Adopting Bitcoin

With Bitcoin, a new kind of commodity has been discovered… a kind of digital commodity, generated by computers and partly made for computers. Mankind has a history of significant inventions. In history books written in the future, Bitcoin will be listed as one of these.
Prof. Dr. Philipp Sander

6.1.0 Scarcity in Economics

Within the sphere of economics, it is well understood that scarcity is a key principle that drives value. Goods and services that experience significant demand become more valuable if supply is limited to the extent that demand cannot be met easily. Furthermore, scarcity fuels increased competition and is a driver of price discovery in the market. In a market of free, fair and open competition, prices should settle at the point where supply and demand are met. 

Resources that experience significant demand can be considered more valuable if they are finite or more challenging to acquire. This can spur increased demand for that resource as market participants compete to secure access to it. This dynamic can be observed with natural resources such as precious metals, oil or so-called ‘soft commodities’ such as food stuffs. Scarcity, therefore, underpins economic decision-making, resource allocation and opportunity cost. In a world of unlimited resources, everything would be equally accessible and of very low value. By contrast, scarcity instils value and promotes trade, investment and innovation as it compels societies to manage limited resources effectively.

6.1.1 The Digital Scarcity Challenge

The challenge around digital scarcity lies in the ease with which digital information can be copied and distributed. Digital information is inherently more difficult to secure than physical information because, unlike physical goods - some of 

which naturally possess scarcity due to material constraints - digital items such as music files, documents or images can be duplicated infinitely at virtually no cost. 

Traditionally, the replicability of digital data has meant that these assets could not hold a similar economic value to physical ones because they lacked any form of enforceable scarcity. For digital money, this is particularly problematic and is characterised as the ‘double-spend’ problem, where a single digital unit (e.g. a token or currency) could be copied and spent multiple times, thereby devaluing it. If double-spending a currency is possible, it devalues it by making it indistinguishable from counterfeit or fraudulent funds. 

Traditionally, centralised financial institutions like banks mitigate this risk by maintaining a ledger that verifies each transaction and deducts balances accordingly, ensuring that once money is spent, it cannot be reused by the same account holder. However, this approach requires a trusted central authority or ‘oracle’ to manage and verify transactions, which imposes dependency and a single point of control. Having a centralised oracle of information leaves digital assets vulnerable to manipulation and censorship. 

For a decentralised, trust-minimised system like Bitcoin, where no central authority exists to oversee transactions, preventing double-spending is a monumental challenge. Without a mechanism to ensure the uniqueness of each transaction, Bitcoin would be open to exploitation, making it impractical as a store of value and a reliable medium of exchange. Bitcoin solves the double-spend problem through a decentralised ledger, where transactions are confirmed by thousands of network participants simultaneously. This mechanism allows Bitcoin to maintain an immutable record of every transaction, ensuring that each coin can be spent only once. 

This solution generates digital scarcity without relying on central control. Bitcoin introduces the first successful solution to digital scarcity, paving the way for a trust-minimised, scarce digital asset ecosystem in a way previously thought impossible.

6.1.2 Enforcing Digital Scarcity with Bitcoin

We propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.
Satoshi Nakamoto

Satoshi Nakamoto created Bitcoin as an engineering solution to the problems associated with fiat money. However, that solution required Satoshi to discover a way to enforce absolute digital scarcity. To achieve this, Satoshi developed an open-source communication protocol that runs on a decentralised network of computers or nodes. Each of these nodes holds a locally-verifiable copy of an immutable ledger, the so-called blockchain or timechain. The Bitcoin protocol defines the rules and the decentralised network independently verifies transactions, adhering to the same rules without requiring a central authority. 

