What Bitcoin can teach us about the Innovator’s Dilemma

What Bitcoin can teach us about the Innovator’s Dilemma

If you’re like most people, you’ve probably heard about Bitcoin—a virtual and decentralized currency controlled by no single entity.

Chances are that you’ve not really given much thought to how or why Bitcoin came to be, and in all likelihood, you’ve probably not thought much about the implications Bitcoin may have on your own business.

The truth is that Bitcoin matters more than you might think; not for what it is, but for what it represents.


Bitcoin is not legal tender, nor is it money in the technical sense. It is a store of value that can be exchanged for money through various exchanges. In plain English, you can’t touch it, but because it has intrinsic (perceived) value, it’s slightly different than a payment transfer system like PayPal.

For those interested, there are various write-ups on Bitcoin by Gizmodo, Tech Crunch and others.

But Bitcoin is bigger than Bitcoin. As I said before, it’s important not for what it is, but for what it represents, and Bitcoin represents a classic example of the Innovator’s Dilemma.

The Innovator’s Dilemma is a book written by Clayton Christensen.

For those unfamiliar with Christensen’s best-selling book, the concept is as follows:
After a review of several industries, Christensen discovered that there are two types of innovation—sustaining and disruptive. The former makes existing players better, while the latter represents a game-changing technology. The leap from land-lines to mobile or from analogue to digital are prime examples.

By their very nature, disruptive innovations are difficult to forecast, and most often, established players ignore them; at their inception, these disruptive technologies are often perceived to be inferior by the establishment, but they take root in ancillary markets.

As time goes on, the technology behind these innovations becomes better, quality increases, prices drop, markets expand, and the previously mentioned established markets take note.

By this time, according to Christensen, it’s too late for the established players; the disruptive innovator’s enjoy too great a head start, and they end up displacing the older competitors that first ignored or discounted the new upstarts.

There are far better summaries out there and even a cool explainer video for those who are interested.

So how is this all connected to Bitcoin?

I’m not smart enough to predict where currency markets might go, and I’m not going to make a call on the future of Bitcoin, but Christensen’s thesis in the Innovator’s Dilemma is widely accepted, and his data demonstrates how disruptive technologies have dethroned previous incumbents in industries ranging from hard drives to steel mills.

The pattern exemplified by the Innovator’s Dilemma is almost always the same, and it’s the exact pattern that Bitcoin seems to be following.


Here, I am reminded of a famous quote by Mahatma Gandhi:

First they ignore you, then they laugh at you, then they fight you, then you win.


For a while Bitcoin was ignored, and then it was laughed at. The US Department of Treasury has been closing Bitcoin exchanges operating in the US, and the Bitcoin industry seems to feel that Treasury has unfairly picked a fight.

Like I said, I’m not smart enough to predict where the future might go, but Christensen and Ghandi are some pretty smart guys, and it looks like Bitcoin is conforming to their frameworks pretty well.

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