Juan Villaverde is an econometrician and mathematician who has been analyzing cryptocurrencies since 2012. He leads a team of analysts and programmers Weiss ratings, which created Weiss cryptocurrency ratings.
When we cross the threshold in the next decade, what really awaits crypto investors?
Will it Bitcoin many times more valuable by the end of the decade?
Or will he be dead?
Will it be replaced by cryptocurrency with more advanced technology?
If so, will these cryptocurrencies replace most fiat currencies?
What about digital assets controlled by companies like Facebook or JPMorgan Chase ?
Before I can answer these questions about the future, let's first look back at the past ...
When Bitcoin was born ten years ago, the world erupted in a financial crisis.
It was 2008 year.
Major governments have accumulated huge debts.
Lehman Brothers failed, triggering a chain reaction of even greater failures in the banking system.
In response, governments printed an unlimited amount of money.
And Bitcoin was born as Satoshi Nakamoto's indignant response to the mess they created.
Dream: create a peer-to-peer system of electronic money, killing three birds with one stone:
First: Bitcoin will free money from the control of those who created the financial crisis.
The second: this would replace their behind-the-scenes discussions and manipulations with the world's first form of money with an integrated monetary policy.
Third: monetary policy will be stable, predictable and fully transparent – visible to all.
It was a dream. But this was not reality.
Bitcoin will be more like a repository of wealth (such as gold) than a system of electronic money.
Here's what actually happened ...
When the creators of bitcoin looked at paper money, there was little desire to separate the good from the bad. Instead, Bitcoin's specifications were deliberately designed to be the exact antithesis of every critical aspect of current monetary policy.
In particular, these four ways ...
- Fiat's money supply is unlimited and constantly expanding. Thus, the creators engineered Bitcoin's money supply to be strictly limited and unchanging.
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To enforce this limit, they set a strict rule: approximately every four years, the supply of new Bitcoin being created will decline by 50%, until eventually any new Bitcoin creation becomes insignificant. The next cut is expected in May 2020 and should help kickstart what could be the next big step in the current Bitcoin bull market
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Access to paper digital money is dictated by banks. Thus, they designed Bitcoin to be free for anyone and everyone to use as they see fit.
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The fiat money system consists of many gatekeepers and custodians who are regulated by the central government and trusted by the people. In contrast, the Bitcoin Code stipulates that they have NO watchmen, NO guardians, NO regulators, and NO governments.
It was theory. But in practice, these rigorous design decisions have taken a heavy toll on the Bitcoin network over time:
- Since there are few bitcoins, most people usually don't want to spend them. Instead, they simply hoard it in the expectation that its value will always grow over time ...
- Since there is no formal authority, an oligopoly of miners has arisen that controls Mining most new bitcoins...
- And since Bitcoin lacks adequate control to select custodians, certain development teams have taken control of most of the network’s development.
So, given the retrospective relationship, it is quite possible that ...
Bitcoin was an overreaction to the financial crisis and the monetary system that allowed this crisis to arise.
But today, instead of functioning as an effective peer-to-peer system for transferring money, Bitcoin is turning into a store of value, such as gold.
In fact, we do not see a large number of changes, so the "stock of value" is likely to become its only function by the end of the next decade.
Not that there was anything wrong with this, but it leaves the door open for other projects to overcome the failure and take on the mantle of “peer-to-peer electronic money”.
The good news is that in today's world, geopolitical and financial uncertainties are in demand with value stores. Like gold, Bitcoin still has the potential for significant value gains.
Moreover, the fact remains: Bitcoin introduced the first public, open source digital asset the world has ever seen. Bitcoin was the first successful experiment with distributed ledger technology (DLT). And in recent years, this revolutionary technology has evolved rapidly.
So what's next? Looking ahead to the next decade, we can see how ...
The DLT can contribute not only to the evolution of money and the stability of monetary policy ... it can also improve economic productivity, political governance, social cohesion, and more.
DLT can revolutionize democratic elections, transform the world of lending, and disrupt social media. Thus, the potential for cryptocurrency to change the world is great, much more than originally expected ten years ago.
