both these perspectives are also dramatically wrong. Comparing blockchains to the Internet actually undersells the eventual value of the industry and the impact it will have on humanity.

No, the best analogy for the blockchain is not the Internet, but the lowly telegraph. In order to understand why, let’s first discuss the telegraph and the technologies that evolved from it.

A modern view of the telegraph

Most people know what a telegraph is (or was): a tappitty-tap electronic gizmo that allowed historical, mustache-oriented peoples to send each other the old-timey equivalent of LOL ROTFLMAO .

But allow me to offer a different perspective. The telegraph was the first example of a new category of technology:

The telegraph was the first telecommunications technology: it enabled humanity to transmit digitally encoded information at (near-)instant speeds over long distances using a privately owned network.

Let’s unpack that sentence a bit:

telecommunications: The telegraph was the beginning of the telecommunications industry (ignoring for now earlier, more manual methods such as firing cannons, waving flags, or flashing lights over relay networks of manual operators).

digitally-encoded information: We are referring to Morse code, of course, the bebop-doo-wop binary line noise of the telegraph’s protocol. Telegraph operators transformed users’ thoughts and words (themselves already a discrete encoding of sorts) into these data structures before they could flit along the network.

(near-)instant speeds over long distances: Data transmission through telegraphic wires was (is) so fast that it may as well be called instant (we are neglecting here the practical/engineering issue of needing repeater-stations manned by human operators taking a finite time to repeat each message, but please, forgive us our trespasses into falsehood in pursuit of narrative).

privately owned network: Telegraph networks were capital-intensive projects with limited throughput, so their private owners charged usage fees.

The Internet is the pinnacle of modern telecommunications, but it also the logical and inevitable outcome of the technological and social change started by the telegraph (1844):

(1876) The telephone brought telecommunications directly into people’s homes and allowed for the direct transmission of audio in addition to just textual characters.

(1901) The radio introduced the use of the wireless electromagnetic spectrum to transfer data instead of physical telegraph wires. This allowed for one-to-many transmission, enabling content such as entertainment and news beyond just one-to-one, direct communication.

(1928) Television introduced the digital representation of visual signals in addition to just text and audio.

(1948) Cable TV and satellite TV (1975), introduced even greater bandwidth and greater speeds and supported more content with greater variety.

(1990s) The Internet integrated all of these improvements and expanded discourse from one-to-one and one-to-many to many-to-many.

If there were an extremely wise and forward-thinking person alive in 1844 when Samuel Morse sent the first real telegram ( WHAT HATH GOD WROUGHT? — totally metal) 44 miles from Washington D.C. to Baltimore, could they have anticipated the Internet? Could they have remarked: Reginald, darling, what if we use light instead of wires, digitally encode audio and video in addition to just text, increase the bandwidth tremendously, and allow everyone to individually send and receive messages from wherever they are?

No technology is an island

It would have been extremely difficult for an 1840s telegraph enthusiast to predict the Internet. The evolution of telecommunications did not happen in isolation from all other technological and social change. It was driven by, and drove, the parallel evolution of other industries, most importantly energy, transportation, and computing. Without cheap and ubiquitous energy or global supply chains, how could we have built communications satellites or iPhones?

But all of these parallel industries already existed, in some rudimentary form or another, by the mid-19th century. The telegraph itself demanded a thorough understanding of electromagnetism, crude oil was being refined from paraffin, combustion engines were in industry, and the Jacquard loom had been long-operating. In each decade following the introduction of the telegraph, these technologies combined to create a more fast-paced, connected, global world with a greater need and desire for instant communications.

The details may have been fuzzy, but to those who saw the telegraph as the first member in a new category of telecommunications technology, the future was clear: a smaller, more connected, but more centralized planet. Some futurists of the time even got pretty close:

So why are blockchains like the telegraph?

Why do we believe the telegraph is the best analogy for blockchains?

It’s because blockchains, just like the telegraph, are the first example of a new category of technology:

Blockchains are the first distributed consensus technology: they use cryptography to enable global coordination through collective self-interest instead of centralization.

Let’s unpack this definition, just as we did for the telegraph:

distributed consensus: This combination of technology and social movement is historically new, and Bitcoin’s blockchain is the canonical first example.

cryptography: Public/private keypairs, hashpower, Merkle trees, &c, are cryptographic tools designed to create or correct imbalances in power between attackers and defenders, spammers and validators, governments and citizens, &c.

global coordination: Blockchains are distributed systems. They have no inherent saturation size and can (eventually) scale to global demand. Their consensus algorithms (Proof-of-Work and Proof-of-Stake) are completely opt-in and provide coordination without control or coercion.

collective self-interest instead of centralization: Successful blockchains use valuable tokens to create strong local incentives in delicate balance from which beneficial collective behavior can emerge. There are no centralized committees or official leadership hierarchies.

If you accept the argument that blockchains are a new category of technology, then the next question to ask is, “Where does it go from here? What will our world look like when Bitcoin is as old as the telegraph?”

The Distributed Future vs. the Centralized Past/Present

This question can’t be answered in isolation. The telecommunications industry arose alongside the energy, transportation, and computing industries. These are all democratizing industries, but they are also centralizing industries: they each created greater access for the average person but in a way that created ever greater inter-dependency on an ever fewer number of global firms. These industries are all capital-intensive, and cartels and monopolies have risen and been disrupted again and again as market share vacillates during and consolidates between cycles of innovation.