Bitcoin’s scarcity contributes to its role as a store of value. Much like gold, Bitcoin is valuable not only because of its limited supply but also because of the effort required to ‘mine’ or produce new coins. Bitcoin mining (the process which maintains the ledger and issues new coins) is a costly, energy-intensive process that mirrors the physical act of extracting minerals from the earth. This digital ‘proof-of-work’ enforces a production constraint that aligns Bitcoin with tangible commodities, giving it properties of durability and verifiability that traditional digital goods lack. The built-in difficulty and decreasing rate of new coin issuance through periodic ‘halvings’ create an economic structure where Bitcoin’s supply becomes increasingly scarce over time, increasing its appeal as a long-term store of value. 

How is digital scarcity enforced? 

Bitcoin’s solution to the double-spend problem lies in its use of a decentralised and publicly-viewable ledger. The Bitcoin ledger can be thought of as an immutable database that records every transaction in a sequential chain of timestamped batches, called blocks. Each block is strictly chronological and contains transactions that have been verified and accepted by the network’s participants. Each block is connected to the previous one, creating a permanent record that is distributed across thousands of nodes worldwide. By storing and sharing this ledger across a decentralised network, Bitcoin eliminates the need for a central authority to confirm transactions. When a Bitcoin transaction occurs, nodes across the network validate it independently, ensuring that each is only spent once. This shared ledger also makes it extremely difficult for attackers to hack the network or alter past transactions, as any change would require approval from the majority of network participants.

Bitcoin's Proof-of-Work (PoW) mechanism further strengthens its double-spend protection by requiring miners to solve a cryptographic problem to have permission to validate new transactions and create a new block. This process, known as mining, demands computational power and adds a level of difficulty and cost to altering the ledger. Each block added to the ledger must contain a cryptographic link to the previous block, which solidifies the chain’s integrity and prevents tampering.

A node’s role is to store the most current copy of the ledger, which contains a full history of transactions. Nodes keep the miners ‘honest’ since they verify that no double-spend has occurred and, importantly, that all coins have been created in accordance with Bitcoin’s emission schedule. Any Bitcoin user can run a node and verify their ownership of coins without the need to trust a third-party. There is no need for authorities to resolve disputes in Bitcoin because any transaction included in a block is objectively valid. 

How could an attacker control the Bitcoin network?

If an attacker wanted to alter a past transaction to succeed in a double-spend attack, they would need to redo the Proof-of-Work for that block and every subsequent block, competing against the combined computational power of the entire network. This security mechanism ensures that, if someone attempted a double-spend, they would need to control over 50% of the network’s mining power to succeed. This is known as a 51% attack.

In Bitcoin’s early years, when it was possible for single participants to create or mine new blocks using generally-available computing hardware, it was at least theoretically possible to deploy enough computing power to succeed in a 51% attack. Today, the combined computing power of the Proof-of-Work network exceeds 700 ExaHash/s. This means that, in aggregate, mining computers are calculating more than 700 quintillion hashes (cryptographic computations) every second. We have reached a point where the immense cost and coordination required to rewrite the ledger and succeed in a 51% attack make double-spending infeasible in practice.

Confirmations and Reorganisations

Another layer of protection (which is sometimes overlooked) comes from Bitcoin’s transaction confirmation process. When a transaction is first broadcast, it is considered unconfirmed and collected in the ‘mempool’ while it awaits inclusion in a block and validation by miners. Once a transaction is added to a block it is considered ‘confirmed’. Each block added after that is counted as a further confirmation for the transaction. While a transaction is considered official once it has a single confirmation, it is not considered final until further confirmations are added.

For full security, Bitcoin users often wait for multiple confirmations (typically six), as each additional block added to the blockchain further secures the transaction, dramatically reducing the likelihood of a successful double-spend attempt. This confirmation process establishes a window of time during which transactions are finalised.

Why wait for six confirmations?

