Since its inception in 2009, Bitcoin has made and ruined fortunes, helped sell fentanyl and books about cryptocurrency, withstood literally millions of jokes and just as many predictions of imminent collapse, and – through a process opaque to most people, myself included – arrived at a point where, as of this writing, roughly ten of them could buy you a decent-sized house, assuming your estate agent takes cryptocurrency. What’s next? Will it all come crashing down, or will this one-time punchline survive through the next decade? For this week’s Giz Asks, we reached out to a number of experts for some sense of Bitcoin’s future.
Assistant Professor, Finance, NYU Stern School of Business & NBER
Bitcoin represents a watershed in the development of digital assets: It was the first decentralised currency that managed to prevent cheating (often called the “double spend” problem), encode rules for creating new currency, and incentivise participants (“miners”) to maintain and secure the historical record of transactions. This is a breakthrough in record keeping that is not about any one currency – and there are now thousands of cryptocurrencies. It’s about the underlying decentralised, tamper-resistant record keeping technology of blockchain.
My answer to “What’s going to happen with Bitcoin?” is that I have no idea. Bitcoin faces many challenges to widespread use, including the fact that it can handle just 7 transactions per second, while Visa can handle 10,000. However, if the main miners adopt a protocol update enabling higher volumes, it’s not impossible that Bitcoin will become much more widely used. Today, it is mostly a speculative asset, a tool for money laundering, and a currency of last resort for people in countries with grossly mismanaged currencies, like Venezuela.
The bigger picture is that blockchain will affect all sectors that rely on secure data transacted among many participants, which is basically all sectors. This autumn Walmart’s leafy green suppliers will be required to use the IBM blockchain built for supply chain logistics. This is not an accident, because leafy greens are often the site of food borne illnesses and the cause of expensive recalls. When each package is on the blockchain, managers will be able to source the problem to the farm in seconds rather than weeks, and discard only the packages from the problem farm. I believe that healthcare, financial services, and real estate will also see their data shift to blockchains.
“Bitcoin faces many challenges to widespread use, including the fact that it can handle just 7 transactions per second, while Visa can handle 10,000. However, if the main miners adopt a protocol update enabling higher volumes, it’s not impossible that Bitcoin will become much more widely used.”
Head of Research at Blockchain and Researcher at the London School of Economics
Bitcoin is only just over 10 years old, but it has already attracted tens of millions of users and is growing faster than both the internet and personal computer. Looking ahead, there are a number of powerful drivers behind the growth of bitcoin and other cryptoassets. Today, owners of stablecoins can earn 10% annual interest on their savings through various Open Finance or DeFi (decentralised finance) platforms. This is far superior to the de minimis or even negative rates offered at many legacy banks. The development of decentralised Web 3.0 technologies, and the work to rearchitect the internet around “can’t be evil” blockchain infrastructure, is another longer-term driver of cryptoasset growth.
In the short run, with our current financial, trade, and political instability, the most powerful catalyst for continued cryptoasset adoption is bitcoin’s role as a scarce, trust minimised ‘hard asset’. Indeed, bitcoin’s inelastic and capped total supply arguably make it the hardest asset in history. This quality has been a major factor in the cryptocurrency’s 3x price appreciation this year in the wake of US-China trade disputes, challenges to central bank independence, Brexit and other European political turmoil, and the return of financial instability to Argentina and other emerging markets.
“In the short run, with our current financial, trade, and political instability, the most powerful catalyst for continued cryptoasset adoption is bitcoin’s role as a scarce, trust minimised ‘hard asset’.”
Professor, Law, Cornell Tech, whose research focuses on how laws regulating software affect freedom, wealth, and power
Bitcoin will become Bitcoins, plural. There will be forks and fragmentation. Some of this will come from deep disagreements over technical decisions. Some of it will be drama and politics from inside the community, fuelled by accusations of secret mining cartels, secret identities, and secret conspiracies. And some of it be driven by regulatory pressures from governments around the world. Humans have never been great at consensus, not even with the help of cryptography.
