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Bitcoin price prediction is just the start.
2017 has been a breakout year for crypto — with Bitcoin surpassing $10,000 and more than $3.8 billion raised this year in ICOs. We’ve seen truly mind-bending appreciation (like Ethereum’s 50X gains YTD) and witnessed the beginnings of countless new projects. In all the funding frenzy, we’ve also likely sown the seeds of some of the larger calamities that will befall the space.
One thing is certain: this technology has been distilled to practice and open sourced to world. It’s out of (Pandora’s?) box, and there’s no putting it back.
Pundits are quick to argue, given wild asset appreciation, that we are in something that looks like the internet bubble. Even if this is true, the question is whether this is the year 1994 or the very twilight of 1999. So without further ado, let’s make our way to 2022, and see what world we may be inheriting.
The champagnes were popped, balance screenshots commemorated and last-minute Vegas trips planned while Bitcoin price soared past $10,000 this week.
Short of entire system failure, Bitcoin is currently the most battle-tested crypto asset — and we are still early in the exponential curve. Many along the sidelines may call tulip bubble, our society has never had an element so global and so artificially scarce before. [Disclosure: this is not investment advice; author invests in and holds crypto assets.]
Despite this year's appreciation, usage is outpacing Bitcoin's price. Daily transaction volumes (in USD) for Bitcoin are currently around 100X what they were at the beginning of this year, when the price was hovering closer to $1,000 per Bitcoin. This volume growth is while most institutional managers are still sitting on the sidelines, waiting for custodianship technology to mature.
Even the corruption use cases alone still have orders of magnitude more growth for total market capitalization of Bitcoin. If just one country's worth alleged corruption confiscations were moved to Bitcoin to escape seizure, it would nearly 5X the total amount of value trusted to the currency today.
Some in the financial community are already calling for the $40,000 price mark in 2018 alone.
One of the biggest areas facing disruption will be electronically deliverable (and verifiable) services: compute, bandwidth, and similar. Advances in blockchain technology will make it easier for marketplaces to form — and bring a huge amount of supply online. Why have every hosting company compete for user acquisition and retention, set up billing accounts, etc. when you can simply hook your equipment into a standardized service that has payments baked in?
We expect to see one or more major digital commodities traded readily. We may even see miners for hire — who will provide their hash power to secure a particular coin with a contractual bounty — above and beyond the transaction and block rewards the protocols offer natively.
Still uncertain are which protocols, existing or yet to be created, will be the winners. The winners will naturally bring the speculators (both purely financial and node providers) required to make a market. Also in question today is how much these markets will eat into Amazon’s AWS or Google’s cloud businesses — or whether many speculative operators will run their businesses on top of these platforms.
Many are quick to note the challenges of building a liquid and deep market in a decentralized fashion. Current centralized exchanges — while currently minting a huge amount of profit — are eager to see how their business will evolve. Market forces will drive all decentralized order books to share and interconnect — but once the entire market is completely connected, exchanges become completely, well, exchangeable.
A major driver spurring decentralization will likely be regulation — as certain currencies or exchange of currencies becomes more heavily regulated, it will drive behavior either to institutions that have proper compliance (for institutional investors) or underground.
For instance, even if a token offering is deemed an illegal equity offering, there still may exist a market of buyers and speculators. As a historical example, look back to penny stock spamming pump and dump schemes of 10 years ago. Brokerages would block trading of equities suspected of being manipulated in their UI, but buyers would still call their brokers to manually override and ride the pump (either up or down).
There is a lot of underlying infrastructure yet to be built — to help decentralized exchanges discover and share order volume, split economics — as well as the consumer and professional trading infrastructure to make this easier and more approachable.
In 2022, many trades may not actually be settled on chain. Additional layers of abstraction off-chain is currently a very ripe area for R&D. (Consider the Lightning Network andRootstock projects.) These kinds of projects, while still in their infancy, suggest an even braver new world: where assets can be traded instantly without any public trace of their movement. The very first public cross chain swap, a trade between Litecoin and Bitcoin, just happened weeks ago. This is an area to watch closely.
The increase of liquidity — both for employees and supply of risk capital — will drive more and more savvy entrepreneurs to skip registering their company in a local domain. Or cause the creation of value to happen outside of this standard corporate formula.
The “vanilla” terms that investors typically look for — and the importance of stock options for employee compensation — may no longer be the dominant way of organizing for companies. The Delaware C. Corporation itself may fall out of favor for new innovation that takes advantage of blockchain technology.