Bitcoin users wait for further confirmations because it is possible that the most recent block of transactions could be removed from the chain of blocks, if it is no longer part of the longest chain. It is important to note that mining is a competition between very large pools of computing power. Therefore, it is possible that two competing miners find a valid cryptographic solution and separate blocks are added to the chain at almost the same time. If that happens, the chain is essentially split. Miners will continue to attempt to add blocks to each branch in the chain. However, once the next block is mined, the longest chain1 (defined as the chain that has the greatest proof-of-work invested in it) is the one that prevails and the block on the shorter chain is ‘orphaned’ and is invalid. All transactions in the orphaned block are returned to the mempool for inclusion in a later valid block. This process is called a reorganisation or simply, a ‘reorg’.

A bad actor, attempting a double-spend, must gain control of the network for long enough to ‘reorg’ the chain. As we have seen above, gaining overall control requires an enormous amount of computing power, but what if a large mining operation - that hypothetically controls just over a third of all the computing power on the network - attempts a double-spend of coins? 

Let’s step through an example:

Let’s say, for example, the total mining power of the Bitcoin network is 550 ExaHash/s. Rogue Inc, which controls 200 ExaHash/s, makes a large real estate purchase and intends to pay in Bitcoin. However, Rogue also plans to attempt a double-spend of the same coins. The seller tells Rogue that it will wait for six confirmations before handing over title deeds. To pull off a double-spend attack, Rogue must build an alternative branch in the chain in secret, mining a longer chain containing the double-spend transaction. Once the seller has seen six confirmations containing their transaction and handed over the asset, Rogue must then upload all the blocks it mined in a new branch making that the longest chain. How possible is this?

At any moment, the probability that Rogue mines the next block is 200/550 = 0.36. Even if Rogue is the largest mining pool, the probability that honest miners find the next block is 1 - 0.36 = 0.64. Blocks should be mined much faster on the honest chain. But let’s say Rogue gets lucky, mines a block and keeps it secret. It then attempts to mine another on this secret branch. However, the honest chain then mines a block and gets ahead by mining another, before Rogue mines its second block.

Rogue then gives up. Why?

Source: Based on a table in Grokking Bitcoin by Kalle Rosenbaum

Rogue realises it doesn't have enough hash rate to achieve the double spend, despite controlling 36% of the hash rate of the Bitcoin. To be successful it must mine four further blocks to get ahead of the honest chain. Despite its vast computing power and controlling 36% of the network, Rogue’s chances of success are just 0.100113.

6.1.3 Is Mining Centralisation a Threat?

As seen in the table above, mining centralisation can pose a potential threat to Bitcoin’s double-spend protection, as it increases the likelihood of a 51% attack - a scenario in which a single miner or group of miners controls over half of the network’s computational power. If this were to occur, the controlling entity could theoretically alter recent transactions or attempt a double-spend by rewriting the ledger, allowing it to spend the same coins more than once. 

Such a situation undermines the integrity of the Bitcoin network by granting disproportionate influence over transaction validation to a few actors. However, while theoretically possible, executing a 51% attack would still be highly complex and costly, requiring immense computational resources, electricity, and coordination, which would likely outweigh the potential benefits of attempting a double-spend.

There are safeguards that help limit the risks of mining centralisation. Mining pools, for example, enable smaller miners to combine resources and share block rewards, reducing the dominance of any single entity. While this is a useful way for small miners to participate in the network, there is a risk that the entity controlling the pool may misbehave and attempt to attack the network. However, the transparency of Bitcoin’s ledger also means that any concentration of mining power is visible, alerting the community to potential risks and enabling countermeasures. Miners are very aware that any attack on the Bitcoin network risks seriously damaging its value proposition, hence it is very straightforward for small miners to switch to a new pool to avoid their mining power being used in a nefarious manner. While the risk is not zero, the open and distributed nature of Bitcoin’s ecosystem, combined with the high cost of an attack, makes mining centralisation more of a theoretical threat than an imminent one, since maintaining such control for extended periods would be financially unviable for any attacker.

