OPINION: Bitcoin is going through a hype cycle
Gartner published its hype cycle as a way to track the process leading to mass adoption of emerging technologies. The cycle begins with a technology trigger, followed by a peak of inflated expectations as adopters overemphasise the benefits.
Hype is unsustainable, so step three is the inevitable trough of disillusionment. This is followed by the slope of enlightenment, during which some uses are identified for the technology, marking the beginning of widespread adoption.
The plateau of productivity describes the stage where we become accustomed to the technology, and it loses its initial shine as we move into accepting its benefits as the norm.
Where cryptocurrency is in the Gartner hype cycle will differ with each commentator. The hype cycle is not scientific but it does provide a useful guideline. Initially, there is heightened optimism, a phase we call the peak of inflated expectations.
Luno believes the technology trigger was the launch of Bitcoin in 2009 and that the peak of inflated expectations was in 2016/17. Prices exploded and everyone was keen to jump on to the bandwagon.
The main lesson from the hype is that our perception of a new technology doesn't always reflect its quality and value. As the technology matures and the infrastructure improves, the cases for cryptocurrency will become clearer.
Certain commentators believe Bitcoin is in the trough of disillusionment. There are signs that the price volatility might be an indication of public sentiment; there are many reports of scams, which put investors off cryptocurrency; and many cryptocurrency companies and initial coin offerings have made unrealistic promises.
Others believe cryptocurrency might be going through the slope of enlightenment, as cryptocurrency is gaining acceptance in various industries, including the mainstream financial industry. In the next few months, Bakkt plans to enter the cryptocurrency market with an open platform for cryptocurrency services, including trading. Bakkt is owned by ICE, the company that owns the New York Stock Exchange.
Increasingly, traditional financial services companies such as US-based Fidelity are rolling out institutional Bitcoin trading services. Many businesses are researching how it could improve their businesses.
The technology is improving and becoming far more usable - faster, cheaper and safer. People are starting to use Bitcoin to solve problems, such as those linked to credit card fraud in the airline industry. The price is linked to the value of the technology, not just hype.
Luno believes we're getting closer to the point where widespread adoption of cryptocurrency is possible, particularly in light of Facebook’s announcement of the launch of Libra on its platforms.
One of the main barriers has been the difficulty of finding a trustworthy exchange and wallet provider. Another is finding comprehensive, accurate information about Bitcoin that anyone can understand without needing to know the finer details of the technology.
Marius Reitz is Luno’s general manager for Africa.