In the Beginning…
The future is bright for Bitcoin and Cryptocurrency in general! The first decade or so of the technology saw Bitcoin invented as a revolutionary new monetary system, followed years later by a slew of copy cats and later on novel ideas about how to expand the functionality of Cryptocurrency.
The most successful idea to develop outside of Bitcoin was the idea of smart contracts — taking Bitcoin’s concept of programmable money to its natural conclusion in which programmable money is Turing Complete in which anything software can be coded and run on the blockchain. Just as Bitcoin dominates the “money” thesis of cryptocurrency, Ethereum has established itself has the dominant smart contract platform. Together these two blockchains dominate the cryptocurrency space.
Once seen as a gamble for only the most risk-comfortable investors, Bitcoin has established itself in the head space of the world through successive discovery/adoption/price bubbles during its first decade, coming back from every proclamation of defeat from critics to grow larger and larger and fuel an entire industry of business and jobs. The dreams of Bitcoin have been brought down to reality during this time. In the early days Bitcoin was going to replace all national currencies and create a shared single monetary system for all the world, said proponents, but as time has passed such claims have been brought back to reality and now a much more reasonable and realistic thesis of bitcoin is agreed upon: Bitcoin being digital gold and the future reserve currency of the world
Meanwhile, Ethereum has grown from just another altcoin with promise to being the only other preeminent cryptocurrency after Bitcoin. It has installed itself as far and away the main platform for smart contracts, has started to reach Bitcoin’s status of being something that isn’t going to go away, and it seems it has finally found its killer app in Decentralized Finance (after flirting with company-funding through ICOs as its first shot at finding a killer app in 2017, which ended up essentially producing a lot of scams and being mostly being labelled as illegal by financial regulators). Ethereum, like Bitcoin, has had its dreams tamed from the early day proclamations of world domination as the “decentralized internet that will replace the world wide web” to a much more realistic reality of being the center for Decentralized Finance (DeFi) and possibly other use cases yet to be proven.
The Next Decade
Now that crypto, namely Bitcoin and Ethereum, have proven their staying power and carved out realistic use cases during the first decade-plus since Bitcoin’s invention, we can more realistically look forward to what the next decade holds in store for cryptocurrency.
Bitcoin as Digital Gold (and maybe spendable money)
Bitcoin is cementing itself as Digital Gold. This has been especially obvious the past few months as institutions (corporations, investment firms, etc) have finally started buying Bitcoin en masse in response to the massive money printing of national currencies in 2020.
Investment firms are starting to move over some of their funds into Bitcoin to protect against inflation, an overheated stock market that is no longer connected to the economy, a long term low interest environment in which bonds are nearly useless, and simply for the greater long term returns that Bitcoin supplies compared to other investment classes. While corporations are starting to move some of their USD Treasuries into Bitcoin to protect against inflation. These are the entities that own most of the wealth into the world, and they are finally starting to understand that Bitcoin is where they can best grow and protect their wealth. This is a tidal wave of money that just started, and will continue to flow into Bitcoin for years to come.
These institutions see Bitcoin as Digital Gold — basically a more usable (as money), storable, securable, transactable, faster, more efficient, more scarce, and more transparent version of gold for the digital age. Bitcoin is a far better money and better long term store of value than Gold.
The other use case for Bitcoin is as money. Bitcoin’s design as a deflationary currency is at odds with people using it to buy things, because by design it will continue to appreciate in price and so it is better to hold for wealth creation rather than spend. Blockchain is also hampered by the tradeoff between security and capacity — Bitcoin chose extremely high security which means its transaction capacity is far too low to ever be used on even a city scale let alone a global scale. Both of these reasons suggest it will stick to the role of digital gold, store of value, and wealth creation rather than an everyday spendable currency.
Though there is one caveat to the unlikelihood of it being an everyday currency. Centralized companies like Paypal could open up the opportunity for Bitcoin to be widely used as an everyday currency because centralized services like that can just batch tons of bitcoin transactions together, thus greatly lessening the amount of data trying to be processed through Bitcoin’s bottleneck capacity. Furthermore, companies like Paypal could implement the Lightning Network, which exists as a layer on top of Bitcoin, and hardly ever have to process transactions directly to Bitcoin’s blockchain itself. I fully expect banks to eventually do the same as Paypal, and offer Bitcoin storage and spending, no different than your checking account and credit card.
It should be said though, that even if Bitcoin does achieve this sort of centralized usage of itself as everyday money, the way it would really be working is these payment companies and banks would be selling your bitcoin through an exchange service, and sending cash to the receiver. So it does look likely we’ll have a future in which you can spend your Bitcoin as readily as you use a credit card today, but it won’t quite be the way that early Bitcoiners imagined it would be. And Digital Gold will remain the primary concept driving Bitcoin adoption over the next decade.
Expect a price appreciation this decade in the range of $500k to $1 million per Bitcoin this decade.