6.1.4 The Wider Impact of Digital Scarcity

Bitcoin has transformed how we think about scarcity in the digital realm. Because digital goods - such as software, music files, e-books, and online content - possess characteristics that set them apart from physical goods, they can be reproduced at negligible cost and shared instantly. Unlike physical items, which are bound by material constraints like production costs and storage limitations, digital goods exist as data that can be duplicated infinitely with no degradation in quality. This means that while physical goods are inherently scarce due to these material constraints, digital goods have been traditionally abundant, lacking any built-in mechanisms to limit supply. 

Importantly, digital goods are non-rivalrous. This means that one person’s consumption of a digital good does not diminish the availability of that good for others. For instance, when a song is downloaded, it can be copied and distributed an unlimited number of times without losing utility. Historically, this abundance poses a challenge for creating value, as the traditional economic model of supply and demand becomes distorted when the supply is, at least theoretically, unlimited. In response to this, digital rights management (DRM) and other artificial scarcity measures have tried to restrict access. However, these mechanisms can be bypassed and outsource trust to centralised authorities. Bitcoin’s innovation lies in how it tackles this problem natively, making it the first digital asset to embed scarcity through decentralised technology without relying on these traditional limitations.

Bitcoin plays a transformative role in establishing digital scarcity by introducing a protocol that enforces a finite supply. A limit of 21 million coins is hardcoded into the protocol and this limit cannot be changed without consensus of the network. ie. all the thousands of participants spread globally that run Bitcoin nodes. In this way, Bitcoin has created an asset that mimics the finite nature of physical commodities, such as gold, while existing entirely in the digital realm. The supply cap is fundamental to Bitcoin’s value proposition and is sustained by a combination of cryptography, consensus mechanisms, and transparent, open-source code. This ensures that all participants on the network adhere to the same rules as well as being driven by the key economic incentive to ensure that the supply of coins is absolutely and provably finite.

By solving the double-spend problem, Bitcoin prevents inflation or duplication of the asset, a challenge that has plagued previous digital money experiments. Within Bitcoin, no single authority controls the supply, making it immune to central manipulation of the kind seen within the fiat monetary system, such as arbitrary currency printing or debasement. This innovation allows Bitcoin to serve as a store of value and a hedge against inflation, enabling it to hold a unique position akin to ‘digital gold’ - a scarce digital resource with verifiable value.

6.1.5 Conclusion

In conclusion, it is becoming more widely understood that Bitcoin’s innovation of digital scarcity has redefined the concept of money. However, it is sometimes overlooked that Bitcoin also transformed the digital landscape by solving the long-standing problem of creating scarcity in an inherently abundant digital world. Bitcoin has effectively introduced a new category of digital asset that mirrors the qualities of physical commodities. 

This breakthrough demonstrates that a decentralised system can establish scarcity, immutability and value independently of any central authority. Furthermore, it may have uses beyond money since it has inspired an entire field of research and development around this technology.

Looking ahead, Bitcoin’s model of digital scarcity is shaping the future of money and value storage. As inflation concerns and questions around the management of fiat currency become more widely recognised, Bitcoin’s fixed supply makes it increasingly attractive as a hedge against traditional financial instability. 

Ultimately, Bitcoin’s discovery of digital scarcity may mark the beginning of a paradigm shift, where digital assets with recognised scarcity and verifiable trust gain recognition as valuable components of the modern economy, establishing a foundation for the future of decentralised finance and digital ownership. This has significant implications for the field of economics - Bitcoin has provided the model for how scarcity and value can exist in a digital form.

Beyond digital scarcity, Bitcoin is also the first example of absolute scarcity, the only liquid commodity (digital or physical) with a set fixed quantity that cannot conceivably be increased. Until the invention of Bitcoin, scarcity was always relative, never absolute.
Saifedean Ammous

Notes

1. The longest chain is accepted by Bitcoin nodes as the most valid version of the ledger as is defined as the chain that took the most effort (or greatest proof-of-work) to build. More information here: https://learnmeabitcoin.com/technical/blockchain/longest-chain/

6.2.0 Introduction 

So I have some Bitcoin. What can I do with it?

