Bitcoin and Adoption Curves

Saturday 26 April 2014

One big issue for bitcoin is its phenomenal growth. Up until 2013 it was growing at 1000% per year. During 2013 it experienced growth rates of over 5000%. This is certainly exceptional and somewhat unprecedented in the history of finance. It is also the main reason for the proliferation of financial articles comparing bitcoin to a bubble based on speculative mania and there may well be elements of truth to these arguments.

Bitcoin has a lot of potential uses and a lot of areas of application. It has the potential to bank the ‘unbanked’, free global trade and implement smart property and contracts. However, none have come close to being fully realised yet so the possible future applications are purely speculative at this stage.

Financial types mainly understand bitcoin purely in terms of its commodity and currency applications. Sometimes it is understood as a unique financial instrument: a share in the underlying computing project or an ETF on the ecosystem.
However, while bitcoin does exhibit characteristics of all these things, it is a technology first and foremost. 

While financial analysts are viewing bitcoin through their narrow lens, it is reasonable to see a speculative and unsustainable mania. The technological innovators however are looking through a different lens, so they are seeing lasting, disruptive technology.

Bitcoin is a technological innovation; more uniquely it is a decentralised network issuing unique units of value in-and-of itself. This is the first time we’ve seen such a thing and those units of value are useful and scarce so they will necessarily command a market price. Perhaps the price growth of those units is better understood when we consider the adoption of the network technology itself. Then exponential growth of the token access to the network is not so strange.

Adoption Curves and Technology

The pattern for the spread of new network technologies begins slowly. It accelerates over the mid-term, slowing down and eventually levelling off. This forms the classic ’S-shaped curve’, as per the below. This is representative of the technology’s movement through society.

Bitcoin Adoption Curve by BitScan

In the beginning the network necessarily exists outside of the current social paradigm, with few participants. As the network becomes established, gaining footing, the rate of growth increases. Over time, enough members of the society become affected and the rate slows.

Once the innovation is established within the system, more and more people come in contact with it, and the rate of spread increases. Eventually, so many join the network that the rate of increase slows.

Early adoption of technology based networks, like the Internet and bitcoin, are also subject to the positive feedback benefits under Metcalfe’s law. Here, each new adopter of the technology adds value to existing members in the system. This network responds to the positive feedback loop with further acceleration in growth.

S-Curve, Bell Curve and Social Networks:

In an analysis on the former B2Bblogger site we see that social media adoption fits perfectly into the adoption curve. Social media shares similarities with bitcoin, in that both are network based internet technologies.

Note that the S-curve shows the ratio of cumulative fraction of adopters over time. However, the technology adoption bell curve below shows the absolute number of adopters of the technology at any given time. They both demonstrate the same principle and lend credence to the same argument.

bitcoin bell curve by BitScan

In the bell curve we have the innovators, they are the developers working to build the social networks. Then there are the early adopters. They often assist in developing and testing the underlying mechanisms of the social network (e.g. Twitter or Facebook). The early majority recognises the long-term value proposition of the technology, even in its nascent state, and begins to use the network. The late majority are driven by innovation, as the benefit is still lacking due to limited users on the network (in line with Moore’s law). Then the laggards consist of those individuals that are not technology motivated, don’t want to spend time learning about the technology and see value in using a more developed network.

According to the analysis in (which applies this paradigm to social networks), some 22% represent the ‘laggards’. This group prefer the established methods of interaction and communication. They are critical of the new technology and the paradigm shift it represents. They will only come on to the network when it is ‘mainstream’.

The 67% majority have accepted the change social media represents and adopted social media in some form. Then the 11% (early adopters) lead the charge, working to innovate new ways to fully realise the potential benefits of these social networks. These numbers fit in line with the adoption curve.


Bitcoin is multiple things at once: a network technology, a currency, a commodity, a store of value, a unit of account and a protocol. Distracted by the currency or the commodity aspects of the innovation, financial analysts fail to study pricing in its proper light. This has lead to incomplete analysis at best. Bitcoin is primarily a network-based technology before anything else. If the bitcoins are the sole token access to that network, then the price is directly indicative of the adoption of the technology and the growth of the underlying network.

Tristan Winters

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