Crypto’s Realistic Path Toward Greater Adoption in 10 Steps
In our article Blockchain Has A Game-Changing Future… So Stay Patient My Crypto Friends, we talked about how many industry participants are incredibly impatient to realize its future. Price is commonly the industry’s obsession, as we all want to be right about our bold predictions and generate return on investment. We also talk commonly about mass adoption, if only others would see what we see.
Realistically, today’s system works for most. Blockchain itself has been proven to be either a subpar option or incrementally better solution that doesn’t justify a data architecture overhaul. Large currencies — the dollar, euro, pound, yen, franc, yuan, and various others are fine. They are liquid, accessible, and easy to transact with and there is no need for replacement.
With that said, the crypto narrative is far from wrong. At some point, this will gain strong adoption. It just won’t happen via a gigantic collapse where we suddenly all say, “Bitcoin is wonderful, let’s just go to that today”. No systemic change or technology introduction has ever happened that way. Rather, it’s typically a slow path that has gradual adoption, many versions, many entry points, many pivots, and many use cases.
This is what we’ll explore. Predicting the future is difficult so it’s highly likely not to play out this way. But we’ll show a viable path, which is not something we often see out of this industry. Here we go…
Stage I. Pockets of mass adoption
1.Adoption in markets that lack solid financial systems. Depending on the source and definition, approximately 30–40% of the world is unbanked. Beyond that, many have bank accounts but they are part of unreliable systems and have significant confidence issues and product gaps. Where is this prominent? The obvious places are Zimbabwe and Venezuela. What about war zones? What about impoverished countries? What about countries like Argentina that have had historic financial issues? These are the countries where crypto is gaining increasing traction. There is nothing for it to replace and thus adoption makes sense. With mobile phone penetration strong in these places, crypto becomes the most reliable and accessible form of banking, payments, and insurance. Watch for this to continue growing below the radar of crypto hotspots.
2. Mainstream investment piques growing interest and price in the developed financial world. While this will lead to very gradual interest, it will have some effect. If you can access crypto in your 401ks and investment accounts via ETFs and mutual funds, it will become more accessible to the common person. While further buy and hold behavior won’t achieve crypto’s lofty aspirations, it makes familiarity grow. But the much more important part of this is that with increasing holdings, there is decreasing risk of government making crypto holdings illegal when it eventually competes as a viable currency.
3. Use cases that make fiat and crypto transacting nearly interchangeable. With the larger exchanges, moving money to/from bank accounts isn’t overly difficult. Transacting is another story. Until spending crypto can be done instantly and interchangeably with fiat markets, it won’t gain mainstream adoption. Most people don’t want to buy crypto and let it sit forever. Likewise, it will never achieve its full potential as long as the market’s majority behave this way. With most exchanges recently introducing debit cards (and some credit cards), this will have a sizable impact. Now holding crypto can be as functional as a bank account. Might they soon accept direct deposit? Might exchanges start expanding into more lending products? Insurance? Payment integrations? All will inevitably be winning products when crypto exchanges are used like bank accounts. This is a huge move and should be treated as such.
4. Fiat digital currencies are issued worldwide and make this publicly viable. Almost every central bank has publicly shown interest in making their currency digital. This one will be interesting. As we see when central banks have undertaken quantitative easing, fiat currencies are already digital. What this newer digital version will look like and how it differs from today is unknown. However, it’s unlikely to materially change much. It will still be centralized and can be manipulated by central banks, which is the primary issue that cryptocurrencies seek to solve. However, it will bring attention to digital currency and should help with perception of their legitimacy.
5. The first DAOs and mainstream smart contract use cases. While bitcoin can be considered the first decentralized autonomous organization, DAOs have been pretty weak in early days. Crypto enthusiasts might have found certain DAOs or Dapps that are interesting to them but few are interesting for mainstream audiences. That will eventually change when crypto grows. Some of the things that might be interesting: social investment pools where famous investors vote on how funds are distributed, communal living pools that enable voting, charitable giving pools, and perhaps even a direct democracy congressional seat. More on such ideas and many more to come at Reverse Tide.
