Weiss Ratings experts shared their views on how Bitcoin has changed since its inception and what cryptocurrencies and blockchain will become in the coming decade. What will happen to Bitcoin by 2028? Will it be many times more expensive or almost die? Or maybe other, more advanced currencies will replace it? And, if this happens, maybe they will start to force out fiat money too?
Before we talk about the future, let’s look at the past. 10 years ago, when Bitcoin appeared, the world was in a financial crisis. It was 2008. The governments of the largest countries have accumulated huge debts. Lehman Brothers collapsed, triggering a chain reaction in the international banking system, and governments responded with virtually unlimited emissions. Thus, Bitcoin was born as a reaction of Satoshi Nakamoto to what is happening.
What did the creator of Bitcoin dream about? He wanted to create a peer-to-peer digital monetary system, killing three birds with one stone:
- Firstly, Bitcoin was designed to take money out of control of those who started the financial crisis;
- Secondly, the monetary policy here is not determined by behind-the-scenes negotiations, but by a built-in mechanism;
- And, as a result, it will be stable, predictable and completely transparent to all.
Bitcoin vs Fiat Money
Alas, the reality has diverged from the dream. Over time, it turned out that Bitcoin is more a way of storing capital than an electronic money system. How did this happen? When the creators of Bitcoin planned their currency, they did not really understand how the money is arranged, what is good and what is bad in them — the Bitcoin specification is designed to be the complete opposite of the usual monetary system.
1. Fiat money supply is unlimited and forever expandable. Bitcoin’s money supply is strictly capped and immutable.
2. Access to fiat digital money is dictated by banks. Bitcoin is free for everyone and anyone to use as they see fit.
3. The fiat money system is made up of multiple gatekeepers and asset custodians that have to be regulated by a central government and trusted by the people. Bitcoin’s code stipulates that there are no gatekeepers, custodians, regulators or governments in the mix. In fact, there’s supposed to be no authority whatsoever.
That was the theory. But in practice, these design choices have taken a heavy toll on the Bitcoin network over time:
1. Since Bitcoin is scarce, most people are usually reluctant to spend it. Instead, they simply hoard it in the expectation that, with time, its value will always go up.
2. Since there is no formal authority, there has emerged an oligopoly of miners who control the minting of most new Bitcoins.
3. And since Bitcoin lacks adequate governance rules to select custodians, certain groups of developers have seized control over most of the network’s development.
Thus, it becomes obvious that Bitcoin was an overreaction to the financial crisis and the monetary system that generated it.
Instead of a peer-to-peer payment system, Bitcoin has turned into a tool for storing capital, something like gold, and, if nothing changes, in 10 years it will probably remain its only function.
Or even worse: it may turn out that the Bitcoin mining will be an oligopoly of large Asian companies, and it will mainly belong to large Western financial institutions.
However, there is some good news: as with gold, Bitcoin still has the potential for significant growth. Moreover, Bitcoin became the first public and open digital asset in the world and the first successful experiment on the use of the blockchain, which has been actively developing in recent years.
So what will happen in 10 years?
The technology of the distributed registry is already used not only to create a new generation of monetary systems — it can increase labor productivity, make a contribution to politics, social interaction of citizens and much more.
Blockchain can change electoral systems, reverse lending and completely change the face of social networks. In general, the potential of cryptocurrency is great — much more than it seemed 10 years ago. Another question is whether Bitcoin will ever justify the initially associated expectations — perhaps the next cryptocurrencies will achieve this and much more.
It is important to understand that the emergence of Bitcoin was the most important milestone:
- Thanks to its emergence, a lot of talented teams today are busy creating decentralized monetary systems that are free from Bitcoin flaws.
- Recently, we are watching another important trend: regulators and other pillars of the traditional financial system see what is happening, understand the advantages of the distributed registry technology and try to adapt and modernize the existing order.
You can imagine two scenarios of cryptocurrency development over the next decade.
Open registry systems with random access will begin to replace the traditional monetary system: instead of saving, spending or investing dollars, euros or yen, people will start doing the same with cryptocurrency, for example, with EOS, Cardano, Ripple, Stellar or Holo.
The share of such people will gradually grow. Additionally, cryptocurrencies will attract users with the convenience associated with the ability to run distributed applications in blockchain networks.
And such activities are not controlled by state or quasi-governmental organizations, but only by community consensus.
At first, the governments will resist, but in time they will reconcile, they will accept the new reality, understanding that they will not be able to control the monetary system in the usual way, and recognize these new forms of money as legal tender.
There will be no single winner in this situation — probably, the dominance will move to a whole group of cryptocurrencies, distinguished by good technology, high-quality applications and wide distribution.
The governments of the world’s largest economies — the United States, the European Union, China and Japan — will decide to start implementing a distributed registry. If this does not happen, smaller countries will be the first, and larger ones will follow. They will understand that digital money has a future and that it is most effective to build a new monetary system based on the blockchain.
But they will not create open decentralized systems — based on the same technology, they will create money controlled by central banks. For a politician who craves power and control over the population, this is a real find, because the government can directly control every transaction in the system, and any account can be frozen with a few mouse clicks.
Moreover, as soon as the property of various kinds will be digitized, it can be confiscated from any part of the population in just a few seconds. And the technology of a distributed registry will continue to be at the basis, only not with an open, but with permissive access, and the government will issue a permit.
In addition, it will no longer be a system where no trusted intermediaries are needed, since all the rules are written in code — in this case, the participants are forced to recognize some kind of sovereign power.
In a country with strong democratic traditions and a good judicial system, this will not be a tragedy, because in such conditions it is assumed that the government is acting in the interests of the people, using its new digital powers only against intruders. But in countries prone to authoritarianism and deprived of justice, the situation will only get worse: the centralized blockchain will be used to destroy any individual freedoms. How can one technology be at the basis of two so different scenarios?
It is important to understand that technology is always neutral: you can make both sword and sickle out of steel. In this sense, the blockchain is a case in point. This is one of the most important technological inventions that can expand the limits of personal freedom, guarantee property rights and become a source of the social wealth – and also, in the hands of an authoritarian ruler, it can become an instrument of total surveillance and control.
What is the nearest future of the blockchain?
A lot of things depend on one of the described scenarios which will win. We assume that, at least, firstly, we will see a bizarre mix of both options, but in the long run, a decentralized distributed registry will always have two important advantages:
- Blockchain benefits the most from voluntary mass user participation, with a centralized blockchain suppressing mass participation;
- Even if governments can create their own fully controlled cryptocurrency, they will not be able to prohibit decentralized blockchain networks.
Thus, the same regularities that make democratic countries stronger than dictatorships will ensure a decentralized blockchain gain compared to a centralized alternative.