Ethereum and Decentralized Finance
Ethereum is still less assured of success as compared with Bitcoin. Unlike Bitcoin, there are still other cryptocurrencies that attempt to compete with Ethereum, though without any luck as of yet. Ethereum looks likely to maintain its status as the dominant crypto but I could see one or a small number of other blockchains exist as smaller alternatives to Ethereum. The killer app for Ethereum, and for smart contract platforms in general, will be DeFi. Whether DeFi will take over the financial industry and all contracts in finance will be run as smart contracts I won’t bother trying to predict, but at the very least DeFi will continue to grow much larger, will offer new financial opportunities to the world, and will be what takes Ethereum from something that has potential to being a critical network to the world.
Other use cases for Ethereum may emerge. The time of thinking it will be the next evolution of the Web, in decentralized form, is over. But it could still grow other use cases outside of financial contracts, like providing a universal payment network in video games as well as niche use cases in the “decentralized web” idea.
While there is still some danger of another smart contract crypto replacing Ethereum in the future, it doesn’t look likely. All the so called “Ethereum killers” of the past few years failed to go anywhere after their initial hype faded away. Most altcoins in the cryptocurrency market today are built on Ethereum to provide it with more use cases, and they compete with each other for attention by Ethereum users. This is the sort of network effect that looks unlikely to ever be replaced by something else. Ethereum is here to stay, DeFi is here to stay, and both will grow enormously this decade.
Expect a price appreciation this decade in the range of $20k to $100k per Ether. This range is larger than Bitcoin’s prediction above because it is still very up in the air just how large DeFi and other use cases will grow in the coming years.
National Currencies as Stablecoins
The legacy system of digital money used in the banking sector the past few decades is basically an inefficient duct taped solution to a problem they didn’t know how to solve. That problem was how to secure and trust money sent over the internet which is inherently a distrustful medium (you’re just sending zeroes and ones with no physical proof so how do you know the numbers aren’t fudged?!). The solution of the time was to use a whole series of agencies and companies to verify there is no fraud happening. This is slow, costly, inefficient. The true solution to the problem emerged in 2008 when Satoshi Nakamoto invented Blockchain and Bitcoin.
Cryptocurrency solves the problems in the current digital money system used by the world, so it is inevitable that nations will upgrade their digital monetary networks to exist as cryptocurrencies instead of the duct taped current system. China is already testing their national cryptocurrency. Japan is planning to start testing one in the next few years. Other nations around the world, including the US, are at the very least researching it.
By the end of this decade at least several nations will have switched over to using cryptocurrencies of their own design to replace their current digital monetary networks. These will still be fiat currencies, monetarily the same concept as what is used today, but at the technological level switching to stablecoin cryptocurrencies will provide much more efficient transacting and storing of money. Further off in the future, once all nations have switched to crypto national currencies, the current legacy digital money system will look antiquated and slow, something akin to having to use dial-up modems in the early days of the internet.
As a side effect of national crypto currencies being used, today’s stablecoins in the crypto market will be largely if not entirely abandoned. The only reason stablecoins came in to existence is because they didn’t yet exist in the form of nation backed cryptocurrencies. Within 20 years banks will be fully cryptocurrency companies due to all money existing as cryptocurrency.
The Wrap Up
At this point, the cryptocurrency space is analogous to the tech industry — if the tech industry was just Apple (as Bitcoin), and Facebook in maybe 2007 (as Ethereum) and every other tech company was a struggling startup. You have the clear globally dominant winner in Bitcoin, the popular but still not global level other use case in Ethereum, and then a whole bunch of big ideas with no users, failures, and maybe’s filling up the rest of the crypto space.
I largely expect this to stay the same this decade. Bitcoin will become a part of global finance and grow in size and value more than an order of magnitude. Ethereum will grow to join Bitcoin as a global force and will be the main smart contract platform for the world, with DeFi being its killer app, but other use cases, perhaps monetization in gaming, will continue to grow in Ethereum. Nations will start replacing their outdated legacy monetary networks with central bank issued crypto stablecoins, and therefore banks will essentially just join the crypto industry.
Beyond all that, a few other coins may carve out niche spaces, likely mostly things that exist in Ethereum’s ecosystem and provide it with specific use cases, like how apps exists on your phone. There is also a possible role to be played by other cryptocurrencies that can bridge Bitcoin and Ethereum (and other blockchains) in some way so as to transfer value directly between them in a purely programmatic, secure, and automated way.
The 2010’s were the decade the world learned about Bitcoin and cryptocurrencies, and largely ignored them, thinking they are some sort of scam or bubble. The 2020’s will be the decade that Bitcoin and Ethereum grow too large to ignore and become integrated into society, while nations and banks start upgrading their monetary networks to be cryptocurrency-based, thus for all time validating the technology that Satoshi Nakamoto invented with Bitcoin.