Stage II. Early Widespread Mass Adoption
6. Gaming and virtual reality worlds drive primary use cases. We believe mass adoption will come in an unpredictable way. Virtual reality will be the primary driver of mass adoption. As we said earlier, mass adoption in terms of currency use requires replacement of existing fiat. Replacement does not happen without significant disruption at a systemic level and that may never occur or be allowed to occur. VR is different. Games like Fortnite offer a glimpse into this possibility. Within such gaming worlds, they have their own currency. While fiat is used to exchange for that virtual currency, the gaming worlds lack borders. As VR becomes more prominent, it becomes Fortnite V-Bucks on steroids. VR worlds will be equivalent to a real economy where virtual real estate, virtual assets, virtual services, and other forms of value will change hands. That needs a native currency. Assuming we have dominant VR worlds, there is a great chance that the currency is decentralized. It’s hard to justify centralization, as dealing with the complexities of monetary policy, disputes, financial services, and other issues would comprise a large part of that business model. It’s unlikely that this will be their core competency. Virtual reality adoption is going to be closely tied to crypto’s adoption. There’s a great chance they hit maturity together.
7. Open finance makes programmable money more interesting. In parallel to VR becoming mainstream is the opening up of financial markets. Europe has mandated open finance and it is happening organically in many Asian economies. While neither region has touched programmable money, it is enabling innovative integrations that make programmable money worthwhile. The potential for money to be programmed similar to how data is programmed today is limitless. We’ll have much more thinking on this in the future. However, this is the step that enables the bigger cryptocurrency visions.
8. Governmental collapse in a large market takes crypto mainstream more quickly. With debt levels as substantial as they are, there will be some big government casualties that fall under the weight of their unsustainable obligations. Who it will be is anyone’s guess but at the moment, the European Union looks like the most likely candidate. With various unhappy members and gigantic debt among the periphery, it’s inevitable that Brexit is not the only disruption. Assuming a large member like Italy exits, they will need to quickly adapt. Italy’s government is notoriously weak in efficiency and areas like tax collection. Assuming an immediate exit, going back to the lira isn’t without gigantic challenges. Might they adopt a digital currency? Or might interim adoption focus on a stable and easily accessible cryptocurrency like Bitcoin? We think that has strong likelihood, even if it’s not the official government position. Perhaps it’s not Italy/EU that goes first. Might the most indebted country (Japan) be the one? Could an innovative place like Hong Kong make that move proactively? Who knows. However, when a major collapse occurs (mathematical certainty), crypto is sitting there as an immediately viable option for exchanging value and continuing to transact in our global world.
9. High profile government bans on currencies shift movement toward non-currency adoption. As many of these trends strengthen adoption, use, and competitiveness of cryptocurrency, more investment will flow into it. Bitcoin and any other emerging decentralized cryptocurrencies cannot be controlled. They also become less vulnerable to a coordinated central bank attack as they get larger. Nonetheless, governments won’t just give up on the ability to issue currency and won’t tolerate something competitive. This will lead to more bans like China and India have done. While this is a giant risk to the industry, it also can backfire. If governments force people to use inferior currencies, it only fast tracks their failure by doubling down on a flawed economic instrument. Likewise, its inevitable failure undermines that government’s authority in other areas. Meanwhile, crypto enthusiasts are unlikely to give up. They will take their creative energy into other areas like bolstering infrastructure, payment capabilities, investment capabilities, utility tokens, and more. This only makes the currency competitiveness stronger when these bans fail. This is how it hits mainstream and wins via a free market.
Stage III. Realizing its Full Potential
10. Corporations adopt and force governments to rethink. Governments are rarely leaders in terms of social or economic trends. They are often followers. In the case of crypto, they have been behind the curve since the beginning, which is inhibiting progress because of legal and regulatory uncertainty/fear. Corporations and startups will be a different story. As the market increases for crypto, use cases emerge, and this becomes highly profitable, business will enter and build around it. Once this occurs, it will be unstoppable. While the crypto industry tends to be skeptical of centralized players, it is realistically required to reach mass adoption. Certain aspects should remain decentralized, as it’s a primary feature. However, the products and services built on top will largely be centralized. It enables stronger investment, greater trust, and real customer service.
That’s our path. As we said, it’s highly unlikely it plays out exactly this way. Perhaps it never hits mass adoption. However, we believe this is realistic and logical. Let’s find out!
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