Many of us have heard a question like this (perhaps with a hint of snark) from those sceptical of whether Bitcoin will achieve broad-based acceptance as money. It is a common (and correct) observation from within traditional finance and the mainstream media that, so far at least, the technology is not widely accepted, despite more than 15 years of continuous operation.

Does this mean Bitcoin has missed its chance to achieve widespread acceptance? Or, are we still early in the adoption cycle for this technology? Can we examine the take-up of other ground-breaking technologies over history to provide a marker for Bitcoin’s current progress and a signpost for future adoption? Is there a commonly available framework to help with these questions?

6.2.1 The Rogers Innovation Model 

In 1962 sociology professor Everett Rogers suggested a model for the adoption of innovation in his book, Diffusion of Innovations. His ideas rapidly became very popular with academics and business practitioners alike and are still widely cited today.

The Rogers Model proposes five key elements of technology adoption, grouping these into types of consumers adopting a new innovation and mapping them on a bell curve distribution. Rogers’ five categories of adopters are grouped according to social status. These are:

• Innovators (2.5% of users) – These are the creators of the technology themselves and those willing to take the biggest risk because they either have the greatest financial liquidity or are closest to the technology sources or other innovators.
• Early Adopters (13.5% of users) – These are considered the opinion leaders. They react more quickly to technology cycles because they are more socially forward-thinking and/or have greater financial liquidity than later adopters.
• Early Majority (34% of users) – This group is prepared to adopt a technology early, although only once its usefulness is proven. This group may also contain some opinion leaders, although they are generally more cautious than the early adopters.
• Late Majority (34% of users) – This group is more cautious and may adopt a higher degree of scepticism than earlier consumers.
• Laggards (16% of users) – This group is the most averse to change. They may tend to adopt a new technology only by necessity or as a result of older technologies or methods becoming obsolete.

The move from Early Adopters to Early Majority is sometimes described as Crossing the Chasm. This idea was popularised by Geoffrey A. Moore in his eponymously titled book, released in 1991. The move symbolises a transition of consumers from technology enthusiasts and visionaries, to pragmatists who adopt the technology due to a combination of necessity and convenience. Moore argues that crossing the chasm is the most challenging step for a new technology but, once achieved, it heralds a new phase with the technology entering mainstream adoption and with significant momentum behind it.

6.2.2 Internet Adoption History

At this point it is helpful to take a step back and compare Bitcoin’s progress versus that of the internet itself. It is an instructive comparison since, like the internet, the Bitcoin protocol is based on open-source software and its network can be accessed globally by anyone with access to appropriate infrastructure.

The internet as we know it today began with the creation of ARPANET within the US Department of Defense in the 1960s. The technology progressed over the following decade via development of the TCP/IP protocol and the inception of email communication. In 1983, the creation of the Domain Name System (DNS) signaled the transition to the modern internet and the next key development occurred in 1990 with the creation of the World Wide Web, built on the HTTP application layer protocol. The mid-1990s saw the introduction of the first web-browsers and the launch of commercial internet services, such as AOL. At this time, basic web browsing and email (built on the SMTP protocol) was becoming increasingly popular within the technology community. 

In 1997, the dot-com investment boom took hold and e-commerce platforms such as Amazon and eBay became increasingly popular. The first internet search engines also saw widespread adoption at this time. The failure of many early internet-based companies in the early 2000s (referred to as the dot-com crash) dented investment in the sector but also strengthened viable and profitable businesses.

The emergence of broadband internet in the mid-2000s enabled much faster connectivity and allowed for the development of high-speed applications such as internet gaming and movie streaming. At this time, the first social media platforms, such as Facebook and Twitter, attracted millions of new internet users and the subsequent release of the iPhone introduced a range of new mobile applications.

Cloud computing saw widespread adoption in the 2010s, giving rise to software-as-a-service models, streaming services and mobile apps. And, as faster mobile networks (3G, 4G etc) were developed, many regions that were previously underserved by faster connectivity were able to get connected.

