Are Bitcoin and Crypto Really Like the Early Internet?

Bitcoin and Crypto Are Like the Early Internet, or Not?

In case you haven’t already seen it, here’s Global Macro Investor’s chart, which Raoul Pal posted on June 21:

Source: Twitter/Global Macro Investor/RaoulPal

If you take this chart at face value, it looks incredibly bullish for cryptocurrency and Bitcoin. Based on the sources used — Crypto.com data, the World Bank and Global Macro Investor’s own data — cryptocurrency adoption is apparently growing at a faster rate than internet adoption back in 1997.

Many figures within the wider cryptocurrency community responded to this chart with excitement, using it to imply that Bitcoin, cryptocurrency and/or blockchain represent the most important technological breakthroughs since the internet. Here’s Bitcoin Core developer Jonas Schnelli adding his voice to the chorus:

Source: Twitter

And here’s another popular crypto-Twitter account, @BTC_Archive, with a nearly identical tweet:

Source: Twitter

These aren’t the only recent tweets comparing Bitcoin or cryptocurrency and the internet (you can see more here, here, here, and here). However, as enthusiastic as much of the crypto community is for such a comparison, it’s arguably a little misleading.

To begin with, it’s a little misleading to say that crypto has as many “users” as the internet had in 1997. Sure, it is true that there are now more than 106 million unique cryptocurrency addresses (according to a February report from Crypto.com), but is it accurate to claim that such addresses represent “users”?

Are such addresses ‘using’ cryptocurrency on a day-by-day basis, much like those early internet users were regularly using the Web for practical reasons? It’s highly unlikely, if only because the vast majority of cryptocurrency is not being ‘used’ for practical purposes (e.g. as a means of payment), but being held for speculative reasons. In other words, there are over 100 million cryptocurrency traders right now, in the sense of people holding some quantity of crypto in the hope that it will appreciate in value.

Research supports the claim that most cryptocurrency holders are investors or traders rather than users, with Deutsche Bank recently estimating that more than 70% of transactions in bitcoin are related to trading, speculation or investment. Likewise, a survey published in June by the UK’s Financial Conduct Authority found that the main motivations of buying cryptocurrency all relate to investment or trading.

Source: FCA

It’s therefore wrong to say that, just because people are investing in crypto, cryptocurrencies have the same number of users as the early internet. As an analogy, it’s like inflating the number of users the internet had near the turn of the century based on the number of people buying shares in Web-related companies. (Incidentally, around 100 million individual investors lost $5 trillion in the stock market by 2002, when the dot-com bubble exploded.)

Similarities and Differences

That said, there are some interesting parallels between Bitcoin and cryptocurrency, on the one hand, and the early internet, on the other.

There is, of course, the obvious fact that the early internet caused a stock market bubble, just as Bitcoin and cryptocurrency has resulted in what many also regard as a bubble.

In fact, the market cap of companies listed on the (tech-focused) Nasdaq peaked at $6.7 trillion in March 2000, before plunging to $1.6 trillion by October 2002. This is a fall of about 76%, so the cryptocurrency market — which has fallen by 44% since May 12 — still has some way to go before it truly begins to rival the boom-and-bust of the dot-com era.

Secondly, it’s worth pointing out that many people did claim at the time that the internet was a useless technology, in much the same way that many now argue cryptocurrency is useless (beyond speculation). One New York Times article from March 1997 is replete with such hilarious quotes as, “There were only a few hundred million dollars done in transactions [on] the Internet last year. If it is taking over, that is a pretty small number.” Even better, the same person — a founder of a software company no less — also said, “Put newspapers and magazines out of business? It will never happen. I like to read The Sunday [New York] Times, because I don’t know what I want to read. The Web is there if you know exactly what you want.”

If nothing else, such quotes highlight the futility of trying to predict the future, including the future impacts and ramifications of new technologies. This is a part of the reason why it requires faith (rather than knowledge) to claim that Bitcoin or crypto will be as significant as the internet, yet by the same token, it’s also the reason why it requires faith to believe that Bitcoin or crypto will never reach a similar scale of importance.

This qualification aside, this author’s own opinion is that cryptocurrency won’t be as pivotal as the internet. This is partly because the internet enables Bitcoin and cryptocurrency, so you could potentially argue that crypto is an extension of the Web, and that any impact the former ends up having will only make the latter even more impactful.

But at the same time, the comparisons between crypto and the dot-com bubble reveal that, even in 1997, the internet was already more useful than cryptocurrency is today.

Just take a look at any list of the biggest dot-com flops. While we can all laugh at such companies as Pets.com, Webvan.com and eToys.com now, they did offer actual products and services and had actual customers. Can the same be said for 99% of the 10,000+ cryptocurrencies in existence right now? Probably not, and this forgets the big dot-com companies — Amazon, Google and eBay — that have since gone on to have a massive impact on the wider world.

Still, the future remains unwritten. And while Bitcoin and cryptocurrency are arguably unproven in terms of meaningful utility, it hasn’t been proven that they won’t be useful.