Assistant Professor, Financial Economics, Ecole Polytechnique CREST
In the short and the long, Bitcoin has to face its competitors. Competition comes from within the group of cryptocurrencies and from national currencies. In the long-run, Bitcoin as a product ultimately has to provide an edge over other existing currencies, some feature that makes it unique. Bitcoin advertises itself as a vehicle to conduct anonymous payments without involving a trusted, third party watching. To pay anonymously via Euro, in contrast, you either need to hand over Euro bills face to face. Alternatively, somebody else needs to do so in your place whom you trust that (s)he does not take your money and run. Interestingly, the popularity of cryptocurrencies has prompted some central banks to restrict further the services provided by their product. The abandonment of cash in return for a central bank digital currency implies that anonymous payments with national currency will become impossible altogether, by this creating another void for cryptocurrencies to jump in. Bitcoins future may, therefore, depend on the people’s valuation of privacy, and Bitcoins capacity to reliably provide anonymous payments on a potentially large scale in a fast and cheap way.
“The abandonment of cash in return for a central bank digital currency implies that anonymous payments with national currency will become impossible altogether, by this creating another void for cryptocurrencies to jump in.”
Bitcoin’s core technology is revolutionary, and you can expect both Bitcoin and other blockchain projects to be here for the long run. But whether Bitcoin will remain the dominant cryptocurrency of the future or be dethroned by another project depends largely on how its competitors mature, and how the Bitcoin community, in turn, responds.
Despite its many strengths, Bitcoin has several shortcomings, which other cryptocurrencies seek to address. To name a few: the smart contracts of Ethereum greatly expand the possibilities of building powerful decentralised applications. The private transactions of Zcash offer a massive improvement over the fully public nature of Bitcoin’s transaction history. And the 1000+ transactions-per-second claimed by various other projects dwarf Bitcoin’s capacity (which is estimated at less than 10 transactions per second).
Currently, these competing projects are in relatively early stages and have yet to prove that they can deliver their respective visions at scale without compromising on security. But as time goes on, they will no doubt mature. And when that happens, it will be up to the Bitcoin community to adopt these newer technologies within Bitcoin – something that the community has until now been slow or reluctant to do – in order to maintain Bitcoin’s dominance.
While Bitcoin was quite revolutionary in 2009, in 2019 other projects are pushing forward and making innovative improvements over Bitcoin’s original design. And in order for Bitcoin to retain its dominance in 2029, it’s going to need to be open to incorporating some of these newer innovations as they mature.
“While Bitcoin was quite revolutionary in 2009, in 2019 other projects are pushing forward and making innovative improvements over Bitcoin’s original design.”
Head, Security Research Group, NEC Labs, and the author of Bitcoin and Blockchain Security
It is clearly hard to predict how the future of Bitcoin will look like. Many tried this exercise for fun (and profit), and their attempts were not necessarily successful. However, any such prediction should consider the following aspects: the increased awareness of users, the plans of regulators, the position of mining pools, and the advances of the consensus technology.
As time passes, more users (that are not miners) seem to be more aware of the underlying concepts/issues in Bitcoin. While the hype did not completely disappear, users seem to realise that (1) the costs of making payments in Bitcoin are not so low after all, (2) the Bitcoin engine (Proof of Work) consumes more energy than expected, (3) their transactions are not so private and could be linked to their profile (network-layer and behavioural-based linking), and (4) it is not as decentralised as desired (few mining pools control the computing power).
In parallel, regulators are also becoming increasingly aware that (1) Bitcoin is not as private as they initially feared and they might effectively use it as a “honeypot” where many criminals leave a trace that is not so easy to erase, and (2) it is not impossible to regulate Bitcoin as originally thought.
Mining pools will continue to push Bitcoin as long as it remains a profitable business. As long as this holds, pools might be willing to resist pressure from regulators, might even cooperate with national tax legislation, and might even agree on a framework that regulates their involvement in Bitcoin.
Finally, the technology itself might mature, and we might see the birth of an eventual consensus technology that does not favour pooling and can efficiently replace Proof of Work. This can only add considerable pressure on mining pools but should not considerably affect the position of users/regulators.
All in all, Bitcoin seems to have passed a tough phase already (adoption/resistance to pressure). There does not seem to be any considerable threats for Bitcoin that would change the current situation in the short term. On the long term, if it keeps resisting any drastic changes in spite of all the aforementioned aspects, it runs the risk of being simply overrun by a younger system that appeals better to the appetite of all involved stakeholders.
Featured image: Illustration: Elena Scotti (Photos: Getty Images, Shutterstock)