by Thomas Frey | Aug 12, 2021 | Predictions
We’re seeing a lot of predictions about the future of cryptocurrency, but most of them have to do with their price, finding ways to mine them using less energy, and the possibility of taxing and regulating various types of cryptocurrency transactions.
All the while, most people are on the sidelines, still in the dark about the nature of cryptocurrency and the mechanics of blockchain technology that make it possible. They may be assuming they’ll never have to really grasp these concepts because they believe and even hope that cryptocurrencies won’t last, that they’ll fail under the weight of all this confusion and instability. These doubters are sadly mistaken.
A big source of their confusion no doubt is that the terms and concepts of “blockchain” and “cryptocurrency” are often and mistakenly used interchangeably. It’s important to understand that blockchain is the enabler for the formation of secure digital currencies, but it’s also a technology that can be built upon and used to underpin other secure financial transactions like purchases and loans.
What is currency?
According to Economics 101, a currency must serve two functions: to store value and serve as a medium of exchange. With regard to cryptocurrency, that first standard has been proven. Granted, cryptocurrencies can fluctuate dramatically in value based on a number of factors, but you can buy, hold, and sell cryptocurrency. They have a market-based value.
The concept of cryptocurrencies as a medium of exchange has been slower to develop. In the last year, though, we’ve seen a tipping point in that regard. More and more companies and institutions are accepting cryptocurrency for purchases and financial transactions.
That’s due in part to the fact that financial institutions are enabling customers to make crypto-based transactions without necessarily having to master all the details – like maintaining crypto wallets and managing Bitcoin keys. As one astute analyst describes, it’s the difference between BlockFi (financial transactions that are based on blockchain but that are centralized and managed) and DeFi, or decentralized finance (financial services and transactions that are analogous to the currently unregulated and more anonymized cryptofinance we all think of).
The Normalization of Cryptocurrency
I see DeFi and BlockFi as the mainstreaming of cryptocurrency/blockchain-based transactions. Average people don’t have to necessarily understand things like cryptocurrency mining or blockchain ledgers to participate and benefit.
And along with this mainstreaming, we’re on the verge of at least partially transitioning from fiat currency (which is backed by a trust in governing entities) to cryptocurrency (which is backed by the trust in security and trust in blockchain technology).
Just like the credit card industry has settled into a handful of dominant companies (Visa, Master Card, etc.), the market will end up supporting a limited number of cryptocurrencies that reach mainstream status (Bitcoin, Dogecoin, Ethereum, etc.).
Blockchain will be normalized in similar ways. Currently the technology is powering secure financial products like savings accounts and loans outside of the traditional financial world. But traditional institutions like banks and savings & loans will increasingly embrace blockchain as the underpinning of their own processes as well.
Digital Dollar
What about the idea of government-backed, blockchain secured, digitized currencies, known as central bank digital currency or stablecoin? We’ll still see a “crypto dollar,” a digital, blockchain-enabled dollar that’s tied in some way to the U.S. dollar. But given that stablecoins are still subject to a relatively larger amount of central bank control, they’ll ultimately lose out in day-to-day transactions and personal financial services to the non-government-endorsed cryptocurrencies.
The decentralized, anonymized nature of the major cryptocurrencies will prevail.
Here’s how I see the relationship between consumers, blockchain, cryptocurrencies, and financial institutions like banks play out over the next 15 years.
- Many people, especially in the older generation, will remain confused by cryptocurrency. They’ll stick to national currencies, giving traditional banking a bit of staying power. Increasingly, though, these people will miss out on investment opportunities and efficient financial services. It may become harder and harder for them to find retailers that accept their dollar-based credit cards without adding a surcharge.
- Within 3-5 years, most major retailers like Amazon, Walmart, Home Depot, and Costco will begin directly accepting cryptocurrencies as payment. When these “Big Four” and others take that step, there will be no turning back on cryptocurrency.
- Within 3-5 years, mainstream banks will offer a number of cryptocurrency services, including exchanges, savings accounts, and payment accounts. They’ll structure these as much as possible to make the “new” feel like the comfortable “old” currency systems.
- By 2030, major credit cards like Visa and Mastercard will fully support and back multiple crypto currencies. Visa has already taken major steps in this direction.
- By 2030, most banks will be working with both digitized fiat currencies and cryptocurrencies.
- By 2030, blockchain-based credit approval processes will make traditional credit bureaus irrelevant.
- By 2030, most banks will offer the option of cryptocurrency loans for houses, cars, and other purchases. For people trying to buy a home with either a crypto or traditional loan, whichever one comes through the quickest, offering the best deal, will win. By their nature, crypto will prevail in those scenarios.
- By 2030, the majority of home sales will use blockchain technology to secure titles.
- By 2030, the majority of all loans worldwide will use blockchain technology to secure transactions.
- By 2030-2035, 25% of banks in business today will fail or be absorbed. The losers will be the ones that resist crypto-banking and other blockchain-based transactions.
- By 2035, 25% of national central banks around the world will fail. Regional economic blocs will form around some of the surviving stablecoin currencies.
- By 2035, banks will earn the majority of their income from cryptocurrency and blockchain-based services.
- By 2035, 25% of all money lent to individuals will be cryptocurrency loans.
- By 2035, one cryptocurrency (likely Bitcoin) will emerge as the world’s first global currency, supplanting the U.S. Dollar – even in its digital, stablecoin form – as the default currency for international trades and purchases.
- By 2035, most cryptocurrencies will fade away. Less than 10 dominant cryptocurrencies will remain, even though there will be hundreds, if not thousands, of special use.
- Because of the alternative playing field on which cryptocurrencies operate, by 2035, most countries will transition away from a national income-tax to a national sales-tax or some alternate taxation scheme as the primary form of taxation.
Naturally, any number of issues could arise that may derail these predictions, but from my vantage point, the decentralized nature of cryptocurrencies will prevail.
Plan accordingly.