6.2.3 Comparing Bitcoin and Internet Protocols

Bitcoin as a Foundation Protocol

Since Bitcoin is a foundational layer protocol for the ‘internet of value’, it is useful to compare it to TCP/IP, the foundational protocol for internet communication. Bitcoin, like TCP/IP, provides the base layer for an ecosystem of applications and new protocols for the storage and transfer of value. 

The Hypertext Transfer Protocol (HTTP) is an application-layer protocol that sits on top of TCP/IP and facilitates the transfer of web pages between servers and browsers. By comparison, Bitcoin’s Lightning Network acts as a payment transfer protocol, enabling near-instant and low-cost transactions that may settle on Bitcoin’s base layer at a later date.

Other application layer solutions such as the Liquid network allow for fast, confidential transactions and the issuance of other tokenised securities. Other protocols that are yet to emerge might allow for improved donations, tipping, pay-per-message or streaming value for media content.

Despite some conceptual similarities between protocols built on Bitcoin and those on the internet before it, some 17 years passed between the introduction of TCP/IP (1974) and HTTP (1991). This contrasts with application layer solutions on Bitcoin (Lightning and Liquid) which were rolled out less than a decade after Bitcoin’s inception - suggesting a much faster cycle of adoption. This is perhaps not surprising since the internet itself paved the way for the proliferation of digital information, which has enabled knowledge of the Bitcoin network to spread the globe relatively quickly.

Bitcoin as an Application Protocol

Alternatively, instead of interpreting Bitcoin as a foundational layer that is analogous to TCP/IP, we might consider it as having a unique position within the existing internet protocol stack, effectively extending it to facilitate value exchange. In this way we could think of Bitcoin as the foundational layer for ‘transfer of value’, just as HTTP is the standard for delivery of web content. Both of these sit on top of TCP/IP as the base layer for data communication.

As bitcoin (the asset) establishes itself as a global treasury reserve asset, Bitcoin (the protocol) could become the universal standard for the settlement of internet-based commerce worldwide. 

However we choose to compare Bitcoin with the development of the modern internet, it is clear we are still very early in Bitcoin’s evolution.

6.2.4 Bitcoin and the Technology Adoption Cycle

At the time Bitcoin’s ‘Genesis Block’ was created in January 2009 (and perhaps for months afterward), the technology was only known to a small number of ‘cypherpunk’ enthusiasts. Rolling forward to today, large Wall Street-based asset managers offer exchange-traded products and custody solutions that are trading hundreds of millions of dollars every day.

Returning to the Rogers model of adoption, at what phase of adoption is Bitcoin currently? In order to answer this question, we should look at Bitcoin’s history and adoption characteristics.

* The application of the phases and dates below are suggestions and analysts will, no doubt, have their own opinions and interpretations! 

Innovators (2009-2015)

Adopters: Early ‘cypherpunks’ or cryptography experts and those interested in the concept of decentralised currency, native to the internet. This phase also included libertarians and nascent technology or internet enthusiasts. Some early investors also got involved with start-ups exploring the potential of Bitcoin or its underlying technology for storage and payments.

Key Events: 

• 2009: Release of the Bitcoin whitepaper by Satoshi Nakamoto.
• 2010: Creation of the ‘Genesis Block’ by the Proof-of-Work algorithm and the first commercial transaction of 10,000 BTC for two pizzas.
• 2012: The first ‘halving’ implementing Bitcoin’s diminishing issuance schedule. 
• 2011-2013: The rise of exchanges such as Mt. Gox and use on the ‘dark web’ (Silk Road).
• 2013-2015: Significant bull runs in price help spread awareness.

Early Adopters (2016-2022)

Adopters: Technology infrastructure experts that built on and made improvements to related products, such as mining equipment and wallets. User-friendly exchanges catered for increased retail adoption. The first institutional investors got involved (Microstrategy, Tesla) and a large asset manager (Fidelity) offered bitcoin custody. However, scepticism remained within traditional finance, not helped by the lack of regulatory clarity in most developed nations and negative coverage from the mainstream media, highlighting Bitcoin’s significant energy usage and perceptions around its role in criminal activity. Nation states began exploring Bitcoin and its underlying technology for future release of digital currencies. 

