Early Adopters of Crypto

April 16, 2019

Attention is the most scarce thing in the world. On a macro level, the world is awash in capital. Interest rates in countries are below zero. However, within our daily lives, there are always thousands of things competing for our attention. A question I like to think through is, where are the early adopters focusing their limited attention. Chris Dixon says it’s people messing around in garages building something. A revised question along those same lines is:

Which nation/market is an early adopter of technology? How do their market dynamics predict what might happen in another geography?

First, a little theory. The world is a connected graph of people. Word of mouth is the thing that really gets people to adopt products. Facebook decreased the six degrees of separation down to around 4.5. However, among this distribution of connections between people and connections isn’t even. When we think of information flow, it’s more of a uni-directional graph. This means that person A can influence person B, but not usually not vice versa.

When we think of how information spreads, I think of a tinder over a dry terrain. While something doesn't spark 100% of the time, but when it does, there's the potential for a cascade of "catching fire". Within a network, there are early adopters and late adopters. These people are differentiated by personality traits, sources of information, and levels of connectedness in both the upstream and downstream direction in terms of where they get their information. I usually split the adoption curve into three sets of people:

  • 1) people who do things because it is novel or cool. This is an intrinsic motivator. These are early adopters.
  • 2) people who do things because there’s an economic need. This is an extrinsic motivator. These are middle adopters.
  • 3) people who do things because everyone else is doing something. These are late adopters.

So now that we have that out of the way, this is my current mental model for crypto adoption.

I am increasingly looking towards Asia for technology and more specifically Korea for cryptocurrencies. Due to special features in what their graph looks like, they have interesting winner take all dynamics as well as being early adopters. Information spreads quickly because of the connectedness and centrality of its social graph. The whole nation using Kaokao, has high-speed internet access, a high appetite for novelty and coolness, very tight-knit business communities, and have historically been early adopters of new technologies. Before the States got around to these things in Web 1.0, Korea was already on top of camera phones in the early 2000s, playing MMORPGS and other things, and over the top streaming (aka Netflix).

Bill Gurley and associates caught onto this trend and planned a trip to Korea to see what might be gleaned from this market. What resulted was a sharpening of their thesis around Social, Local, Mobile. When the iPhone hit everyone’s hand in 2008, we had the confluence of the internet, GPS, and camera in every pocket. And the rest is history, that Benchmark fund invest in a plethora of internet hits most notably Uber and Snapchat.

The current environment for Korea is pretty telling. 30% of South Korea owns or holds some sort of crypto, past the tipping point for widespread social adoption. When the regulators tried to shut exchanges down, HODLs raised their voices. I’m excited to see how individuals interact with token powered protocols as usability and scalability allow us to fall down the Marginal Benefit Curve of cryptocurrencies. While we’re still stuck at the store-of-value and the speculative era of cryptocurrencies, that should change soon.

Even now, as staking protocols begin to proliferate, crypto holders are looking to gain an edge in earning incremental token. We should start to see use Vest and Compound.Finance gain adoption as the usability of protocols begins to drop.

I’m personally not as bullish for developing countries as leading indicator as early adopters. As weird as it sounds, they need cryptocurrencies too much. My mental model for early adopters are the ones that like toys, the weirdos, the rich people and more that are willing to accept the flaws in the product. There’s something about intrinsic motivation as opposed to extrinsic motivation that drives the sickness and retention of a product/technology. I would much rather look towards the high-risk tolerance ICO investors than look towards traditional business and crypto “enterprise alliances”.