In fact, the question of whether Bitcoin can deliver on its original promise is a moot point. Other cryptocurrencies are suitable for realizing the original dream ... and much more.
Yes, Bitcoin's invention melted the ice ...
This has unleashed teams of developers and thinkers who are passionate about the decentralized digital money system. They fix the flaws in Bitcoin and hone their algorithms to create a currency for the masses.
Regulators and gatekeepers of the traditional financial system are more aware of the powerful benefits that DLT has to offer. And they are already looking for ways to adapt or use new technologies to modernize their existing system.
Depending on which one prevails, there are two possible scenarios for the development of cryptocurrency over the next decade:
Scenario A: Decentralized DLT
Open-ended books and their own cryptocurrencies are beginning to replace the fiat currency system. Instead of saving, spending or investing dollars, euros or yen, people are starting to do it all with cryptocurrencies like bitcoin. Ethereum , Cardano or EOS.
A growing proportion of the population is shifting from a government-issued currency to a public cryptocurrency. They leverage crypto with easy-to-use, practical distributed applications (dapps) powered by free and open source cryptocurrencies.
This activity is not controlled by the government or government agencies. This is governed by the consensus of each community.
Governments initially resist. But in the end they accept a new reality. They realize that they can no longer control the monetary system as they once did. Rather than countering this trend, they are beginning to accept these new forms of money as legal tender.
No currency appears as the only winner. Rather, the chosen one Group cryptocurrencies are becoming dominant thanks to superior technology, the most practical applications and the broadest general acceptance.
Scenario B: Centralized DLT Script
The governments and corporations of the world's largest economies - the United States, the European Union, China and Japan - are leading the way to the adoption of ledger technology.
They understand that digital money is the wave of the future. And they see that the single most efficient form of digital money is based on DLT.
BUT instead of creating open, decentralized systems, they focus on digital money systems that mimic an existing system.
Yes, the technology is similar. But governance is not: new kinds of money remain under the direct control of central banks.
For political and business leaders who crave more power and control, this update gives government and corporate agents direct control over every transaction in the system. They have the power to block accounts with a few clicks.
And as soon as the digitization of various types of property, the decision of the government or company on the confiscation of the assets of target groups can be executed in a matter of seconds.
The technology is still spreading in the ledger. But instead of opening up the network to everyone (a system with no access rights), those who wish to join must first get approval from some type of entity (a system with permissions).
Facebook libra is a good example of the latter. Bitcoin, former.
And instead of relying on regulations, built into code to ensure fairness (a system that cannot be trusted), participants must accept credibility rulers (trusted system).
In a country with strong democratic traditions and judicial protection, this will not be of immediate importance. The government is expected to act in the best interest of the people. He is supposed to use his new digital superpowers strictly against scammers.
But in countries that are already inclined towards autocracy or do not have any independent judicial system in question, the picture is changing from dark to dark: these governments will use a centralized DLT to suppress any remaining personal freedoms.
What about companies that don't have accurate data when it comes to processing your personal data? Think Facebook and Cambridge Analytica here.
How can two completely different scenarios be implemented using the same technology?
Remember, all technologies are neutral. It can be a tool of evolution or a weapon of destruction; a blade for harvest or for war.
DLT is a prime example. This is one of the most revolutionary technologies on the planet. It can help strengthen personal freedom, secure property rights, and create wealth.
Or, it can be used by authoritarian governments and companies to establish a draconian state of observation.
In ten years, what will it be? Much will depend on which scenario prevails: Decentralized DLT or Centralized DLT?
My guess is that, at least for now, we might get an unholy mixture of both. But in the long run, a decentralized DLT will always have two main benefits:
At first The DLT derives most of its strength from voluntary grassroots participation. But a centralized DLT stifles this massive participation. This is at odds with the essence of what DLT does best.
Secondly even if private entities can create their own form of cryptocurrency, which is completely under their control, it will be almost impossible for them to prohibit decentralized DLT networks.
After all, the same dynamic that ultimately makes democracies stronger than dictatorships will also make decentralized DLT stronger than a centralized alternative.