Key Events: 

• 2016: Significant split among the user base around the direction of Bitcoin’s technology roadmap (The Blocksize Wars).
• 2017: Mainstream media reports on the speculative wave to around $20,000 per BTC.
• 2018: The Lightning network was released to allow for faster payments.
• 2020: Business software company Microstrategy announces a Bitcoin treasury strategy.
• 2021/2022: A bull runs takes BTC to over $60,000.
• 2021: El Salvador becomes the first country to adopt Bitcoin as legal tender.

Early Majority / Crossing the Chasm (2023-2029)

Adopters: Traditional financial institutions offer Bitcoin-related products thanks to improved regulatory clarity. Individuals and corporations make investments for pragmatic or risk management reasons. Nation states continue to explore the use of Bitcoin as part of treasury and monetary policy, with some making large investments. Resistance among traditional finance begins to break down, although significant regulatory and educational hurdles remain for individuals and corporations alike.

Key Events (so far):

• 2023/2024: Microstrategy accelerates BTC buying program and explores innovative corporate finance strategies.
• 2024: Several traditional finance players launch Bitcoin ETFs in the US, which become the fastest growing ETF products in history.
• 2023/2024: a small number of pension funds in the US/UK and Canada make initial investments.
• 2024: Mainstream media reporting becomes more favourable and attacks on Bitcoin begin to wane. 
• Late 2024: a ‘Bitcoin-friendly’ Presidential candidate wins the US election. 

Late Majority / Laggards (2030 onward)?

Adopters: During the Late Majority phase, Bitcoin may become widely accepted as a treasury reserve asset. At this time, traditional finance players may accept that a ‘Bitcoin Strategy’ is essential for survival - the mantra becomes ‘adapt or die’ at this point. 

Fiat money systems become increasingly unstable as capital exits the old system and regulatory clarity improves significantly, with regulators accepting the need to adapt to a new reality. 

Major nation-states adopt Bitcoin as a treasury asset and legal tender and an explosion in cross-border, AI-driven, 24x7 finance moves economies towards Bitcoin, since it’s the only secure, decentralised and trust-minimised currency built on open source protocols that are programmable. 

Bitcoin becomes a key financial asset used in the transition to renewable energy and takes its place as integral to global finance, becoming as ubiquitous as the internet or smartphones.

At this time, Bitcoin is not just seen as a store of value, but its use may become widespread as a medium of exchange and unit of account for goods and services, because fiat currency is generally less desired.

Contradicting the Rogers Model

The above makes a case that Bitcoin is (at the time of writing) crossing the chasm into the Early Adopters phase. However, with Bitcoin, there is an obvious contradiction with the Rogers Model suggestion that a technology must have achieved around 15% penetration of its target market at that point. At the time of writing, BiTBO, suggests that there are just above 100m users of Bitcoin worldwide, representing a percent penetration in the low single figures. Estimates from Triple-A are more confident, suggesting that around 560 million people globally own cryptocurrency. That would imply a penetration of just 7% of the global population. 

Alternatively, we could consider the total market as the 5 billion people globally that have internet access. This figure suggests around 11% have financial exposure to cryptocurrency, closer to the 16% suggested by the Rogers Model. 

Beneath the headline number, we should expect large demographic variations. For instance, there may be a much higher penetration currently among the under 25 cohort and much lower in the over 45 cohort, where adoption could be in the low single figures.

In this way, we could consider the Rogers Model against subsets of distinct target markets with their own characteristics. These could be defined by geography, demographics or wealth profile. We could also consider the market for ‘Store of Value’ assets, where Bitcoin is becoming more established in developed nations, as distinct from the market for ‘Medium of Exchange’ which is gaining more traction in the developing world or in areas controlled by authoritarian regimes. 