Furthermore, we will see more and more organizations created without profit as an explicit purpose. Economic activity may well be arranged more around organizations that look like public benefit or mutual corporations — and have for-profit activities take place around the fringes.
We can look to the original in-person financial exchanges as another example — one “seat” (token) was membership with equal rights and equal benefits. Profits were expected from an individual member’s own trading activity, not from ownership of the “house.”
Just as more new projects will organize around a token-economy, look for more businesses to tie their ownership or value to a legal tokenized equity structure.
Easy trading, liquidity, and ability for any exchange to list the assets — these aren’t just benefits for token economies. More regulation will have to take place, but look for private equity investors and other trapped value to seek liquidity without listing on the NYSE or Nasdaq.
The changes in the consumer landscape will be far more macro than simply iterating and updating the platforms of the Web 2.0 and Mobile eras. When folks first deeply consider the crypto space, many will look at a decentralized system as a possible threat to existing players. “Decentralized rider-driver matching could displace Uber!” enthusiasts may note. Critics, often smug with their understanding of the current blockchain tech often quip, “there’s no way the transaction rate will be fast enough for that many rides.”
This won’t be where the changes take place. Uber is a “shaped” marketplace — which is to say, Uber the Delaware-for-profit-corporation works very hard behind the scenes to predict and wed supply and demand. It’s a lot harder for an entirely decentralized protocol to recruit non-tech-savvy drivers in a greater supply in time for Salesforce’s San Francisco Dreamforce event (a shock to the normal SF’s rideshare demand).
If crypto has a large effect on consumer experiences, the most interesting applications will likely be new models that simply weren’t possible before — rather than just eliminating existing middlemen. The early profound impacts will likely be tucked away from most consumers view — helping companies outsource infrastructure, replace many of their financial systems, and eventually outsource labor.
Just as Amazon’s Mechanical Turk has made microtasks near commodity, expect crypto systems for payment and work validation to climb up the value chain in the labor markets. Why worry about foreign exchange rates and local taxes when everything is powered through an arbitrary token of both parties choosing?
Governments are currently sitting by — learning, watching, and waiting. But they don’t yet realize how existential of a thread the crypto ecosystem represents to their business of governance.
This isn’t about regulation of scammy ICOs. This is about small nations being able to collect taxes from their citizens and maintain their operations on any scale like the present.
This also isn’t about crypto being used by bad actors to launder money, avoid taxes or similar.
When everyone has a completely international, unseizable asset system at their disposal — the question becomes not if one pays taxes but where. Why repatriate value to a country that overcharges relative to the value provided?
It has never been easier to to run a massively lucrative multi-national empire from the comfort of home, and only convert a tiny fraction of one’s wealth to local currency. (Maybe save the largest expenditures take place in a lower tax jurisdiction.)
Just as Apple shelters billions in Ireland as payment for IP of products sold around the EU, expect far more corporate innovation in keeping value far away from the tax collectors.
As more and more reserves are moved into crypto assets (the “digital gold” use case), nations will see their own currencies less viable or valued to other nations looking for safe reserves. Just this week, the US Federal Reserve publicly announced that this is an approach they are considering.
Wise nations (likely small) will launch their own crypto fiat currencies — digital currencies on a ledger with the creation and distortion controlled by the government (and presumed parity between the governments own currency).
While this misses the large point of digital currencies — and may be a short-lived “tweener” state — it will create short-term demand for that nation's currency as an easy-to-hold, easy-to-move money that’s backed by a government.
Many countries issue USD-denominated debt, to lock in a lower interest rate than if they issued it in their own currencies — and open their debt to a wider set of investors. Crypto appreciation and volatility will be challenging to account for, but expect to see a crypto yield curve emerge as governments attempt to lock in favorable rates and reach the international investment community.
There will be many bumps along the road. History is rife with crises caused by the borrower’s domestic currency weakening beyond their expectations (or hedges). This time may not end differently, but the scope will be more international (and liquid) than ever before.
As crypto becomes critical infrastructure, replacing much of the existing banking system, governments will seek to regain control.
Crypto weapons could have many forms: mining attacks to reduce transaction throughput and cause chaos. Attempts to break and discredit individual currencies. Backdoors to control mining infrastructure. Secretly launching their own crypto with backdoors built in. Or simple quantum computing to brute force existing monetary supply before maintainers could react.
What’s clear at this moment is just as “cyber space” became a new battle front, so too will battles be waged for control of, and access to, distributed value technologies.
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