6.2.5 Has Bitcoin Crossed the Chasm?

Following their approval by the US Securities and Exchange Commission and subsequent launch in January 2024, the Bitcoin Exchange Traded Funds smashed inflow records during their first year. The combined net asset value held by the ETFs stands at over $100 billion currently. We may look back on this development as a watershed moment for the sector. It may prove to be the ‘Crossing the Chasm’ moment that signals the beginnings of Bitcoin achieving mainstream acceptance, similar to the release of Netscape internet browser in October 1994, which helped popularise access to the nascent ‘World-Wide-Web’.

This highlights the importance of the user-interface for technology’s adoption. Technology enthusiasts dominate the Innovators and Early Adopters phases because those users are comfortable interacting with complex IT systems and not put-off by difficulties accessing a technology’s functionality, via an interface that is either not complete or intuitive. Improvements in the user interface to a technology that permit its properties to be accessed more simply will attract a more diverse set of users. The launch of ETFs could prove to be that improvement for Bitcoin.

6.2.6 Slowly, Then Suddenly: The S-Curve of Adoption

While the Rogers Model is useful in conceptualising the process of technology adoption, its key limitation is that it doesn’t explain the speed or, perhaps more importantly, the acceleration of adoption.

For instance, if we consider we are entering the Early Adopters phase after 15 years of Bitcoin operation, we might be tempted to assume that we continue along the Rogers Model curve at the same rate over the next 15 years. If that were so, Bitcoin would remain in the Early Adopters phase a decade from now.

However, a study of other disruptive technologies shows us that adoption is not linear and the Early Majority and Later Majority Phases may play-out over much shorter periods as adoption accelerates exponentially. Hence the well-known phrase ‘Slowly, the Suddenly’.

Therefore, applying the adoption of a disruptive technology to an S-Curve model is useful.

It is important to note that the gradient of the graph is an approximation and the rate of adoption of each technology cycle will vary. However, the S-Curve does show that the duration of phases are not equal, with the Early Majority and Late Majority phases collectively taking much less time than the Innovators and Early Adopters. In the example above, the Innovators and Early Adopters account for around 40% of overall duration. This compares with around 25% of overall duration for the Early Majority and Late Majority, despite those phases accounting for 80% of market penetration collectively.

There are parallels with the growth of the internet, which had its ‘Browser Moment’ in the mid-1990s as Netscape and Microsoft’s Internet Explorer began to gain traction in the market. Prior to these releases, the internet was dominated by a minority of technology enthusiasts for decades. Within five years after the release of the internet browsers, it felt like everyone was joining ‘The Information Superhighway’ as it was then known. We can see similar patterns of growth in the history of other technologies, such as smartphones, television, radio and the automobile.

6.2.7 Conclusion

From the point of view of someone close to an emerging technology like Bitcoin, it appears that adoption is slow and it's tempting to believe that mainstream adoption is a long way off. This view is often the result of linear-thinking and is fuel to the sceptics that point to Bitcoin as having ‘failed to achieve’ on its early promises.

Even many long-standing Bitcoiners may be thinking too linearly. Some are disappointed institutional adoption was not more widespread during the previous halving cycle (2020-2024). Many are now predicting this will occur during the current cycle (2024-2028), with significant nation state adoption not occurring until the next halving cycle (2028-2032). However, the S-Curve of adoption suggests that we may see these events play-out over a much shorter time period.

It is important not to underestimate the power of exponential numbers in market adoption. When looking at measurements of retail Bitcoin usage, such as the number of wallet addresses or exchange accounts, or the number of corporations adopting a Bitcoin strategy, it is clear that market penetration is low. However, we may be much less early when measured in elapsed time.

Last year’s hugely successful launch of the Bitcoin ETFs opened up the market to a new class of consumer and may be the ‘Browser Moment’ or the point where Bitcoin crossed the chasm. If this is the case, we could see adoption ramp up significantly over a relatively short time frame.